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DID TRUMP REALLY FIX NAFTA?  
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Adam S. Hersh
December 11, 2025
Economic Policy Institute
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_ Trump replaced NAFTA with the United States-Mexico-Canada Agreement
in 2020. But his USMCA has so far failed to make trade work for North
American workers. _

The North American trade balance deteriorated sharply under Trump
trade policies, Economic Policy Institute

 

KEY FINDINGS

* The U.S. trade deficit with Mexico and Canada has widened sharply
since Trump signed USMCA; it reached a projected $263 billion in
2025, up from $125 billion in 2020. 
* Although the agreement sought to revitalize U.S. manufacturing
industries, manufacturers across the country shed or furloughed more
than 576,000 jobs since he signed the agreement.
* In the critical automotive industry that Trump said he wanted to
reshore, imports of motor vehicles and parts from Mexico nearly
doubled following USMCA, rising to $274 billion in 2024, up from $196
billion in 2019: Light-duty vehicles imports from Mexico rose 36%
while imports of medium- and heavy-duty vehicles increased a whopping
256%.
* Though some USMCA labor reforms are worth preserving and
expanding, the overall wage gap in manufacturing still fuels corporate
offshoring to Mexico’s low-wage, low-standard environment. Mexican
manufacturing wages are just $2.76 an hour—a mere 10% of U.S.
manufacturing wages.
* USMCA left a gaping loophole for Chinese manufacturers to exploit
duty-free access to North American markets without reciprocal market
access for U.S. manufacturers. Chinese firms expanded their direct
investment footprint in Mexico by as much as 288% through 2023.

WHY THIS MATTERS

USMCA is now up for its 2026 sunset review, giving all three countries
a chance to decide its future. Trump’s version has already failed
workers across North America and urgently needs serious reform. Simply
walking away would not fix USMCA’s fatal flaws, but would instead
saddle workers with another 10 years of deindustrialization under
unfair trade rules.

HOW TO FIX IT

Instead of destabilizing North American trade, Trump and his
negotiators should use this opportunity to cement a model that
protects workers while preserving the mutual benefits of trade. This
requires stronger regional and labor value content rules, closing
loopholes to unfairly traded foreign content, and expanding
cooperation to enforce strong rules across all three countries.

FULL REPORT

In his 2016 campaign, then-candidate Trump pledged to fix the North
American Free Trade Agreement (NAFTA), which he called “the worst
trade deal ever made” (Wagner and Ries 2018). On July 1, 2020,
President Trump enacted the deal he negotiated to replace NAFTA: the
U.S.-Mexico-Canada Agreement (USMCA) (USTR 2025a). This report
examines how trade and manufacturing performed under Trump’s trade
policies and what a path to a North American economy that puts workers
first should look like.

At a core level, Trump’s USMCA did not fix the intense downward
pressure on jobs and wages that has plagued U.S. manufacturing
economies in the generation since NAFTA. USMCA made important advances
over NAFTA but still failed to deliver on its promise to address
systemic labor exploitation in Mexico—perpetuating instead the
incentives for a race to the bottom in labor and pollution standards
for producing goods that can compete duty free in North American
markets.

USMCA actually expanded the back door to U.S. markets for unfairly
traded products by allowing an expanded Chinese manufacturing
footprint to penetrate the Mexican economy through imports and inbound
foreign investment, allowing China to benefit from USMCA’s market
access provisions. Essentially, USMCA became a way for
Chinese-produced goods to masquerade as goods that should receive the
preferential USMCA tariff rates. Additionally, USMCA expanded on
NAFTA-granted corporate protections by advancing monopolistic property
rights across the continental economy for the world’s largest
digital economy and pharmaceutical industry interests. In short, there
is no evidence that things have improved for U.S. workers and small
businesses or their Mexican and Canadian counterparts under Trump’s
trade rules for North America—and there is substantial evidence that
things have gotten worse:

* After Trump signed USMCA on July 1, 2020, the U.S. trade deficit
with Mexico and Canada widened sharply, increasing to a projected $263
billion in 2025, up from $125 billion in 2020 and $85 billion in 2017.
* The USMCA trade deficit is largely a problem of oil imports from
Canada and manufacturing imports from Mexico. Excluding petroleum, the
U.S. actually ran a trade _surplus_ of $55 billion with Canada in
2024, or $3 billion more than in 2020. With Mexico, imbalanced trade
is about manufacturing, not oil: The non-petroleum trade deficit with
Mexico accelerated after USMCA took effect, reaching $156 billion in
2024 (or $55 billion more than in 2020).
* Although Trump’s USMCA sought to revitalize U.S. manufacturing
industries, manufacturers across the country shed or furloughed more
than 576,000 jobs since he signed the agreement, according to WARN Act
notifications filed by employers.
* In the critical automotive industry that Trump claimed to want to
reshore, imports of motor vehicles and parts from Mexico nearly
doubled following USMCA, rising to $274 billion in 2024, up from $196
billion in 2019. Imports of light-duty vehicles from Mexico increased
by 36% while imports of medium- and heavy-duty vehicles increased a
whopping 256%.
* Despite novel labor reforms in USMCA—some worth preserving and
expanding—the overall wage gap in manufacturing continues to drive
corporate decisions to exploit Mexico’s low-wage, low-standard labor
environment. At just $2.76 per hour, Mexican workers’ wages today
are lower than they were in 2002—a mere 10% of U.S. and 12% of
Canadian manufacturing wages. U.S. manufacturers expanded investment
in Mexico by $155.4 billion through 2023, including $56 billion in
transportation equipment production.
* USMCA left a gaping loophole for Chinese manufacturers to exploit
duty-free access to North American markets without offering reciprocal
market access for U.S. manufacturers. First to evade Trump’s 2018
tariffs and later to take advantage of the USMCA loophole, Chinese
firms expanded their direct investment footprint in Mexico by as much
as 288% through 2023 while expanding the export of a range of
industrial products to Mexico by 160–900%.

