As key trade talks start, the US-Mexico relationship will likely limp along – but at a cost

(LOS ANGELES) Most Americans understand that their avocado toast and Super Bowl guacamole depend on a green fruit imported from Mexico. But few realize that Mexico is the United States' top trading partner , both as the largest source of U.S. imports and the largest market for its exports.

Mexico supplies everything from fruits and vegetables to computers, medical equipment and electrical machinery – not to mention vehicles and auto parts. Mexico is also the top consumer of U.S. exports, ranging from corn, pork and dairy products to natural gas, to auto parts.

Given these ties, the stakes will be high on July 1, 2026, when U.S., Mexican and Canadian trade negotiators begin a required trilateral review of the 2020 trade deal underpinning this relationship. But a de facto stalemate is likely, resulting in uncertainty that will dampen growth in all three member countries.

Meanwhile, consumers will have to keep paying the tab for imports affected by Trump's tariffs, including global tariffs announced in April 2025, as well as specific levies on autos and products made with steel and aluminum . According to the Dallas Federal Reserve Bank , the U.S. inflation rate in March 2026 would have been 0.8 percentage point lower year on year without these tariffs.

As a scholar of U.S.-Mexico relations , I argue this outcome reflects President Donald Trump's desire to reduce U.S. trade deficits, bring manufacturing back to the U.S. and retain coercive power over his neighbors. But all it will likely do is yield a poorly defined process of annual reviews of the longer-standing agreement – signed by Trump during his first term.

The logic of trade integration

The 2020 pact, known as the U.S.-Mexico-Canada Agreement , has been a linchpin for U.S. global competitiveness, especially for the trade relationship with Mexico. With some modifications, it succeeded the 1994 North American Free Trade Agreement .

Mexico doesn't export just agricultural goods and products assembled with factors of production imported from the U.S. It supplies such inputs to the U.S. production process as well. This bilateral trade supports key cross-border supply chains for regional manufacturing.

This is most striking in the automotive industry. A telling measure is that a typical "U.S." vehicle crosses the U.S.-Mexico border up to eight times during the manufacturing process. The U.S. and Mexico don't just trade finished products; they produce things together, as Mexico scholar Chris Wilson has put it.

These deeply integrated supply chains lower the cost of production, which in turn helps the U.S. compete with China, generate investment, spur job creation – and keep consumer prices down. Recognizing this, the Trump administration agreed to exempt all exports that comply with the terms of the 2020 trade pact from the global tariffs announced in April 2025. This exemption now applies to 85% of Mexican exports , according to Mexico Economy Secretary Marcelo Ebrard.

Annual reviews are likely outcome

Under the terms of the 2020 pact, the three countries have to review the deal after six years. Potential outcomes of the 2026 negotiation round range from renewing the deal in full for 16 more years, ending it altogether or agreeing to undergo a series of annual reviews that could extend it through 2036.

Given the three countries' supply-chain integration, preserving predictability in trade and investment through a successful review should be a slam-dunk case. But that outcome looks unlikely for three reasons.

First is Trump's abhorrence of trade deficits , stemming from his belief that they're caused by U.S. production and jobs moving overseas due to unfair trade practices. While this argument applies to U.S.-China trade to a certain degree, it does not to Mexico. For example, 30% of Mexican-manufactured exports to the U.S. include U.S. content , a share that rises to 40% for vehicles. The effect of these integrated supply chains is to create jobs rather than replace them.

What Trump also overlooks is that Washington's success in pressuring manufacturers to move production out of China and into low-cost producers – including Mexico – has helped widen the U.S. trade deficit with Mexico , a "problem" of Washington's making. In fact, a 2026 Federal Reserve study found that 53% of the increase in Mexico's trade deficit with the U.S. over the past five years resulted from U.S. tariffs on Chinese exports.

Despite such clear findings, the Trump administration remains fixated on reducing the U.S. trade deficit with Mexico, making a successful review even less likely.

The reshoring illusion

Second, Trump is wedded to the idea of "reshoring," or bringing production back to the U.S. But that position runs against the trade deal's logic of "nearshoring," or bringing production back to North America. That was the principle also embedded in NAFTA.

This reshoring obsession drove Washington's refusal to exempt Mexican steel and aluminum exports from the 50% tariff that the administration imposed in mid-2025 and provide only a partial exemption on a 25% tariff on autos and auto parts. It's also behind Trump's demand to add a high minimum U.S. content requirement in autos.

Taken together, the levies and demands by Trump will likely stymie a successful review of the pact that replaced NAFTA.

Coercion through chaos

Finally, Trump and his team believe that advancing Washington's interests depends on wielding U.S. power to coerce other countries. This includes using tariffs not merely to redirect international trade but to pressure allies and adversaries alike to meet U.S. demands.

Mexico and Canada were the first two targets of this coercive tool in February 2025, when Trump slapped tariffs on all Mexican and Canadian exports to force their leaders to cooperate on migration and drug policies.

Although the goods that fell under the 2020 trade pact were quickly declared exempt and the U.S. Supreme Court eventually ruled that the legal foundation for those levies was unconstitutional , Trump's desire to exploit the coercive power of tariffs persists. He has no incentive to ink a trade agreement that limits his power to impose tariffs at will.

He restated this indifference in June 2026, when he asserted that he wasn't "looking to renew" the pact because he believes the U.S. would do better without it.

"We don't need anything that Canada has," he added. "We don't need anything that Mexico has, but they need everything that we have. They have to treat us better."

Implications of annual reviews

Mexico needs investors to have the certainty provided by a successful review.

But without knowing the future rules of the road, investors are sitting on the sidelines, which is weakening the country's growth strategy tied to nearshoring. As a result, Mexico has focused on preserving the 2020 agreement – even if this means a more ad hoc cycle of annual reviews – because it still guarantees a lower tariff rate compared with what other countries face with Trump in the White House.

Indeed, in a private conversation, a Mexican official told me that keeping this lower rate is a core objective in Mexico's trade talks with the United States.

Although not ideal, this outcome would protect the North American supply chains that drive growth in a country where exports account for 37% of its GDP .

But for Americans, an unsuccessful review followed by ongoing talks without resolution has few upsides. Instead, it's likely to weaken the U.S. competitive advantage relative to China – all while Trump's trade policy leaves them grappling with higher prices on products such as cars and trucks and with no uptick in job creation .

This article is republished from The Conversation , a nonprofit, independent news organization bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Pamela K. Starr , USC Dornsife College of Letters, Arts and Sciences

Read more:

• Soaring US beef prices likely to rise further thanks to trade tensions and disease outbreaks
• Supreme Court rules against Trump's emergency tariffs – but leaves key questions unanswered
• Will Trump's tariffs boost the US economy? Don't count on it

Pamela K. Starr is affiliated with the Mexico Program of the Inter-American Dialogue as a non-resident fellow, and with Monarch Global Strategies as a senior advisor.

Copyright 2026 The Conversation. All rights reserved.

This story was originally published June 30, 2026 at 3:32 PM.