Two months into the joint review, North America’s trade pact is running on two tracks: real progress with Mexico, open confrontation with Canada, and a September deadline week that will test both
WASHINGTON, September 6, 2026
The United States-Mexico-Canada Agreement remains fully in force, but the review process meant to secure its future has split North American trade into two starkly different realities, and this week both of them reached inflection points. As of September 4, according to trade trackers and legal analyses compiled through the week, the US-Mexico negotiating track is grinding toward a deal on autos, steel, and aluminum ahead of a decisive round in Washington, while the US-Canada relationship has hardened into open economic confrontation, with Ottawa’s sweeping counter-tariffs on roughly 27.6 billion dollars of American goods set to take effect Monday, September 8.
For American exporters, the September 8 date is the most immediate tariff event on the calendar. Canada has now published its updated, complete list of US products subject to the counter-tariffs, confirming a three-tier structure of 50, 25, and 15 percent duties across more than 700 product lines, from steel and furniture to cheese and clothing. It is the broadest retaliation against US goods by any trading partner this year, and it lands squarely on sectors, dairy, apparel, appliances, and fabricated metals, with deep exposure to the Canadian market.
Why the Review Exists at All
The joint review was written into the agreement itself. When USMCA replaced the North American Free Trade Agreement in July 2020, US negotiators insisted on a sunset mechanism that NAFTA never had: the pact runs for 16 years, expiring in 2036, unless the three parties jointly confirm a new 16-year term at a review held on the sixth anniversary of entry into force. That sixth anniversary review is what convened on July 1, 2026. If the parties do not all confirm extension, the agreement does not die; instead, the review repeats annually for the next decade, a rolling referendum on the pact’s future with the 2036 expiry ticking closer each year.
The mechanism was designed, in the words of the officials who drafted it, to keep the agreement from going stale. In practice, it has handed Washington recurring leverage. By declining to confirm the extension in July, the United States converted the review into an open-ended renegotiation without formally withdrawing from anything, and without triggering the six-month exit notice that outright withdrawal requires. Mexico and Canada, whose economies each send roughly three-quarters of their exports to the United States, have little choice but to negotiate under a mechanism that, by design, never forces Washington to conclude.
The stakes are measured in trillions. North American trilateral trade has roughly tripled since NAFTA’s inception, and Mexico and Canada have been the United States’ two largest trading partners for most of the past decade, together accounting for well over 1.5 trillion dollars in annual two-way goods trade. Integrated supply chains in autos, agriculture, energy, and aerospace were built on the assumption of duty-free continental access. Every month of review uncertainty tests that assumption a little harder.
How the Review Broke in Two
The formal trigger for the current situation came on July 1, when the USMCA Free Trade Commission met for the agreement’s first scheduled joint review. Mexico and Canada both declared themselves ready to renew the pact as written. The United States declined to confirm the 16-year extension, a decision that did not terminate the agreement but instead kicked off an annual review process that could, in theory, run all the way to the agreement’s 2036 expiry. US Trade Representative Jamieson Greer, in a statement accompanying the review, said the United States would continue to engage both partners to address the agreement’s shortcomings and US trade deficits.
Washington then did something neither partner wanted: it split the negotiation into two bilateral tracks. Mexico and Canada have both pushed to keep the process trilateral, a preference rooted in the view that integrated North American supply chains cannot be renegotiated in halves. The administration has not budged, and the two tracks have since diverged dramatically.
On the Mexican side, negotiators have held substantive rounds in May, June, and July, the third of which, in Mexico City from July 21 to 23, included a meeting between Ambassador Greer and President Claudia Sheinbaum. Economy Secretary Marcelo Ebrard reported afterward that the US list of trade irritants had been whittled from 54 items to 14. A fourth round is set for Washington in early September, and it is widely viewed as the crucial test of whether the two governments can close the remaining gaps this year.
The Canadian side collapsed. On July 20, President Trump invoked Section 338 of the Tariff Act of 1930, a provision never before used this way by any president, to impose 50 percent tariffs on a range of Canadian goods including autos, alcohol, and dairy-adjacent products, citing Canadian trade practices Washington characterized as discriminatory. The duties, which apply regardless of whether goods qualify for USMCA preferences, took effect August 22 after last-minute talks broke down. Prime Minister Mark Carney suspended negotiations on August 21, recalled Canada’s negotiating team, and called the American demands “uneconomic” and “unfair.” In a September 3 public speech, Carney reiterated that Canada had suspended trade negotiations and that the US tariffs had been imposed; on September 5 he announced new measures aimed at protecting and transforming Canada’s strategic industries. There is no public date for talks to resume.
What Takes Effect September 8
Canada’s countermeasures, finalized this week, mirror the scale of the American action: roughly 27.6 billion dollars of US exports, by Ottawa’s accounting, sorted into three tiers by perceived strategic exposure.
