The Crisis of USMCA Renegotiation and the Restructuring of the North American Trade Order: Impacts on Korean Firms and Strategic Responses

Executive Summary

Executive Summary

President Trump's June 2025 declaration of refusal to renew the USMCA should not be interpreted as mere negotiation tactics, but rather as a signal of a structural shift wherein the United States is relinquishing its role as guardian of the rules-based multilateral trading system and formalizing a trade order centered on bilateral negotiation power. With a protracted stalemate lasting months or even years (estimated probability of occurrence: approximately 50%) being the most realistic scenario, industries deeply integrated into the North American supply chain, such as automotive and electronics, are likely to face a persistent dual pressure of tariff uncertainty and strengthened rules of origin. Korean firms, in particular, must proactively assess potential risks stemming from their export structures to the U.S. via Mexican production bases, which could become entangled in U.S. provisions aimed at preventing circumvention of trade rules with China. Consequently, Korea must adopt a dual strategy: bolstering its negotiation position within the Korea-U.S. FTA framework early on, while simultaneously enhancing supply chain resilience by diversifying into emerging markets and expanding participation in the CPTPP to dilute dependence on the U.S. Ultimately, this situation serves as a structural turning point, highlighting the limitations of passive responses and urging a transition to proactive trade diplomacy based on negotiation power within the new trade order.

Step 1: Issue Situation Analysis

Analysis Report on the Failure to Renew CUSMA (USMCA) and the Restructuring of the North American Trade Order

1. Background and Progress of the Issue

The USMCA (United States-Mexico-Canada Agreement, CUSMA in Canada) is the successor agreement to the North American Free Trade Agreement (NAFTA), which entered into force in 2020, and forms the institutional bedrock of trade and investment among the three North American countries. The agreement is designed for a formal review process at the six-year mark of its entry into force, in 2026, with 2025 being the crucial period for preparatory negotiations. The agreement's significance is clearly demonstrated by the numbers: over 80% of Mexico's total exports are destined for the United States, and approximately 16% of the U.S.'s total imports come from Mexico, indicating that the integration of production and supply chains among the three North American countries has been deeply entrenched over decades [2].

With the resurgence of the 'America First' trade policy under the Trump administration, the USMCA framework has faced fundamental challenges. Immediately upon taking office, President Trump issued executive orders imposing high tariffs on imports from Canada and Mexico, measures that directly conflicted with the spirit of the agreement. This unilateral tariff pressure not only undermined the foundation of trust for renegotiation but also signaled the U.S.'s clear intention to prioritize bilateral negotiation power over multilateral trade norms.

2. Current Situation (Latest Developments)

On June 10, 2025, President Trump officially announced his refusal to sign the USMCA renewal [6]. This decision introduces significant uncertainty into the North American trade order, directly questioning the legal continuity of the agreement and the stability of trade rules among the three nations. However, this does not signify an immediate termination of the agreement, and projections suggest negotiations are likely to continue for months or even years [6]. While Canadian officials maintain an optimistic outlook for reaching an agreement, they acknowledge that the White House is leveraging trade issues as leverage in conjunction with other matters [7].

Meanwhile, this situation reflects a structural shift in U.S. trade policy beyond mere agreement renewal. U.S. Trade Representative (USTR) Principal Deputy Assistant Secretary for Public Affairs, Greer, explicitly stated that the WTO's core principle of Most Favored Nation (MFN) treatment will not be at the center of the future trade order, implying that actual market access and tariff conditions will be determined through bilateral negotiations [4]. This statement formalizes a transition from multilateral trade norms to an order centered on bilateral negotiation power, with implications expected to extend beyond North America to the global trading system.

The automotive industry is emerging as the most directly affected sector by the failure to renew the agreement. Canada's automotive union, Unifor, is engaged in wage and employment negotiations with Ford amidst the uncertainty of Trump's tariffs [6][9], and the Mexican government has expressed strong dissatisfaction with the reality that its domestically produced vehicles face higher tariffs than those from Korea and Japan [4]. These circumstances are intensifying pressure for the restructuring of the North American automotive supply chain.

3. Key Actors and Their Positions/Interests

United States holds overwhelming negotiation leverage in this process. The Trump administration is utilizing the USMCA renegotiation not merely as a trade negotiation but as a comprehensive tool for pressure, linked to a wide range of issues including immigration, security, and drug trafficking [7]. However, this strategy contains internal contradictions. According to an analysis by the Peterson Institute for International Economics (PIIE), seven out of the nine states with the highest trade exposure to Mexico and Canada are Republican strongholds that supported Trump in the 2024 presidential election [1]. This suggests that dismantling the agreement could inflict a direct blow to Trump's support base, increasing the likelihood that the U.S. will opt for renegotiation to secure favorable terms rather than complete termination.

