As the USMCA discussions are set for July 20, Marcos Carias, an economist at the global trade credit insurance and risk management company Coface, says it’s unlikely a quick resolution will be reached.
Carias has a unique position as he forecasts risk across the U.S.-Mexico-Canada corridor.
He calls this current climate a “rhetorical escalation phase.”
“There has not been nearly the amount of progress on how these things would go that would lead us to expect a quick resolution,” he says.
Carias says he sees what’s happening now as following a similar pattern to that leading up to the USMCA negotiations in 2019 and 2020.
“It looked similar to what we are seeing now,” he says. “It followed a cycle of maximalist threats and escalation, moving from a fever pitch to a compromise over a few months. You should never underestimate how quickly things can change, but our baseline scenario, our main expectation is that this drags on until the end of the year, or even into 2027.”
Why the Fresh Produce Industry Faces a Costly Anxiety Tax
Carias says there is a real “anxiety tax” that comes with economic uncertainty. He says this anxiety tax is the cost businesses incur by having to account for worst-case scenarios such as a breakdown of the agreement and the imposition of potential blanket tariffs. Many businesses have taken a “wait and see” attitude, delaying capital decisions and expansion plans until the situation stabilizes.
“This industry doesn’t typically see a boom in activity because it flows with the demand for groceries,” he says. “Most trade between the U.S. and its neighbors has been shielded from tariffs by the USMCA itself. Aside from sectors like steel and aluminum, there hasn’t been much disruption. Companies are accounting for contingency plans, but they are waiting to see how real the disturbance will be before enacting them.”
He says this is a challenge given how deeply integrated the North American supply chains are in the fresh produce industry, with Mexico providing around 66% of vegetable imports and 50% of fruit imports to the U.S., including about 80% to 90% of avocado imports and 70% of tomato imports.
“If the agreement breaks down and significant tariffs are imposed, there would be a real inflationary impact,” he says. “We saw the impact on prices with the tomato story. Picture that, but more widespread.”
Also, Carias says a commodity’s position on USMCA varies crop-by-crop, noting, for example, that the U.S. avocado industry wants to protect the market from Mexican imports, but U.S. apple growers are a net exporter and are pro-free trade.
Canada, too, provides about 80% of the potash used in the U.S., which plays a critical role in production, Carias says.
“While it would hurt Canada to apply export tariffs, it is a big weapon for retaliation,” he says. “With Mexico, trade flows are mostly them exporting to the U.S., but they are a client for U.S. apples, cherries and leafy greens.”
Trade is also circular and if the USMCA ends there will be secondary border effects, Carias says, noting that Mexico imports tomatoes to the U.S. for processing to use in ketchup, which is then exported back to Mexico.
“If U.S. food manufacturers are hurt, they may transmit that pain back to produce farmers,” he says.
How Integrated Supply Chains Multiply the Risk of a Trade Breakdown
While unrelated to fresh produce, Carias says it’s important to look at several hot-button issues that have stalled produce. This includes a potential requirement for autos to use 50% U.S.-produced materials. Mexico supplies about 20% of the parts used in auto manufacturing.
Dairy, also, could be a stumbling point as the U.S. Trade Representative and the U.S. dairy industry have accused Canada of violating its USMCA obligations. Canada, however, passed a bill that prohibits trade negotiators and the Minister of Foreign Affairs from increasing tariff-rate quotas or lowering tariffs on dairy, poultry and eggs in any new or renegotiated trade agreements.
Also, Carias says the U.S. has continued to push Mexico to allow more free trade of genetically modified corn.
“I don’t expect things to change much unless there is a major breakdown or a blanket tariff, which Trump has touted and the U.S. Trade Representative has echoed,” he says. “It might just be maximalist threats, but it’s worth talking about.”
How Mexico and Canada Diverge at the Negotiating Table
Carias says Canada has been barely present at the negotiating table, which he says tracks with the country’s national pride and taking a firmer stance in trade deals. Mexico, on the opposite spectrum, has been more open to cooperating on migration and security.
“Mexico’s economy is more critically tangled with the U.S. than Canada’s,” he says. “Canada has better public finances and more cards to play, like the East-West pipeline to export oil to the Pacific and critical minerals. Mexico has staked its development on nearshoring and replacing China as the source of cheap manufacturing for the U.S., so they are playing more softball.”
Domestic Politics and Upcoming Midterms Could Reshape the Deal
Carias says that often the administration makes serious threats but isn’t afraid to back down if there’s an economic impact.
“The administration might want to sell a deal closer to the midterms, so that is a date to keep an eye on,” he says, noting his surprise that negotiations haven’t moved faster since there is a potential for the U.S. House of Representatives to flip in the fall and the deal must be ratified by Congress.
“I think business interests are too strong for Mexico and Canada to lose preferential access, but whether that happens via a renewal or bilateral deals replacing a zombie USMCA remains to be seen,” he says.
Carias says it’s important as negotiations continue, to monitor what the Mexican and Canadian governments say through the media as well as through trade representatives in the U.S.
“Pay attention to the U.S. Trade Representative and keep an eye on Canadian and Mexican media,” he says. “Their governments use a more classical theory of communication to reduce uncertainty for their constituencies.”