Now USMCA faces a sunset review, requiring all three countries to
agree by July 1, 2026, to extend the agreement another 16 years.1
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But we don’t need to wait another 10 years to see if President
Trump’s USMCA gambit will help workers and the U.S. economy—the
data in this report show it has failed working people in all three
countries and is in need of dramatic reform and renegotiation. One
constituency—leaders from organized labor—has called for the
sunset review to identify concrete revisions to address the problems
of offshoring and content leakage while raising wages and standards
for workers in Mexico (Shuler 2025). While the United States Trade
Representative (USTR) is required to report to Congress and the
president on its assessment of USMCA, the administration is duty-bound
to remedy any flaws it finds in the agreement.

It’s unclear how the president might approach this statutory
opportunity to reconfigure a key pillar of U.S. and global trade
relations. Trump will be tempted to cast aside the trade agreement
based on the rule of law in favor of his new improvisational and
perpetual crisis approach to trade negotiations. As we’ve learned
from Trump’s track record and thousands of years of trade history, a
deal is not always a deal, artful as it may appear. It would seem
Trump is not optimizing for general welfare, or even the benefit,
generally, of the manufacturing sector he claimed to want to revive
during his campaign, but rather to maximize and centralize trade
rulemaking authority in the Oval Office.

Trump’s best play to achieve this is to continue delivering credible
threats to disrupt the existing trade regime. So long as such threats
exist, Trump can keep demanding ad hoc changes to trade policy. This
dynamic and the poisonous uncertainty it creates for the economy is
precisely why countries negotiate complex trade
agreements—committing a shared set of economic rules to the
parties’ agreed-upon gains, closer social and economic integration,
and a predictable means to resolve conflicts when they inevitably
arise. And that is what will be lost if Trump overturns a rules-based
agreement and installs his extractive approach to trade relations as
the United States’ new norm.

Of course, a rules-based trading system can reduce uncertainty but
still contain extreme flaws. This was clearly the case with the
pre-Trump status quo in the rules of the game governing globalization,
most clearly typified by NAFTA; the rules were clear and binding, but
they privileged powerful corporate interests over rank-and-file
workers in all three North American economies.

The sunsetting of USMCA means the U.S., Canada, and Mexico now have a
chance to put workers and their communities first, instead of
representing the big business interests of the status quo. If the
Trump administration fails to seize this opportunity and instead
simply seeks to centralize its control over all trade policy, this
will impose further severe economic disruption and hardship across
North American manufacturing industries, cede technological and
economic leadership to U.S. competitors, forsake the potential gains
from deeper regional economic integration that most other parts of the
world have embraced, and squander the recent post-COVID resurgence in
U.S. manufacturing investments.

Uncertainty about the future of North American trade rules will cast a
dark cloud over investments and jobs that bet on the idea of a
regionally integrated North American economy. In 2024, that trade
amounted to $1.6 trillion for the United States—nearly one-third of
all U.S. trade—but reached far wider through direct supply chain
linkages and indirect spending from the incomes earned producing,
servicing, and moving goods around North America. Given the credible
threat of disruption that President Trump brings to trade relations,
one could anticipate that dark cloud to also remain a perpetual
feature of U.S. and global macroeconomic expectations.

What’s worse, walking away will not end USMCA’s raw deal. Unless
an amendment to the 2020 agreement is reached, the U.S. economy would
still be bound by Trump’s failing USMCA for the next 10 years of the
sunset. At any time before the end in 2036, a future president would
be free to reopen the deal, potentially cementing even worse terms.
Since USMCA’s rules will remain in force, it is imperative to win a
trade model that creates a true worker-centered approach. Just as
NAFTA became a model for subsequent agreements extending the lopsided,
corporate-driven trade regime to scores of other U.S. trading partners
(Bivens and Hersh 2025), a renegotiated USMCA could similarly be a
model for protecting workers and communities from the excesses of
trade. Without such changes, Trump’s USMCA will continue doing
active economic damage and making it difficult, politically, to
cultivate broader diplomatic relations important to the United States.

