The USMCA Provides Trump Options in Mexico

President-elect Donald Trump is no stranger to renegotiating trade deals with Mexico. During his first presidential campaign in 2016, he consistently panned NAFTA, the landmark free-trade agreement of the 1990’s, as “the single worst trade deal ever approved in this country.” Trump argued that the deindustrialization of the American rust belt was the direct result of the trade deal, and part of the platform he was elected on included withdrawing from NAFTA, something he successfully did just before the end of his term in 2020. NAFTA was replaced with a new trade agreement, the United States–Mexico–Canada Agreement (USMCA). But with his reelection this year, Trump has the unique opportunity to renegotiate his own trade deal.

To say that Trump ended NAFTA is overstating the case. The president did terminate the agreement, but its replacement, the USMCA, largely retains NAFTA’s original provisions, establishing a free trade zone (with limits for a few protected industries) in North America. The biggest differences in the agreements are new protections for intellectual property rights (especially digital intellectual property, a category that did not exist at the time of NAFTA’s negotiation) and stricter requirements for automobiles to be considered “manufactured” within the common market. But the most important factor for Trump is one that went relatively overlooked at the time: The agreement includes a provision for the constituent countries to meet and renegotiate the terms every six years.

At the time of signing, this would have meant little for Trump: he was at the end of his first term, and if reelected his second term would be over before the terms would be discussed again. But, with the unanticipated development of Trump joining Grover Cleveland as the second-ever president to be elected non-consecutively, he has effectively placed himself back in the driver’s seat of North American trade negotiations.

So far the economic effects of the transition from NAFTA to the USMCA have been relatively minor. Nevertheless, to focus on purely the components of the trade deal itself is to misunderstand the value that Trump placed on the renegotiation in the first place. A major component of Trump’s renegotiation of NAFTA was using the leverage of potential economic sanctions against Mexico to extract other concessions from the government, particularly over immigration—in Trumpian terms, building the wall and making Mexico pay for it.

In its most literal sense, of course, this did not occur—Mexico did not provide budgetary contributions for American border security construction. But, during the trade negotiations, Trump successfully pressured Mexico into implementing immigration-control measures that proved to be vital to the sharp reduction in illegal immigration during his term. Backed by a threat to impose an escalating system of tariffs on Mexican goods, Trump convinced the Mexican government to agree to two programs: the expansion of the Remain in Mexico policy to the whole length of the southern border, and the deployment of Mexican forces to stop illegal immigrants bound for the U.S. before they reach the border. In effect, Trump used the menace of economic protectionism to turn Mexico into a proxy force for American border enforcement.

The effect of these policies was dramatic: in June of 2019, when the agreement was made, nearly 150,000 illegal immigrants were apprehended by the U.S. Customs and Border Patrol. By the end of the year, border enforcement actions had dropped to just 40,000, less than a third of that. The effort was probably one of the most successful initiatives of Trump’s first term as president.

The renegotiation of the USMCA in Trump’s second term provides yet another opportunity for Trump to bring economic leverage to bear on the Mexican government—and one that will be sorely needed. Illegal immigration has soared since Trump left office in 2020. Border encounters during the first Trump administration hovered just below 50,000 per month; since Biden has taken office, they have soared to well over 150,000 per month. Much of this is due to the end of the agreements Trump made with the Mexican government: Biden terminated the Remain in Mexico policy almost immediately upon taking office, and the Mexican government—which was never enthusiastic about the policy in the first place—has declared its intention not to implement it again. Mexico also stopped turning away migrant caravans bound for the U.S. after Trump left office. 

Trump is going to need all the tools possible to get Mexico back on board with his agenda, much of which is more or less dependent on the country’s cooperation. Stopping migrants in Mexico is much more effective than turning them back at the border—Mexico’s territorial extent provides a much greater chance for interception and expulsion than the thin line of the American border. Additionally, Trump has indicated his intention to deploy American military and intelligence forces against cartels in Mexico, something the Mexican government and people will be loath to concede—Mexicans remember with deep bitterness American interventions in the 19th and 20th centuries.

The potential end of Mexican free trade with America is perhaps the most potent weapon Trump has in his arsenal. The U.S. is the largest market for Mexican exports, buying over $475 billion of Mexican goods in 2023—almost a full 80 percent of the entire Mexican export market. Mexico has also benefited greatly from American attempts to retool their supply chains away from China in the aftermath of the pandemic, and became the largest trade partner of the U.S. last year. Lack of trade barriers also makes the country an attractive location for American investment, particularly for companies looking to nearshore their manufacturing.

But the situation also presents the president-elect himself with difficult choices to be made. Trump’s campaign this election placed a strong emphasis on his dedication to economic protectionism. He has pondered placing broad tariffs on all imports into the U.S., even of replacing the income tax with revenue-generating tariffs. Yet the maintenance of free trade with Mexico will likely be the price for cooperation from the Mexican government. Trump will have to decide to what extent he values cracking down on illegal immigration, organized crime and drug trafficking versus implementing a protectionist economic policy. During his first term, he prioritized the former, keeping the principal provisions of NAFTA intact within the new USMCA. But he has the chance to make a new deal this term, if he has the interest and skill to do so.