Mexico's USMCA review 2026 — Shannon O'Neil on the negotiation map
Shannon K. O'Neil, vice president of studies at the Council on Foreign Relations and author of *The Globalization Myth* (Yale, 2022), has tracked North American economic integration since the original NAFTA period. The 2026 USMCA review is the first stress test of the agreement Donald Trump renegotiated in his first term.
Key fact
US-Mexico bilateral trade (2023): $798B, surpassing US-China trade for the second consecutive year (US Census Bureau; O'Neil 2024 CFR brief).
Shannon K. O'Neil, vice president of studies and senior fellow for Latin America Studies at the Council on Foreign Relations, is the most consistent US-based analyst of Mexican economy and US-Mexico bilateral relations of the past two decades. Her 2022 book *The Globalization Myth: Why Regions Matter* argues that regional production networks — particularly North America and East Asia — explain global trade patterns better than the more diffuse 'globalization' framing.
The United States-Mexico-Canada Agreement (USMCA), in force since July 1, 2020, included a sunset clause that distinguishes it structurally from its NAFTA predecessor. Article 34.7 requires the three parties to conduct a joint review at the six-year mark — July 1, 2026. If all three parties confirm, the agreement extends for another sixteen years, with subsequent reviews every six years. If any party does not confirm, the agreement begins a ten-year sunset countdown while the parties attempt renegotiation.
O'Neil's analytical move is to read the review clause as the structural feature of the agreement most likely to be operationally activated by the 2024-2028 political cycle. Three pressure points will shape the review. First, automotive rules-of-origin and electric-vehicle eligibility under the US Inflation Reduction Act — where Mexican and Canadian manufacturers have argued the IRA breaches the USMCA spirit. Second, Mexican energy-sector policies under successive presidents Andrés Manuel López Obrador and his successor, which Washington and Ottawa contend favor state-owned Pemex and CFE over USMCA-protected private investors. Third, migration and border-enforcement linkages, which a second Trump administration has signaled it will tie to economic concessions.
The data backdrop matters for the politics. Mexico passed China as the top US trading partner in 2023 and held the position in 2024, with bilateral trade approaching $800 billion. Mexican-final-assembly automotive content has grown sharply since 2018 as supply chains have rebalanced. Nearshoring investment commitments by US, European, and Asian manufacturers reached record levels in 2023-2024. The underlying economic integration is deeper than the political rhetoric on either side suggests.
O'Neil's prediction for the 2026 review is conditional. If the political climate permits a constructive renewal, the agreement extends with marginal adjustments on automotive rules of origin and dispute-settlement procedures. If the political climate forces a confrontational review, the ten-year sunset begins and the regional supply chains adjust to a less-secure trading regime. The 2025 political signaling between Washington, Mexico City, and Ottawa is what determines which path the review takes.
Shannon O'Neil, vice president of studies and Nelson and David Rockefeller senior fellow for Latin America Studies at the Council on Foreign Relations, has written across *Two Nations Indivisible: Mexico, the United States, and the Road Ahead* (Oxford, 2013) and the more recent *The Globalization Myth: Why Regions Matter* (Yale, 2022). Her running analysis of the US-Mexico-Canada Agreement and its scheduled 2026 joint review has become the most-watched reference for the institutional renegotiation timetable.
The USMCA, signed in November 2018 and ratified across the three countries by July 2020, replaced the 1994 NAFTA framework with a substantively different set of provisions. The key updates included tightened rules of origin for automotive production (requiring higher North American content shares and minimum wage components), expanded labour-and-environmental enforcement mechanisms, modernised digital-trade provisions, dispute-settlement reforms, and the addition of the sunset-and-review architecture that schedules the 2026 joint review. The review process, under Article 34.7 of the agreement, requires the three parties to formally decide whether to extend the agreement for another sixteen years from the review date.
The 2026 review is structurally consequential because the default outcome under the sunset architecture is termination at the sixteen-year horizon unless all three parties affirm extension. The review therefore creates a formal moment at which any of the three parties can withhold consent to extension as leverage for renegotiation of specific provisions. The political conditions in each capital at the review window determine what specific renegotiation agenda each party brings.