Hard bargaining on USMCA is the best chance to cement a model that
embraces the mutual benefits of trade while protecting workers and
their communities at the core of the economy. To do so, the president
and his trade negotiators should:

* ARTICULATE THE ADMINISTRATION’S GOALS FOR RENEGOTIATING USMCA TO
CONGRESS AND THE PUBLIC. Establishing well-defined objectives will
make clear to U.S. trading partners, businesses, workers, and
communities just what President Trump is trying to achieve in
reframing the economic relationship with the U.S.’ two largest
trading partners. At minimum, this means adhering to the public and
congressional consultations and disclosures required by statute. Such
an approach would help build consensus and political support to press
for necessary legislative changes in Congress. If instead Trump
pursues the kind of informal, ill-defined, and unenforceable
“deals” announced thus far, it will cast a cloud of uncertainty
over U.S. international economic relations—and ensuing trade and
investment activities—through July 2026 and beyond.
* STRENGTHEN AND EXPAND REGIONAL VALUE CONTENT (RVC) AND LABOR VALUE
CONTENT (LVC) RULES. USMCA established rules for the share of content
that must be produced in North America and at a given minimum wage to
qualify for preferential market access or otherwise face higher tariff
rates. However, these rules only applied to select components in
automotive manufacturing industries and the 2023 “rolling-up”
decision (USTR 2023) undercut those provisions. The 2026 sunset review
should make clear the higher content methodologies pertaining to these
calculations, while expanding coverage of RVC rules to other
industries such as aerospace, white goods (i.e., large electrical
goods like washing machines and refrigerators), semiconductors,
electric vehicles (EVs), critical minerals and materials,
shipbuilding, and food manufacturing. The review should also reset the
LVC minimum wage rate to a meaningful level, index it to inflation,
and open a process to enact a coordinated, North American-wide minimum
wage regime for targeted manufacturing industries.
* CREATE BINDING CONSTRAINTS FOR CONTENT RULES AND REGIONAL TRADE
PREFERENCES. Since 2018, Chinese manufacturers in industries receiving
widespread state support have taken advantage of USMCA loopholes to
evade U.S. trade enforcement measures by rapidly expanding
manufacturing footprints in Mexico, among other locales. When Most
Favored Nation (MFN) rates in industries like passenger vehicles are a
mere 2.5% compared with the USMCA rate of zero, it provides little
incentive for manufacturers to adhere to USMCA’s rules for
qualifying content. In effect, diverted trade flows from China can
gain preferential access to North American markets whereas North
American companies do not enjoy the same reciprocal offer to compete
fairly in China. To close this gaping leak of content, a revised USMCA
must raise the regional content thresholds (“rules or origin” or
ROOs) and realign MFN tariff rates so that they provide a credible
deterrent to nonconforming USMCA content in USMCA supply chains.
Section 232 automotive tariffs are a step in this direction but they
must be rationalized with a strategic approach to target key supply
chain segments and account for near-term supply constraints. For the
North American primary metals industries, a renegotiated USMCA must
strengthen the “melted and poured” standard for traded steel and
adopt a “smelt and cast” standard for traded aluminum as
qualifying content.
* STRENGTHEN THE LABOR RAPID RESPONSE MECHANISM (RRM). USMCA’s
RRM—negotiated by congressional Democrats to strengthen Trump’s
initial draft deal—has helped improve wages and working conditions
in a number of specific workplaces—covering roughly 60,000 workers.
This is no doubt a meaningful outcome, but with more than 10 million
manufacturing workers in the Mexican economy, it must be scaled to
meaningfully move the needle on worker rights and wages. This should
include sectoral enforcement in order to hold employers to collective
accountability and to support sectoral bargaining. Because of its too
narrow scope, the RRM has neither led to economy-wide improvements for
Mexican workers nor eliminated the incentive for U.S. companies to
offshore or use the threat of offshoring production to Mexico to
undermine wages and working conditions in their U.S. factories. The
RRM should apply equally in all three countries and expand the scope
of violations to include all rights at work. Congress should restore
and expand funding for Labor and State Departments and USAID labor
rights experts needed to help monitor and enforce rising standards.
* ESTABLISH A RAPID RESPONSE MECHANISM FOR POLLUTION. Workers and
their communities across all three countries deserve the same
protections from industrial- and trade-related air and water
pollution. A renegotiated USMCA should include a pollution RRM, in
parallel to an expanded and strengthened labor RRM, enforceable across
all three countries.
* ELIMINATE EXPLOITATIVE IPR PROTECTIONS; BIG TECH. A renegotiated
USMCA must not compromise worker interests by prioritizing the agendas
of Big Tech and Big Pharma. This means removing special “digital
trade” rights and privileges that currently allow companies to
preempt local laws addressing negative externalities from digital
service provision and curbing expanded intellectual property rights
with TRIPS-plus protections that benefit pharmaceutical companies with
tighter monopolies and more limited competition.
* INSTITUTIONALIZE TRILATERAL NORTH AMERICAN COLLABORATION. Beyond
President Trump’s efforts to tame opioid trafficking, the United
States needs to collaborate more widely and deeply with the Canadian
and Mexican for USMCA to succeed. President Trump must also
institutionalize working trilateral relationships to cooperate on
Committee on Foreign Investment in the United States-style foreign
investment screening, economic security planning, forced labor import
ban enforcement, tracing supply chains to enforce ROOs, and
agricultural and environmental inspections, among a growing list of
other fronts.

