The U.S. Must Insist on Stronger Rules of Origin in the USMCA

An Important U.S. Senate Committee is convening this week to evaluate the pact ahead of a statutory review between its signatories.

We’re only a few months out from a statutory joint review of the United States-Mexico-Canada Agreement (USMCA), the North American trade deal entered into force in 2020. This week, as an important U.S. Senate committee convenes to evaluate the pact, the Alliance for American Manufacturing (AAM) is reiterating what it told the Trump administration last fall: The United States must insist on closing USMCA loopholes that allow countries not party to the deal to benefit from it. 

If shortcomings in the USMCA can’t be resolved, the U.S. should continue negotiating until those loopholes are closed rather than sign off on a 16-year extension.

These loopholes we’re concerned about are around the USMCA’s rules of origin (ROO), and the evidence of their existence are the massive streams of Chinese foreign direct investment into Mexico since the deal went into effect. The ROO in USMCA are an improvement from the rules that governed its predecessor, NAFTA. But the last six years have shown that they need a tune up. Loose or flawed ROO allow countries outside a deal to enjoy its benefits without taking on any of its risks or responsibilities. This negatively impacts supply chains, workers, and investment decisions.

Chinese FDI in Mexico is a pathway by which China can circumvent U.S. tariffs and trade policies. And China, with its $120 billion goods trade surplus with Mexico in 2024, has become a key supplier of inputs and components to Mexico’s factories. The U.S. goods trade deficit with Mexico, meanwhile, was more than $171 billion in 2024 – up from $63 billion in 2016. Final end products, parts, equipment, and materials from Mexico benefiting from tariff-free treatment contain significant amounts of Chinese content.

That’s why these ROO should be considered a baseline that should be raised. Because what’s the point of extending a trade agreement if loopholes in its rules undercut our workers and companies?

Here’s a little more of what we wrote to the United States Trade Representative (USTR) about domestic manufacturing’s priorities in the USMCA review:

Improved ROO that close loopholes and boost regional content.

We write:

Too often our trade policies have overlooked the components, parts, and upstream raw materials necessary to produce a given product. Prioritizing only end products that are assembled or manufactured in the United States from all or mostly imported products is not a sound strategy to solve the problems that have plagued our country in recent years, nor does such a strategy serve our economic or national security interests. In fact, such approaches will only set us up for repeated failure.

Restrictions on China and other countries of concern.

We write:

[AAM’s report], “On A Collision Course: China’s Existential Threat to America’s Auto Industry and its Route Through Mexico,” details the threat posed by Chinese automakers, whose long-desired penetration of the U.S. market has been largely held at bay by tariffs levied on Chinese-made vehicles. Existing tariffs have staved off a direct attack on the U.S. auto industry, which is central both to our economic and national security. But China’s predatory trade practices know no bounds, and the best approach is to impose restrictions on China’s state-owned and state-backed companies from benefiting from USMCA directly or indirectly. Unless decisive action is taken, a looming surge of Chinese autos into the U.S. market would be an extinction-level event for the domestic auto sector, its workers, and our vast industrial supply chain that is critical to U.S. economic and national security.

And …

Aligned trade policy to confront non-market distortions, particularly from China.

We write:

[This is a] timely opportunity in the USMCA joint review to confront non-market distortions, particularly from China, to safeguard North American manufacturing and supply chain resilience. Canada and Mexico should accelerate their ongoing efforts to align their trade policies with U.S. measures on tariffs, China engagement, and supply chains.
Canada and Mexico have lagged behind the United States in countering China’s predatory practices, allowing dumped and subsidized imports to penetrate North American markets, eroding competitiveness and reshoring efforts. While both countries have begun to impose tariffs on products like steel and electric vehicles from China, these steps remain insufficient and uncoordinated.

You can read our detailed comments to USTR in their entirety here. And be sure to tune into this important USMCA hearing of the Senate Finance Committee on Thursday. The whole thing will be streamed online.