Canada is in the most vulnerable position in the USMCA renegotiation. Given its absolute structural dependence on trade with the U.S., uncertainty surrounding the agreement directly translates into risks across its entire economy. While the Canadian government maintains an optimistic outlook for a negotiated settlement, it remains vigilant about the U.S. linking trade issues with other matters [7]. Situations where non-trade issues, such as the delay in the Gordie Howe International Bridge opening, are brought to the negotiation table increase Canada's negotiation burden.

Mexico possesses some negotiation power due to its irreplaceable role in the U.S. supply chain, despite its structural vulnerability stemming from over 80% of its exports being dependent on the U.S. market [2]. However, the U.S. suspects Mexico of serving as a hub for circumventing Chinese exports [3][7], which increases the likelihood that Mexico will face pressure regarding strengthened rules of origin and restrictions on Chinese capital investment during negotiations. The Mexican government is raising issues of fairness, pointing out that tariffs imposed on its automobiles are higher than those on Korean and Japanese vehicles [4].

USTR Principal Deputy Assistant Secretary Greer is the key architect of this trade restructuring, having publicly declared the weakening of MFN principles and the shift towards an order centered on bilateral negotiations [4]. By repeatedly expressing concerns that not only Mexico but also Asian countries like Malaysia could become hubs for circumventing Chinese exports [3][7], he suggests that the failure of USMCA renewal is a structural issue linked to the restructuring of trade in the Asia-Pacific region.

4. Summary of Key Issues

The core issues of this situation can be summarized into four main dimensions.

First, the issue of legal continuity of the agreement and stability of trade rules. While Trump's refusal to renew does not signify an immediate termination of the agreement, prolonged negotiations will cause significant uncertainty for corporate investment decisions and supply chain restructuring plans. The longer the legal vacuum period of the agreement, the more inevitable the increase in costs and contraction of investment across the entire North American production network.

Second, the issue of circumvention of Chinese exports and strengthened rules of origin. The U.S. is raising suspicions that Mexico is functioning as a channel for Chinese companies to circumvent exports to the U.S. as a key agenda item for negotiations [3][7]. This signifies that the USMCA renegotiation is occurring not merely as a bilateral trade issue but as an extension of the U.S.-China strategic competition, making strengthened rules of origin and the introduction of investment review clauses likely negotiation points.

Third, the weakening of multilateral trade norms and the shift to a bilateral negotiation order. With USTR Principal Deputy Assistant Secretary Greer formalizing the marginalization of MFN principles [4], the WTO-centric multilateral trading system is losing its practical function, and a new order is emerging where bilateral negotiation power with the U.S. determines the market access conditions for each country. This creates a structurally disadvantageous environment for countries with weaker negotiation power.

Fourth, the strategy of linking trade, security, and non-economic issues. The U.S. is explicitly linking USMCA negotiations with non-trade issues such as immigration control, drug trafficking interdiction, and security cooperation [7]. This comprehensive linkage strategy not only compresses the negotiation space for counterpart countries but also sets a significant precedent in that trade agreements can function as a means to reaffirm geopolitical dependency relationships beyond mere economic agreements.

--- This report is based on publicly available media reports and analyses from research institutions, and its content may change as negotiations progress.

Step 2: In-depth Issue Analysis

In-depth Analysis Report on the Failure to Renew CUSMA (USMCA) and the Restructuring of the North American Trade Order

1. Analysis of the Fundamental Causes of the Issue

The fundamental cause of the USMCA renewal failure lies in the Trump administration's trade philosophy's fundamental shift from rule-based multilateralism to negotiation-power-based bilateralism. The Trump administration views free trade agreements not as institutional frameworks for mutual benefit, but as structural constraints that force the U.S. to accept unfavorable terms. From this perspective, the USMCA is seen as a channel for Mexico and Canada to free-ride on the U.S. market, and its refusal to renew is a strategic choice to maximize U.S. advantage at the negotiation table. USTR Principal Deputy Assistant Secretary Greer's public declaration that the WTO's Most Favored Nation (MFN) principle will not be central to the future trade order is interpreted as a formalization of this philosophical shift [4]. In other words, this renewal failure is not merely a negotiation tactic but a structural expression of the U.S.'s intention to step down from its role as the guardian of the rules-based trading system.