Such wins in the USMCA sunset negotiations would achieve something
meaningful for U.S. workers and manufacturing communities. But fixing
USMCA is not only a job for the Trump administration. In addition to
these negotiating objectives for the administration, Congress needs
to:

* HOLD THE ADMINISTRATION ACCOUNTABLE TO THE LAW ON USMCA. Both
USMCA and its U.S. implementing legislation specify a clear timetable
for the administration to seek public comments, deliver a report to
Congress on findings and recommendations, and articulate negotiating
targets. Congress must ensure the administration follows this process
specified in law to allow a more open process—relative to the
president’s other bilateral deals—and hold the administration
accountable to achieving specific outcomes.
* REAUTHORIZE AND EXPAND TRADE ADJUSTMENT ASSISTANCE (TAA). The
program intended to compensate trade-impacted workers and deliver
countercyclical demand stimuli to impacted communities lapsed in 2022
(DOL 2022). In addition to retooling USMCA from an agreement that
benefits multinational corporations and expanding Chinese
manufacturing, the president should push Congress to reauthorize and
expand TAA to protect incomes for displaced workers and the regional
economies that rely on them.
* CHECK EXECUTIVE BRANCH OVERREACH ON TARIFF-MAKING POWERS,
including by passing SJ Res 37,2
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to terminate the national emergency that was declared to justify
tariffs on imports from Canada under the International Emergency
Economic Powers Act (IEEPA). When the executive overreaches, Congress
should exercise its responsibility by responding with such a targeted
approach to exercising its authority and that leverages its unique
role in mediating interest groups.

HOW DID USMCA CHANGE—AND NOT CHANGE—NAFTA?

President Trump negotiated USMCA from August 16, 2017, to September
30, 2018, and signed the revised agreement on November 30, 2018. His
version of USMCA preserved “most of NAFTA’s market opening
measures” (Villarreal 2024). Under the new rules, U.S. trade
deficits in USMCA worsened sharply. The widening USMCA trade gap
belied the widely different experiences with each partner: stable
non-petroleum trade surpluses with Canada and rising goods trade
deficits with Mexico, fueled in part by a rapid expansion of Chinese
manufacturing trade and capital investment in Mexico after Trump’s
2018 tariffs. Despite tighter rules of origin that specify the share
of an item that must be produced within North America to qualify for
tariff-free access, the rules proved to be rather porous and
insufficient to stem the tide of industrial migration to Mexico.

The underlying driver for these trends is the overwhelming
incentive—that NAFTA created and USMCA continues—for large
corporations to skirt fair wages, labor, and environmental regulations
through offshoring and imports when wages in Mexico for comparable
work are a mere 10% of U.S. wages and air and water pollution
standards go unenforced. How did USMCA change the equation?

TRADE DEFICITS WORSENED UNDER TRUMP’S USMCA

The United States’ North American trade deficit had been relatively
stable over the preceding business cycle expansion starting in 2009
but increased sharply in 2018—coinciding with countervailing tariffs
levied on U.S. imports from China and imports of steel and aluminum
products more broadly—and increased even more dramatically after
2020 under Trump’s USMCA. We project that trade deficit will widen
to $263 billion in 2025, up from $125 billion in 2020 when USMCA
started, and $85 billion in 2017 before Trump’s overall first term
trade strategy took effect—a more than 200% increase (FIGURE A).
This was not how “fixing” NAFTA was supposed to work.

 

 

The trade deficit is the difference between how much U.S. businesses
sell to another country (exports) and how much U.S. businesses and
consumers buy from that country (imports). A deficit with one country
may be offset by a trade surplus with another country, or it may be
“financed” by capital inflows, most often the purchase of U.S.
financial assets by foreign investors. Overall, at the national level,
these international payments for goods and finance balance out, so
when the United States experiences a goods trade deficit, necessarily
there are mirrored surpluses in the sale of financial assets abroad
where foreign investors in essence “lend” to the U.S. economy.3
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This macroeconomic balance is what determines the overall level of the
U.S. trade balance, which is linked mechanically to the U.S. dollar
exchange rate that sets the relative competitiveness of U.S. tradable
industries and to dollar interest rates. Trade policy measures
tailored to particular trading partners (those of both the United
States and other countries) may shift around the relative shares of
that total trade balance among trading partner countries, but it
doesn’t change the overall U.S. balance of trade.4
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Under chronic trade deficits that are driven by fundamental
macroeconomic imbalances, across-the-board tariffs have very little
purchase to enforce more balanced trade: They tend to push down both
imports and exports instead (Hersh and Bivens 2025).

The president’s portrayal of trade deficits as a result of unequal
exchange gets most of the details wrong. It is true these
microeconomic relationships embody all sorts of exploitation, but a
trade deficit is not a tribute paid to a trading partner country. It
is the result of millions of business transactions, the lion’s share
of which occur between companies within a related multinational
corporate family. If one wanted to investigate exploitation in North
American trading relations, it might make more sense to start with the
trading corporations than with, say, Canada.

 

In fact, breaking down the USMCA trade deficit on a country-to-country
basis reveals that the U.S. North American deficit is largely a
problem of oil imports from Canada and manufacturing imports from
Mexico (FIGURE B). Excluding petroleum, the U.S. actually ran a trade
surplus with Canada of $55 billion in 2024, up just $3 billion since
2020. The non-petroleum trade deficit with Mexico accelerated after
USMCA took effect, rising by $55 billion to $156 billion in 2024, but
it is clear energy is not dominant in U.S.-Mexico trade—manufactures
and agricultural products are. This begs the question: Why has the
trade deficit with Mexico grown so rapidly under Trump’s USMCA?