The US-side agenda, as it has developed through the post-2024 transition and into the 2025 preparatory period, is expected to focus on several tracks. First, automotive rules-of-origin tightening to address what US trade-policy officials have framed as Chinese content infiltration of the North American supply chain (particularly through Mexican-assembled vehicles using Chinese components). Second, labour-enforcement intensification, building on the Rapid Response Labor Mechanism that has been used against specific Mexican facilities since 2020. Third, energy-sector dispute resolution, building on the 2022 US-Canada consultation request against Mexican policies favouring the state oil and electricity companies. Fourth, the broader question of whether USMCA's structure should be adjusted to permit additional country accession (for example by particular Asian or European partners), an agenda that has been advanced in some US policy circles as a vehicle for friend-shoring.
The Mexican-side agenda is shaped by the post-2024 Sheinbaum administration's interest in maintaining the USMCA's market-access provisions while resisting the specific renegotiations that would constrain the economic-development model Mexico has pursued. The Mexican agriculture-and-corn dispute settlement in 2024, which the United States won under the USMCA panel mechanism, illustrated the operational reach of the agreement's dispute provisions and the political costs Mexico has been willing to pay rather than concede on domestic policy choices. The 2026 review will test whether the Mexican side calculates that maintaining the agreement's core market-access provisions is worth the cost of specific additional commitments on the US-side agenda items.
The Canadian-side agenda is the third leg of the negotiation and is structurally complicated by Canada's trade exposure to both US and Mexican economies in different ways. The Canadian preference, by all available policy-community signalling, is to preserve the USMCA architecture with minimum disruption; the Canadian capacity to influence US-side ambition is limited; the Canadian role in shaping the specific terms of any extension or renegotiation is therefore more reactive than proactive. The 2025 Carney government's general trade-policy posture favours stability in the North American market and diversification toward Asian and European trade relationships as a hedge against US-policy unpredictability.
O'Neil's framework's reading is that the 2026 review will most likely produce extension of the agreement with modifications in the specific provisions that have generated friction (automotive rules of origin, labour enforcement, energy disputes), rather than termination or wholesale renegotiation. The economic and political costs of termination, on all three sides, exceed the political costs of compromise on the specific provisions in dispute. Whether that prediction holds depends on political conditions in each capital at the review window — and particularly on the US administration's willingness to accept Mexican-side concessions that fall short of the maximalist negotiating positions some US trade-policy advocates have advanced.
The forward-looking implication of this analysis is that the structural drivers identified above will continue to shape policy trajectories across the second half of the 2020s. The doctrinal frameworks, institutional arrangements, and bilateral relationships described in the preceding sections are durable across multiple electoral cycles in the participating capitals, and any disruption of them would require shifts in underlying interests rather than rhetorical adjustment. The analytical reading developed here is not a prediction of a specific outcome at a specific date. It is a framework for reading the next round of developments — the summits, the policy announcements, the data releases, the bilateral and multilateral diplomatic moves — against the structural constraints the framework identifies. Each subsequent development can be read as confirming or refining the framework's predictions, and the cumulative pattern across multiple developments is what produces the analytical clarity that policy work most often needs. The headline-driven coverage of any specific event will continue to misread the broader trajectory; the data-driven, frame-anchored reading developed here is the antidote to that misreading and is the analytical discipline the policy community most needs across the remainder of the decade. The arithmetic of the underlying interests does not change quickly. The political and rhetorical surface above the arithmetic does change, sometimes quickly, and reading the two together is what produces analytical durability and policy-relevant insight that survives the news cycle.
The institutional research that underwrites this reading — the policy papers, the journal articles, the open-source datasets, and the running track records of the named scholars — represents a body of work substantially larger than any single explainer can summarise. Readers seeking deeper engagement should consult the primary sources cited in the preceding sections directly. The reading developed here aims to be a useful entry point rather than a substitute for that primary literature, and the framing has been chosen to surface the analytical moves that carry the most explanatory weight across the largest set of subsequent developments. A reader returning to this material in a year, in three years, or in five years should still find the framework usable, because the structural relationships it describes change more slowly than the headline developments they organise. The decade ahead will produce many specific events that this analysis cannot anticipate. The framework, if it is the right one, will help organise those events as they arrive.