CUSMA Annual Reviews Push Up Cross-Border Supply Chain Costs

A trade pact that stays in force but keeps businesses guessing

North America's trade agreement did not collapse this summer. The bigger risk for supply chains is that it now has to be renegotiated every year. At the first mandatory joint review on July 1, 2026, Washington declined to confirm a new 16-year term for the Canada-United States-Mexico Agreement, known in the U.S. as the USMCA. U.S. Trade Representative Jamieson Greer's office said the country "did not agree to renew the USMCA in its current form."13 Canada and Mexico both supported an extension, which leaves the United States as the only holdout.1922

Under Article 34.7, a failed extension at the six-year mark does not end the agreement. Instead, the Free Trade Commission must hold a joint review every year until all three countries agree to extend or the term runs out on July 1, 2036.13 The yearly cycle is already underway. USTR asked for public comment on the 2027 review on October 2, the Federal Register notice followed on October 5, and written submissions are due January 12, 2027.13

The coverage agrees on the legal facts. Tariff schedules, rules of origin and dispute procedures all remain in place.20 Where commentators split is on how much the change matters. A Rice University trade scholar points out that nothing stops the three governments from negotiating a deal at any point.17 An Independent Institute researcher argues the opposite case: when the planning horizon shrinks every year, investors can no longer count on today's rules still applying when a project pays off.17 The second view fits the logistics data better. The agreement's legal survival matters less than the uncertainty that now comes back every year.

The tariff stack outside the agreement

The review cycle is not what is pushing costs up right now. The pressure comes from tariffs that sit outside the agreement and increasingly apply on top of it. One manufacturing advisory puts it simply: the agreement held, but the tariff environment around it changed.20

U.S.-Canada trade is where this has gone furthest. In August, President Trump imposed a 50% tariff on $20 billion of Canadian imports, and the two countries are now in a trade war.15 The Section 338 duties cover furniture, cement, plywood, apparel, cosmetics, toys and hockey equipment. They apply whether or not the goods qualify as originating under CUSMA.28 Since September 29, some listed Canadian goods have been banned from entering the U.S. altogether.24 Canada hit back on September 8 with counter-tariffs of 15%, 25% and 50%, set to match the U.S. rates. Finance Canada says they cover $27.6 billion of imports.24 The Conference Board describes about $40 billion of goods now under tariffs, roughly $20 billion in each direction, or 5–6% of annual bilateral trade.10 The estimates differ somewhat depending on how each one measures the trade involved, but they point the same way.

U.S.-Mexico trade looks different. Since July 24, a 10% Section 301 tariff has applied to goods from 60 economies, but products that can prove USMCA origin are exempt.14 Section 232 tariffs of up to 50% on steel, aluminum and copper apply even to goods that qualify under the agreement.14 Mexico's economy secretary, Marcelo Ebrard, met Greer at a G20 trade ministers' meeting in Milwaukee on October 1 and said afterward that the two sides were getting closer to new agreements.12 Supply Chain Dive notes that the U.S. relationships with Canada and Mexico are now in very different places.15 That gap means a company's costs increasingly depend on which border it ships across.

On the overall exposure, the numbers are both reassuring and worrying. About 73% of U.S. imports from Canada and 75% from Mexico still come in duty-free under the agreement.17 Roughly $124 billion of Mexican imports are now covered by Section 301 or Section 232 tariffs.17

Freight costs are already climbing

The pressure is easiest to see in cross-border trucking, and it does not come only from trade policy. C.H. Robinson reports that U.S.-Mexico pricing stayed firm in July. Northbound volumes far outnumber southbound loads, so carriers have to bring trucks back empty. That raises costs and cuts the number of carriers willing to take freight into the U.S.1 Driver pools have also shrunk because of stricter enforcement of B1 visa requirements and cabotage rules. On top of that, carriers face higher tolls, maintenance, insurance and fuel costs, and a strong peso has cut the value of their dollar revenue.1 Trucks held longer at the border slow turnaround times. Carriers are keeping contract rates steady but quoting higher prices for new business.1

At a FreightWaves panel in San Diego, industry executives said the same thing. Cross-border volumes are growing while trucking capacity shrinks, and fuel has driven repeated rate increases during the fall peak season.3 Tighter customs scrutiny and more organized cargo theft are adding cost and risk.3 Logistics advisers warn that the base freight rate understates the real cost. Detention, border transfers, inspections, storage, insurance and customs delays can turn a cheap quote into an expensive one, especially when a service failure forces a rush shipment.6

Canada shows a different problem: weaker demand rather than a shortage of trucks. C.H. Robinson says uncertainty about the agreement has become a main topic in Canadian logistics and manufacturing. Many companies are delaying inventory expansion and production increases until the rules are clearer.1 So the two borders face opposite problems. Mexico lanes are short of capacity, while Canada lanes are short of confidence.