USMCA REBOOTED NAFTA’S DRAIN ON MANUFACTURING INDUSTRIES

Although Trump sought to revitalize U.S. manufacturing industries with
his fix for NAFTA, manufacturers furloughed or shed more than 576,000
U.S. jobs in the time since he signed the agreement, according to WARN
Act notifications filed by employers.5
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The surge of imports from Mexico was boosted as North American
multinationals reshored or “friendshored” manufacturing to Mexico
as part of supply chain reallocation strategies for reducing exposure
to Chinese dominance in certain sectors and as Chinese enterprises
expanded in Mexico to dodge the impacts of U.S. tariffs.

Underlying all this are wages and working conditions, both of which
are much lower in Mexico than they are in the U.S. or Canada; and
China’s are even lower still. USMCA gives multinational corporations
the best of both worlds: the ability to manufacture for the U.S.
market in Mexico, using Chinese-made primary and intermediate
components. USMCA creates these race to the bottom incentives for
businesses to exploit thanks to its rules of origin. The rules allow
non-originating content to be magically transformed into originating
content and make its way into North American supply chains with
duty-free market access, even when that content is produced under
unfair competition and exploitation in third countries. These rules
specify the share of local content in a good to qualify for duty-free
market access, which is typically 50–60% but as high as 75% for key
components of automotive supply chains, including for steel and
aluminum content. However, corporations are allowed to
“roll-up”—essentially, rounding off—the non-originating
content to count as 100% North American originating content.

Suppose a steel spring manufactured in Mexico uses 49.9% Chinese steel
wire feedstock and 50.1% local content. When that spring is sold to an
auto parts manufacturer, an appliance manufacturer, or whomever, that
49.9% Chinese steel—made without the same commitments to worker,
environmental, and consumer safety standards, and without extending
similar reciprocal market access to North American producers—becomes
100% North American. The more complicated that a product is—i.e.,
the more underlying, lower-tier components that are required to make a
final good—the more foreign content can masquerade as “Made in
North America.” Even under USMCA RVC calculations, substantial
non-originating content will enter at 0% duty. Thus, non-originating
content qualifying for USMCA ROOs can expand at an exponential rate
while still “rolling-up” to count as 100% North American content.

More specific commodities within the automotive industry carry higher
content thresholds. In addition to finished vehicles, component steel
and aluminum, and specified “core parts,” the rules of origin
require production meet a labor value threshold of an average of $16
per hour wage for 40–45% of the vehicle’s content. But the same
“rolling-up” loophole that allows non-conforming content into the
market applies to these rules as well.

Additionally, the core parts list omits critical new technology goods
for electric vehicle related components and autonomous vehicle related
components. USMCA Article 3.10 provides a mechanism for the parties to
expand the list of core components covered by North American content
rules, though this is not a foregone conclusion and, in the meantime,
content leakages deter the establishment of North American competition
to illegally subsidized and market dominant Chinese technologies.
Absent nimble and deeply informed monitoring by executive branch
agencies, the faster automotive industry technology evolves, the more
vehicle content will become uncovered by USMCA ROOs. To aid in
implementation and make this game of ROOs whack-a-mole more
manageable, the United States government should work with its Mexican
and Canadian counterparts to implement a rigorous content tracing
system to ensure that corporations are playing by the rules when it
comes to the core parts that help underpin the USMCA bargain.

Besides weaknesses regarding ROOs, the $16 hourly wage rate for the
Labor Value Content threshold is too low. Within the United States,
$16 an hour is at or near a poverty wage. But because no inflation
adjustment was negotiated as part of USMCA—a flaw obvious even in
real time—the LVC wage has declined 25% in real terms since USMCA
was signed into law. And this wage floor—which is on track to become
largely irrelevant before Mexican wages converge on U.S. and Canadian
wages—covers less than half of a vehicle’s content, meaning it is
not a meaningfully binding wage standard.

Leaky ROOs are a big obstacle to realizing the nearshoring gains of
production at a higher standard, but they are not the biggest problem.
For the ROOs to bind effectively on business supply chain choices,
there needs to be a significant price wedge between conforming to
USMCA rules and the higher Most Favored Nation tariff rate paid on
nonconforming content. However, more often than not, the higher MFN
rate is a mere 2.5%, paling in comparison with the savings from
choosing competing nonconforming content—particularly if that is
subsidized Chinese inputs. In short, if there is little penalty to pay
for not adhering to higher standards, then there is little incentive
for corporations to practice higher standards. In fact, recent
research from the Federal Reserve finds that compliance with USMCA
ROOs in automotive trade has been declining over time as the Big Three
and transplant manufacturers have shown preference for using non-North
American content (Bowdle and Kamal 2025).

