The United States-Mexico-Canada Agreement (USMCA) is navigating a politically charged landscape as Mexico contends with increasing trade tensions and regulatory challenges. Originally established in 1994 as NAFTA, the agreement aimed to eliminate tariffs and integrate North America’s economies, particularly in manufacturing and agriculture. Over the years, however, criticism surrounding the agreement spurred a renegotiation process, resulting in the USMCA, which attempts to modernize the trade framework amidst complex geopolitical dynamics.

Current Trade Tensions and Water Management Issues

The onset of Donald Trump’s second administration in January 2025 marked a shift towards a more protectionist trade policy, with tariffs placed on Mexican exports. Although some products were later granted tariff exemptions under USMCA provisions, Trump suggested the potential for either the expiration of the treaty or its renegotiation due to perceived advantages gained by Canada and Mexico.

Diplomatic relations between Mexico and the United States have further deteriorated, especially following Trump’s accusations that Mexico was not meeting its obligations under the 1944 Water Treaty, which governs the distribution of water resources. The U.S. government claims Mexico failed to deliver the agreed-upon water volumes, while Mexico contends that prolonged droughts hindered its ability to comply. To avoid trade sanctions, an agreement was reached requiring Mexico to fulfill its water obligations before 2030. This agreement necessitated changes in Mexico’s water management strategy, culminating in the adoption of a new National Water Law in December 2025.

This law establishes a framework for comprehensive state responsibility in water management, with specific responsibilities assigned to Conagua, Mexico’s water authority, and prevents the transfer of water concessions between private entities. The reform is seen as a means to ensure compliance with the Water Treaty and to strengthen Mexico’s position in future negotiations.

The USMCA remains critical for Mexico’s economic stability, with over 80% of its exports directed to the U.S. and Canada. The agreement fosters foreign direct investment, especially in key sectors such as automotive manufacturing and advanced technologies. Uncertainty surrounding potential renegotiations poses a risk to this economic framework, which has underpinned Mexico’s export competitiveness and job creation.

Anticipating the USMCA Review

As the review of USMCA approaches, the outcomes could have significant implications for Mexico’s economic landscape. A successful extension without major modifications would maintain preferential access to U.S. and Canadian markets, promoting stability and investor confidence. Conversely, failure to reach an agreement could lead to delayed investment decisions and increased operating costs, reviving diplomatic tensions. 

Worse, should one country withdraw from the agreement, it could trigger systematic disruption across all member states. Immediate consequences would include the imposition of World Trade Organization tariffs, escalating export costs and jeopardizing supply chains. Current forecasts indicate that 2026 will be pivotal for Mexico; while a successful renegotiation could ensure growth, unresolved issues could reshape the country’s economic future adversely.

Why It Matters

The status of the USMCA is central to Mexico’s economic viability and its relationships with neighboring countries. Monitoring these developments is critical for businesses and policymakers, as they will need to navigate an evolving landscape shaped by trade agreements, tariffs, and regulatory frameworks.