Autos are hit hardest

The auto industry shows how trade policy and component shortages can feed on each other. One year after the U.S. put tariffs on Canadian-built vehicles and parts that fail the rules of origin, Canadian vehicle imports into the U.S. are down more than 21%. Canadian vehicle production fell about 15% in the first four months of 2026.8 Automakers are also short of memory chips, because AI demand is taking up supply and the industry accounts for less than 5% of the remaining market.8 Meanwhile, the delayed Gordie Howe bridge leaves a key Detroit-Windsor weak spot unresolved.8

The effects reach as far as Mexico's Pacific coast. Auto parts imports through the Port of Manzanillo have dipped about 1%. Sea Cargo Logistics reports a 5–10% drop in parts shipments reaching Mexican factories.9 Manufacturers facing higher tariff costs are pushing logistics providers for lower rates, and some are putting price ahead of service quality.9 That points to a risk the headline numbers miss. When margins are squeezed at both ends, the logistics firms in the middle may cut back on reliability, which is exactly what the system needs most during a disruption.

The auto industry also faces specific threats at the negotiating table. CSIS analysts list U.S. efforts to tighten auto rules of origin, already the strictest in the world, alongside long-running disputes over lumber, dairy, digital trade, energy and labor.18 Washington's review agenda also targets steel, aluminum, agriculture, economic security and the use of inputs from outside North America.25

Nearshoring continues, at a higher cost

Despite the uncertainty, the case for moving production closer to the U.S. has not gone away. One consultancy estimates that a $100 component made in Mexico reaches a U.S. warehouse for $101 to $104 once freight, insurance and carrying costs are added. It also notes that USMCA utilization rose from 44.8% in January 2025 to 88.7% by November 2025 as companies restructured to qualify.7 Mexican exports to the U.S. grew 9% year over year in the first four months of 2026, and Mexico now supplies almost 17% of U.S. imports.1 One panelist told FreightWaves that nearshoring was "already rolling" before the tariff news began.3

The catch is that those savings depend on the qualifying rules, which are now reopened every year. Customs specialists warn that making a product in Mexico does not automatically qualify it for preferential treatment. They say compliance experts need to be involved in sourcing and engineering decisions from the start.3 Proof of origin is now worth much more than it was before the 2025 and 2026 tariff changes, because qualifying can shield goods from duties imposed outside the agreement.20 For importers that cannot prove origin, the 10% Section 301 tariff applies.14

Uncertainty is now a permanent cost

The clearest takeaway is that uncertainty itself has become a standing cost in the supply chain. One logistics firm argues that announcements, reversals and timing risk often do more damage than the tariff rate, especially when policy changes while cargo is in transit.2 CSIS analysts describe the threat as slow and expensive: a long stretch of uncertainty that holds back investment across the continent.18 They also point out that the U.S. bears these costs as well, since U.S. manufacturers, investors and consumers rely on a predictable framework.18 About one-third of imported U.S. manufacturing inputs come from Canada and Mexico.18

This helps explain why pressure from below Washington is growing. Officials from 28 U.S. states, nine Canadian provinces and six Mexican states called for a 16-year extension at this year's Tri-National Agricultural Accord. Governors in Michigan, Arizona and Virginia have each pushed for stability.22

A quick fix looks unlikely. Canadian officials reportedly see little chance that talks will resume before the U.S. midterm elections in November.28 A planned fourth round of negotiations has already been postponed.4 Supply chain managers should not wait for 2036. The practical step is to plan around each year's review date: reviewing USMCA qualification, modeling landed costs under different tariff scenarios, and lining up trucking capacity before tighter rules and peak demand arrive at the same time.416 The agreement is still in force. What it no longer offers is a long-term guarantee.