Finally, not only did USMCA leave these loopholes for non-originating
content, but the agreement largely relies on these same corporate
entities to self-certify their compliance with the ROOs regime. This
creates a clear incentive and opportunity for manufacturers to cheat
compliance. The less the government monitors and enforces these rules,
the more incentive manufactures have to evade USMCA ROOs, although the
Trump administration appears to be taking a strict approach to
implementing stricter new ROOs on automotive trade.6
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WAGE AND WORKER POWER GAPS ARE WHY USMCA REMAINS A DRAG ON WORKING
FAMILIES

The wage gap in manufacturing continues to drive corporate decisions
to exploit low-wage, low-standard labor in Mexico. At just $2.76 per
hour, Mexican workers today earn less than in 2002—a mere 10% of
U.S. manufacturing wages and 12% of Canadian wages—after adjusting
for price differences between countries (see FIGURE C).

 

 

Labor provisions in USMCA, in particular the Rapid Response Mechanism,
have helped hold the line on labor rights for thousands of workers who
were covered in the RRM’s 12 cases so far where worker rights
largely were ultimately upheld. But without broadening the scope and
scale of enforcement across for the more than 10 million workers
across Mexican manufacturing industries (INEGI 2024), continuing the
RRM in current form poses more of a mild headwind in the race to the
bottom than a forceful deterrent.

Under USMCA, U.S. manufacturers expanded investment in Mexico by $22
billion through 2024 according to Bureau of Economic Analysis data
(BEA 2025). This included:

* $10 billion investments in transportation equipment manufacturing
facilities (a 61% increase);
* $3 billion in food manufacturing (87% increase);
* $1.9 billion in computer and electronics manufacturing (163%
increase);
* nearly $520 million in appliance and electrical equipment
manufacturing (30% increase); and
* $225 million in chemicals manufacturing (5% increase).

What’s remarkable is that corporations are moving investments to
_lower _productivity uses as shown in FIGURE D. Productivity in
Mexican manufacturing has been trending down for years relative to
that of U.S. manufacturing productivity, in spite of substantial
capital investments from U.S. and global firms. In the year before
USMCA, Mexican manufacturing workers produced just 32% of what a U.S.
manufacturing worker produced per hour. By 2024, they produced just
28%. For comparison, Chinese manufacturing productivity rose from 11%
in 2010, to 21% in 2019, and 24% in 2004 relative to U.S productivity
levels.

 

 

Ostensibly, North American multinationals understand the wide and
growing productivity differential with Mexican manufacturing workers
but prefer to shift toward lower productivity anyway. Though the data
indicate such decisions may not make sense for the long-term
efficiency of the firm, they may make perfect sense for redistributing
the profits of the firm to executives and shareholders by playing off
workers against one another’s mutual interests. Businesses in other
countries driving the surge in direct foreign investment to Mexico,
most notably China, are less concerned with the productivity
differential than with securing favorable access to U.S. markets,
despite not being a member of the USMCA pact.

While the labor RRM is a significant innovation in USMCA, as noted
above, it cannot be expected to compensate for institutional and
implementation failures of the Mexican government to uphold worker
rights. In fact, the government’s arguments in the recent Atento
Servicios RRM case showed it is very much still working to constrain
worker rights (USTR 2025b). Similar analyses by Mexican labor law
experts find that USMCA is failing to transform Mexico’s
fundamentally low-standard labor market institutions (Marroquín Bitar
2024).

TRUMP LEFT OPEN THE BACKDOOR FOR UNFAIR TRADE THROUGH USMCA RULES OF
ORIGIN

The first Trump administration imposed tariffs on a wide range of
Chinese technological goods and on steel and aluminum products
exhibiting unfair competition—along with the ever-present churn of
U.S. anti-dumping and countervailing duty trade enforcement actions.
Together, these erected significant new barriers to entry to U.S.
markets. Chinese producers responded, in turn, with new business
strategies, diversifying into offshore direct investments in
lower-tariffed locales, or sometimes relying on transshipment or a
handful of other strategies to evade the true applied tariff rate.
Initially, Chinese industry diversified into industries close
by—Southeast Asia and India—but that quickly expanded to include
Mexico.

Chinese firms have practiced this move before. In anticipation of and
following U.S. International Trade Commission (ITC) determinations of
injury from Certain Passenger Vehicle and Light Truck Tires from China
in 2015, Chinese tire manufacturers quickly expanded offshore in
countries like Thailand and Vietnam, among others, substituting
Chinese production for U.S. markets.7
[[link removed]]
As a result, tire imports surged from these countries and led to
subsequent ITC import injury investigations.8
[[link removed]]

 

 

This same story unfolded on a much larger scale post-2018,
particularly for Mexico, where Trump’s USMCA made it easy for
Chinese industry to gain purchase.9
[[link removed]]
FIGURE E shows that Chinese firms expanded their direct investment
footprint in Mexico by as much as 288% through 2023, while investment
in the United States essentially flatlined. This ballooning outward
direct investment position for China since 2018 indicates a rapidly
expanding overseas footprint for production organized around Chinese
value chains, signaling an influx of content originating from
Chinese-owned and Chinese-affiliated firms—often the beneficiaries
of robust government subsidization and procurement programs,
regulatory and tax forbearance, preferential credit, and other means
of competing on noncommercial terms with U.S. domestic firms.10
[[link removed]]
Dallas Federal Reserve economists are correct to observe that, despite
a rapid increase, China still trails U.S. foreign direct investment in
Mexico (Kelly 2025). However, unlike the broadly diversified supply
chain integration between the U.S., Canada, and Mexico, China’s
investments have concentrated in two categories: industries with
chronic global surplus capacity (steel, aluminum, glass, etc.) and
cutting-edge Chinese industries globalizing on the back of these kinds
of industrial policies.