A second fundamental cause is the political-economic perception that as North American supply chain integration deepens, the U.S. manufacturing base hollows out. The structure where over 80% of Mexico's total exports are directed to the U.S. and approximately 16% of the U.S.'s total imports come from Mexico [2] demonstrates deep integration of the North American production network, but it is perceived by manufacturing workers in the Rust Belt, a key Trump support base, as evidence of job outflow. The Mexican government's dissatisfaction with the reality that Mexican vehicles face higher tariffs than Korean and Japanese vehicles in the automotive sector [4] paradoxically indicates that the U.S. side views Mexico as a preferential beneficiary, and this gap in perception is acting as a key factor hindering a negotiated settlement.

A third cause is the U.S.'s structural distrust regarding the issue of circumventing Chinese exports. USTR Principal Deputy Assistant Secretary Greer has repeatedly expressed concerns that Mexico and Malaysia, among others, could become hubs for circumventing Chinese exports [3][7]. This stems from the perception that the preferential tariff system provided by the USMCA could be utilized as a channel for Chinese capital to establish production bases in Mexico and gain indirect access to the U.S. market. Therefore, the refusal to renew is not just a bilateral trade issue but is also linked to security-related motives to strengthen supply chain control within the context of U.S.-China strategic competition.

2. Structural Context

Political Structure

The USMCA renewal issue is inextricably linked to the landscape of U.S. domestic politics. According to an analysis by the Peterson Institute for International Economics (PIIE), seven out of the nine states with the highest trade exposure to Mexico and Canada were states that supported Trump in the 2024 presidential election [1]. This implies that the decision to refuse renewal contains a self-contradictory nature, running counter to the interests of the support base. However, the Trump administration is employing a strategy to turn this contradiction into negotiation leverage. That is, it is using the potential economic damage to supporting states as a means of pressure to extract greater concessions from Canada and Mexico. The acknowledgment by a Canadian official that "the White House is leveraging trade issues as leverage in conjunction with other matters" [7] clearly illustrates the reality of this strategy.

Furthermore, considering the cracks in the Atlantic alliance and the accelerating discussions on European strategic autonomy [9], it can be confirmed that the U.S.'s approach to alliance management is shifting towards a transactional nature in both security and economic domains. This suggests that the refusal to renew the USMCA is not an isolated incident but a phenomenon reflecting a structural change in overall U.S. foreign policy.

Economic Structure

The production integration among the three North American countries has been formed over decades and possesses structural characteristics that are difficult to dismantle or restructure in a short period. Over 80% of Mexico's exports are concentrated in the U.S. market [2], and in key industries such as automobiles, semiconductors, and agricultural products, the supply chains of the three countries effectively form a single integrated ecosystem. This structure acts as a downward pressure on negotiations, as the U.S. itself would incur significant costs if the agreement were to be dissolved. However, the Trump administration appears to be calculating that by using this interdependence as a bargaining chip, it can secure more favorable terms in the long run, even if it means enduring short-term shocks.

The automotive industry is the sector where the fragility of this economic structure is most acutely revealed. The situation where Canada's automotive union, Unifor, is conducting wage and employment negotiations with Ford amidst the uncertainty of Trump's tariffs [6] demonstrates that the instability of the agreement is already having ripple effects on the real economy and labor market. The fact that the Trump administration is seeking new legal means to pursue its tariff policy even after Supreme Court rulings [4] suggests that this uncertainty will not be resolved in the short term.

Security Structure

The renewal issue of USMCA is situated at the intersection of economic security and traditional security. The United States designating Mexico as a potential hub for circumventing exports to China[3][7] demonstrates that trade agreements are being redefined not merely as economic issues but as matters of supply chain security and technological control. This increases the likelihood that the USMCA renegotiation will not be limited to adjustments in tariff rates or rules of origin, but will also incorporate security agendas such as strengthened investment screening to block Chinese capital's access to the North American market and the introduction of provisions to protect key industries. Coupled with growing uncertainty about the U.S. role in the Asian security order[12], allies face pressure to re-evaluate their dependence on the United States in both economic and security aspects.

