Mexico and US negotiate bilateral trade deal before November midterms
In brief
- Mexico and US negotiate bilateral trade deal before November midterms, bypassing Canada in USMCA review
- US demands higher North American vehicle content; Mexico seeks Section 232 tariff relief on steel and aluminum
- Mexico's trade surplus reached $196.9 billion in 2025 and $102.6 billion through June 2026
- Deal could reduce input costs but force automakers to reconfigure supply chains and reduce Asian sourcing
- Both nations target late 2026 interim agreement, with complex issues potentially extending into 2027
The negotiation timeline
Multiple rounds of talks since May have produced what both sides describe as steady progress, with a fourth round scheduled for September in Washington. US Trade Representative Jamieson Greer, Mexican Economy Secretary Marcelo Ebrard, President Claudia Sheinbaum, and Commerce Secretary Howard Lutnick have been directly involved in negotiations.
The urgency stems from the US decision to decline a 16-year USMCA extension on July 1, triggering annual reviews until 2036. That compressed timeline—paired with November's midterm elections—has forced both countries into overdrive.
What's on the table
The US wants to raise the percentage of North American content required in vehicles sold tariff-free across the continent. Mexico, for its part, seeks relief from Section 232 tariffs on steel, aluminum, and automobiles.
A third dimension involves mechanisms to limit third-country influence in supply chains, with China being the obvious target. Washington has grown increasingly vocal about Chinese companies routing goods through Mexico to access the US market, and any deal will almost certainly include provisions aimed at closing that loophole.
The trade surplus backdrop
Mexico's leverage in these talks is substantial. The country posted a record goods trade surplus of $196.9 billion with the US for the full year of 2025. The first half of 2026 was on pace to match or exceed that figure, with a $102.6 billion surplus through June. In July 2026 alone, Mexico's bilateral goods trade surplus came in at $26.31 billion.
Supply chain implications
A deal that removes or reduces Section 232 tariffs could meaningfully lower input costs for manufacturers on both sides of the border, particularly in the auto sector. But stricter North American content requirements would force automakers and parts suppliers to reconfigure supply chains, potentially increasing costs in the short term.
Companies that currently source components from Asia and assemble in Mexico for US export would face the most disruption. The reconfiguration won't happen overnight—both nations have expressed optimism about reaching at least an interim arrangement by late 2026, though officials have acknowledged that some of the more complex issues may not be fully resolved until 2027.
Canada's sidelined role
Parallel discussions between Washington and Ottawa have stalled, leaving Canada watching from the sidelines as its two partners negotiate continental trade terms. The bilateral focus effectively reshapes North American trade architecture without the third pillar that has anchored regional commerce for three decades.