 

 

Close on the heels of Chinese FDI in Mexico came surging imports of
industrial goods from China to Mexico—from raw materials to factory
machinery, and component parts to semi-finished goods (FIGURE F).
While China increased all goods exports to Mexico by 127% from 2017 to
2023, Mexican imports of Chinese iron and steel shot up 277%; aluminum
products 265%; diesel engines 284%; motor vehicle parts 160%; and
various categories of manufacturing equipment from 200–900%.

 

 

And following the build-up of Chinese and others’ manufacturing
capacity in Mexico since the onset of USMCA, U.S. imports of key
manufactures from Mexico surged. TABLE 1 details the trends in
automotive trade deficits under USMCA, a critical foundation for North
American trade and an industry Trump aims to reshore. Imports of motor
vehicles and parts from Mexico nearly doubled following USMCA, rising
to a total of $274 billion in 2024, up from $196 billion in 2019—a
40% increase. Imports of parts and light-duty vehicles from Mexico
increased by 35% and 36%, respectively, while imports of medium- and
heavy-duty vehicles increased a whopping 256%. U.S. exports to USMCA
partners expanded in these categories, too, but at a lower level, such
that the import growth drove widening of the automotive trade deficit
to $153 billion in 2024, up 56%. The vast majority of these and other
components in the North American supply chain enter duty free under
USMCA’s rules of origin.

 
CONCLUSION

North American economic integration remains as critical to U.S.
prosperity as the treaties negotiated to govern it are flawed.
Millions of people in the United States—particularly workers in
trade-exposed industries—understood this deeply as the 2016 election
loomed. President Trump seized on this dissatisfaction and moved to
renegotiate NAFTA and replace it with USMCA in 2020. But Trump’s
USMCA created more problems than it fixed. Today the pressure on
manufacturing jobs and deterioration in the trade balance with Mexico
are worse than before USMCA and Chinese manufacturers are setting up
shop next door to take advantage of the loopholes that Trump left in
the rules. The ongoing failures of USMCA necessitate significant
reform and renegotiation to truly make a North American economy that
puts workers at the center.

NOTES

1.
[[link removed]]U.S.
law requires that public comment on USMCA begin no later than October
4, 2025, and that the U.S. Trade Representative report recommendations
to Congress no later than January 2, 2026. See Rethink Trade (2024)
and U.S.-Mexico-Canada Agreement Article 34.7: Review Term and
Extension,
[link removed].

2. 
[[link removed]]
S.J. Res. 37
[[link removed]],
119th Cong. (2025).

3.
[[link removed]]“Lending”
may include international financial flows from (net) purchases of U.S.
stocks and bonds, international bank loans, trade financing, and net
repatriated incomes, among others.

4.
[[link removed]]Trade
with individual countries may not balance for a variety of benign
reasons, in addition to anticompetitive and unfair trading practices.

5.
[[link removed]]Analysis
of WARN Database [[link removed]] (2025). 

6. 
[[link removed]]
Proclamation No. 10908
[[link removed]],
90 Fed. Reg. 14705 (March 26, 2025).

7.
[[link removed]]See
for example, “Thailand-made Double Coin Tires Arrive in U.S.
[[link removed]],”
_FleetOwner,_ March 30, 2018; “Linglong Opens Thailand Plant
[[link removed]],”
_Rubber News, _March 6, 2014; “Sentury Tire in Thailand:
Establishing a World Class Tire Brand
[[link removed]],”
_China Daily,_ January 21, 2016.

8.
[[link removed]]U.S.
International Trade Commission, “Passenger Vehicle and Light Truck
Tires from Korea, Taiwan, Thailand, and Vietnam,” Investigation Nos.
701-TA-647 and 731-TA-1517-1520, Publication 5212, July 2021. See also
Hersh (2024).

9.
[[link removed]]See
also Meltzer and Barron Esper (2025) on China’s circumvention of the
U.S. tariff regime through USMCA partners.

10.
[[link removed]]For
a recent survey, see Fang, Li, and Lu (2025).

REFERENCES

Arain, Omer. 2025. “WARN Layoff Data
[[link removed]]” [Google sheet], WARN Database.
Accessed July 6, 2025.

Bivens, Josh, and Adam S. Hersh. 2025. _The U.S. Approach to
Globalization Has Gone from Bad to Worse Under Trump_
[[link removed]].
Economic Policy Institute, May 29, 2025.

Canis, Bill, Vivian C. Jones, and M. Angeles Villarreal. 2017. _NAFTA
and Motor Vehicle Trade_
[[link removed]]. Congressional Research
Service R44907, July 18, 2017.

Department of Labor (DOL). 2022. “Statement by Secretary Walsh on
Termination of Trade Adjustment Assistance for Workers Program
[[link removed]]” (news
release). July 1, 2022.

Fang, Hanming, Ming Li, and Guangli Lu. 2025. “Decoding China’s
Industrial Policies [[link removed]].” National
Bureau of Economic Research Working Paper no. 33814, May 2025.