3. Comparison of Historical Precedents and Similar Cases

Transition from NAFTA to USMCA (2017-2020)

The most direct historical precedent is the process by which the Trump administration's first term abandoned NAFTA and concluded the USMCA. At that time, Trump also used the threat of unilateral withdrawal, calling NAFTA "the worst trade deal in history," as leverage, and ultimately extracted concessions from Canada and Mexico, including stricter rules of origin for automobiles, higher labor standards, and the introduction of sunset clauses. The current refusal to renew can be seen as a repetition of this pattern. However, the crucial difference between the first and second terms lies in the starting point of the negotiations. While the first term aimed to conclude a new agreement replacing the existing NAFTA framework, the second term involves negating the USMCA itself, which was already created under U.S. leadership, thus placing the negotiating will and trust base of allies in a more vulnerable state.

U.S. Withdrawal from TPP and the Birth of CPTPP (2017)

A second similar case is the Trump administration's withdrawal from the Trans-Pacific Partnership (TPP) during its first term. After the United States unilaterally withdrew from the TPP in 2017, the remaining 11 countries launched the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) without the U.S. The fact that the Philippines, UAE, and Indonesia are now beginning negotiations to join the CPTPP[5] shows that the U.S. departure from the multilateral trade system is paradoxically strengthening alternative structures of the U.S.-led order. If the failure to renew the USMCA is prolonged, Canada and Mexico may face increased incentives to reduce their dependence on the U.S. and diversify their relationships with other trading partners, potentially leading to a structural realignment similar to the post-TPP withdrawal period.

India-U.S. Trade Negotiation Case

The case of India-U.S. trade negotiations provides a contemporary reference point for comparison with the current USMCA situation. India is rushing to conclude a provisional trade agreement with the United States ahead of the temporary tariff suspension deadline on July 24[8][10], discussing market access expansion, digital trade, supply chain resilience, and the reduction of non-tariff barriers as key agenda items. This case demonstrates that the U.S. approach of extracting individual concessions through bilateral negotiations, rather than multilateral norms, is already in operation across Asia. The refusal to renew the USMCA can also be understood in this context, as the U.S. is analyzed to believe it is more advantageous to maintain negotiating leverage than to adhere to a formal agreement framework.

Vietnam's Response Strategy

Vietnam's signing of an agreement with the United States for real-time customs data exchange[11] is noteworthy as a strategic move to preemptively address U.S. concerns about circumvention exports. This is an attempt to alleviate tariff pressure by accommodating the U.S. demand for supply chain transparency, suggesting that Mexico may need to take similar measures to dispel suspicions of being a hub for circumventing exports from China within the USMCA context. This case illustrates that the adaptation strategies of smaller nations to U.S. trade pressure are converging towards a combination of providing transparency and security cooperation.

4. Key Variables in Issue Development

First, the direction of U.S. domestic politics. The fact that seven states supporting Trump have a high dependence on trade with Mexico and Canada[1] implies that economic dissatisfaction within their support base may accumulate as negotiations drag on. The timing when tangible damages in the agricultural, automotive, and energy sectors become visible is likely to act as political pressure for a negotiated settlement. Therefore, the intensity of opposition from U.S. industries and Republican lawmakers becomes a key variable determining the speed of negotiations.

Second, the method of handling the issue of circumventing exports to China. How Mexico regulates the establishment of production bases by Chinese capital and how it proves this to the United States will be the core issues of the negotiation. Vietnam's customs data exchange agreement[11] could serve as a model, and Mexico's willingness to accept similar transparency measures will be an important condition for reaching an agreement[3][7].

Third, the legal sustainability of tariff policy after the Supreme Court ruling. The Trump administration's intention to maintain tariff barriers through new legal means even after the Supreme Court ruling[4] suggests that external pressure on negotiations will continue. However, if the courts impose further restrictions, the U.S. negotiating leverage could weaken, altering the terms of settlement.

Fourth, the speed at which Canada and Mexico pursue alternative strategies. The speed at which these two countries pursue deepening the CPTPP, strengthening cooperation with the EU, and diversifying markets in Asia to reduce their dependence on the U.S. could act as a variable limiting the U.S.'s negotiating advantage. As the world moves towards a multipolar order[13], the expansion of alternative options for Canada and Mexico will relatively weaken U.S. leverage.

Fifth, the speed of realignment in the global trade order. The trend of ASEAN preparing for the post-WTO era[3], Africa seeking a transition to a multipolar order[13], and India rushing into bilateral agreements with the U.S.[8][10] shows that the failure to renew the USMCA is not merely a regional North American issue but a facet of the global trade order's realignment. The speed and direction of this realignment will influence the context and outcome of the USMCA negotiations.