The deal’s 2026 statutory review is an opportunity to correct problems with its rules of origin and foreign direct investment.
The U.S. goods trade deficit with Mexico has widened since Washington joined it (and Canada) in a trade pact in 2019. That’s a good reason to reopen and improve the USMCA during its statutory review next summer, says the United Steelworkers union (USW).
“A trade deficit tells a story of policy, or lack of policy, amongst the trading partners, and one stubborn issue that remains is the relative stagnation of wages in Mexico compared to the U.S.,” said USW Legislative Director Roy Houseman at a hearing held by the United States Trade Representative (USTR) as it prepares a report for Congress ahead of the 2026 review. “Other panelists here will highlight additional aspects of wage suppression and remedies but, put simply, artificially low wage rates in Mexico incentivizes outsourcing of U.S. jobs and undermines the purchasing power of 130 million people in Mexico.”
Houseman is not wrong. Since the USMCA was implemented the Mexico goods trade deficit has indeed ballooned, which is evidence of a couple of things. It suggests Mexico City is not living up to its labor obligations under the USMCA, which is the finding of a recent report from an independent panel created by Congress. It also suggests – as the Alliance for American Manufacturing (AAM) laid out in its own comments to USTR last month – that the deal’s rules of origin (ROO) and rules governing foreign direct investment (FDI) by “foreign entities of concern” are way too permissive and must be tightened. What was once being imported from China appears to now be coming from Mexico, and that’s not an accident.
As the U.S. goods trade deficit with Mexico has swollen, the gargantuan U.S. goods trade deficit with China has slightly narrowed. And yet, between 2011 and 2021, Chinese FDI in Mexico rose from $38 million to $386 million, making China the fastest-growing source of foreign investment in Mexico. China’s greenfield FDI capital expenditures there increased from $267 million in 2018 to $5.6 billion in 2023, with $3.5 billion directed to automotive manufacturing alone.
Those numbers strongly suggest that genuine production is not being onshored from China to North America. Rather, content and parts are being rerouted through Mexico as Chinese firms try to claim USMCA preferences to access the U.S. market. In 2024 AAM published a report on the threat this backdoor poses to the U.S. auto industry.
That’s why it’s so important to get our ducks in a row ahead of the 2026 USMCA review, argued Houseman.
“The union believes that the opportunity to open USMCA and renegotiate the agreement is a sensible and necessary approach,” he testified. “Our free trade agreements, which have a dramatic impact on the lives of hundreds of millions, should … be continuously improved. Over $1.5 trillion spent in trilateral trade every year demands it.”
AAM said in its filed comments that the U.S. should withhold support for extending the USMCA for its outlined 16-year term if the FDI and ROO loopholes aren’t addressed. You can read our more detailed comments here and the USW’s testimony here.