Hersh, Adam. 2024. “Testimony Prepared for the U.S. International
Trade Commission Report on the USMCA Automotive Rules of Origin
[[link removed]].”
Economic Policy Institute, October 16, 2024.

Instituto Nacional de Estadística y Geografía (INEGI). 2024.
“Indicadores de Ocupación Y Empleo
[[link removed]]”
(news release). April 26, 2024.

Kelly, Brendan. 2025. “China Expands Mexico Investment but Notably
Lags U.S., Other G7 Economies.
[[link removed]]” Dallas Federal
Reserve, September 26, 2025.

Marroquín Bitar, Diego. 2024. “Is USMCA Good for Mexican Labor? A
Preliminary Analysis of USMCA and Labor Market Outcomes in Mexico
[[link removed]].” _Brooklyn
Journal of International Law_ 49, no. 2: 542–555.

Meltzer, Joshua P., and Maricarmen Barron Esper. 2025. “Is China
Circumventing US Tariffs via Mexico and Canada?
[[link removed]]”
Brookings Institution, September 23, 2025.

Rethink Trade. 2024. _U.S. Domestic Process Starts Mid-2025 for
U.S.-Mexico-Canada Agreement 2026 Mandatory Six-Year Review_
[[link removed]].

Shuler, Liz. 2025. “Unfinished Business: Centering Workers’ Rights
and Fair Competition in the USMCA Joint Review
[[link removed]].”
Brookings Institution, March 5, 2025.

U.S. Bureau of Economic Analysis (BEA). 2025. “U.S. Direct
Investment Abroad, U.S. Direct Investment Position Abroad on a
Historical-Cost Basis, By Country and Industry
[[link removed]].”
Accessed February 26, 2025.

U.S. House of Representatives, Ways and Means Committee. 2019.
“Improvements to the USMCA Secured by Democrats in the ‘December
10 Agreement.’
[[link removed]]”
December 13, 2019.

U.S. International Trade Commission (USITC). 2025. “DataWeb U.S.
Trade and Tariff Data [[link removed]].” Accessed
February 19, 2025.

U.S. Trade Representative (USTR). 2023. _The Arbitral Panel
Established Pursuant to Article 31 of the Agreement Among the United
States, Mexico, Canada Which Entered into Force on July 1, 2020
(USA-MEX-CDA-2022-31-01): Final Report_
[[link removed]].
January 1, 2023.

U.S. Trade Representative (USTR). 2025a. “United
States-Mexico-Canada Agreement
[[link removed]].”
Accessed February 25, 2025.

U.S. Trade Representative (USTR). 2025b. _Rapid Response Labor Panel
on the Atento Servicios Case (MEX-USA-2024-31A-01)._
[[link removed]]
July 4, 2025.

Villarreal, M. Angeles. 2020. _USMCA: Amendment and Key Changes_
[[link removed]]_._
Congressional Research Service IF11391, January 30, 2020.

Villarreal, M. Angeles. 2024. _NAFTA Renegotiation and the Proposed
United States-Mexico-Canada Agreement (USMCA)_
[[link removed]].
Congressional Research Service R44981, February 26, 2019.

Wagner, Meg, and Brian Ries. 2018. “Trump Gives Remarks on
US-Mexico-Canada Deal
[[link removed]].”
CNN Online, October 1, 2018.

_ADAM HERSH focuses on international trade, industrial, climate,
China, and macroeconomic policies. Adam publishes and is cited
frequently in both peer reviewed and popular media outlets, regularly
provides expert Congressional testimony and advises U.S. and
international policymakers and civil society leaders. He is a
contributing author of __Rewriting the Rules of the American Economy_
[[link removed]]_
(2015) with Nobel Prize-winner Joseph Stiglitz._

_Prior to joining EPI, Adam co-directed the Global Initiative for a
Shared Future, working to center environment, social, and governance
(ESG) principles in the U.S.-China bilateral investment relationship.
He was also Chief Economist for Congressional Joint Economic Committee
Democrats, Senior Economist at the Franklin and Eleanor Roosevelt
Institute and the Center for American Progress, and worked at the
Asian Development Bank. Adam has held academic appointments as a
Research Associate at the University of Massachusetts’ Political
Economy Research Institute, a Research Fellow at the University
College London’s Institute for Innovation and Public Purpose, a
Visiting Scholar at Columbia University’s Initiative for Policy
Dialogue and at the Shanghai University of Finance and Economics’
Institute for Advanced Research, and teaching macroeconomics and
monetary and financial economics at University of Massachusetts,
Amherst._

_THE ECONOMIC POLICY INSTITUTE’s vision is an economy that is just
and strong, sustainable, and equitable — where every job is good,
every worker can join a union, and every family and community can
thrive.__About EPI. The Economic Policy Institute (EPI) is a
nonprofit, nonpartisan think tank working for the last 30 years to
counter rising inequality, low wages and weak benefits for working
people, slower economic growth, unacceptable employment conditions,
and a widening racial wage gap. We intentionally center low- and
middle-income working families in economic policy discussions at the
federal, state, and local levels as we fight for a world where every
worker has access to a good job with fair pay, affordable health care,
retirement security, and a union._

_We also know that research on its own is not enough—that’s why we
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_Join with EPI to build an economy that works for everyone_

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EPI makes you an important partner in providing this critical public
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