At the top tier, steel and aluminum products face 50 percent duties, double the 25 percent counter-tariff Canada had maintained since March 2025, covering rods, bars, sheets, wire, foil, and derivative goods such as prefabricated bridges, towers, and door and window frames. Furniture and clothing, categories Canada had removed from its earlier retaliation list in September 2025, return at the full 50 percent rate. In the middle tier, dairy products including cheddar, mozzarella, brie, and Parmesan cheeses, milk and cream powders, and whey face 25 percent duties on volumes above existing tariff-rate quotas, alongside appliances and fish and seafood. Everything else on the roughly 700-to-900-item list, including agricultural equipment, pulp and paper, plastics, and electronics, enters at 15 percent. Canada’s long-standing 25 percent counter-tariff on US autos, never rolled back, holds steady. Ottawa has also opened a remission process through which affected importers can seek case-by-case relief.
The escalation is significant, but context matters for businesses assessing exposure. The US Section 338 duties cover about 27.6 billion dollars of Canadian goods, roughly 5 percent of Canada’s total annual exports to the United States, a figure that grew from an initial estimate of about 20 billion dollars as the product list was finalized. An estimated 81 to 85 percent of Canadian imports continue to enter the United States duty-free under existing USMCA preferences, and the large majority of two-way trade remains untouched, for now.
The Auto Fight at the Center of the Mexico Track
If Canada is the review’s open wound, autos are its unresolved core. Washington is demanding a 50 percent US-specific content requirement for vehicles to qualify for preferential USMCA treatment, a dramatic tightening from the current regional content rules. Mexico is resisting, arguing the demand is commercially damaging and would set a precedent for ever-tighter requirements. Mexico City has linked any concession on content rules to relief from the existing US Section 232 tariffs of 25 percent on autos and 50 percent on steel and aluminum, making the September round in Washington a package negotiation covering content, metals, and tariff relief simultaneously.
The stakes for the North American auto industry are difficult to overstate. Two decades of integration have produced supply chains in which components cross the three borders multiple times before final assembly. A 50 percent US content floor would force automakers to re-source thousands of parts, and manufacturers on all sides have warned that the transition costs would land on consumers already facing elevated vehicle prices.
Beyond autos, the remaining irritants list touches steel and aluminum, economic security, labor, agriculture, and electronic payment services. Former Congressman Kevin Brady, who chaired the House Ways and Means Committee during the original USMCA negotiation, argued this week that the US-Mexico track “is not in bad shape,” noting that each successive round has narrowed the open issues. Ambassador Greer, testifying before the Senate, said his goal is interim trade arrangements with both Mexico and Canada by the end of 2026, with the harder structural questions, automotive rules of origin, labor, and environment, deferred to 2027.
The Legal Cloud Over Section 338
Hanging over the Canada track is a novel legal question that trade lawyers expect to reach the US Court of International Trade: whether Section 338, a Depression-era provision authorizing the president to impose duties on countries that discriminate against US commerce, was properly invoked at all. The statute had never been used this way, and practitioners have flagged unresolved questions about whether the US International Trade Commission needed to conduct an investigation first and whether the more modern Section 301 process supersedes the older authority. As of September 4, the legal arguments have sharpened but no formal court challenge has been publicly filed.
The question matters beyond the lawyers. After the Supreme Court struck down the administration’s emergency-powers tariffs in February, the government’s remaining tariff actions rest on a patchwork of statutory authorities, Section 232, Section 301, and now Section 338, each with different procedural requirements and litigation vulnerabilities. A successful challenge to the Section 338 duties would not just unwind the Canada tariffs; it would mark the second time in a year that a pillar of the administration’s tariff architecture failed judicial scrutiny, with implications for every importer currently paying the duties and potentially another round of refund litigation of the kind still working through the courts on the invalidated emergency tariffs.
A separate US action complicates both relationships. In July, USTR finalized a Section 301 forced-labor enforcement measure covering 60 economies, including both Mexico and Canada, layering 10 to 12.5 percent duties on non-compliant goods. Mexican officials shrugged it off, noting that USMCA-compliant goods, an estimated 85 percent of Mexico’s exports to the United States, remain exempt so long as they satisfy rules of origin. No comparable reassurance has come from Canada, where the forced-labor action stacks on top of the Section 338 duties and the collapsed talks.
Stakeholders Sound the Alarm
Reaction from the business community on all three sides of the two borders has grown steadily louder as the September 8 date approached. American dairy producers, who fought for expanded Canadian market access in the original USMCA negotiation, now face 25 percent Canadian duties on over-quota cheese and milk powder shipments, and industry representatives have warned that hard-won gains in a market worth hundreds of millions of dollars annually are being unwound as collateral damage in a dispute that has nothing to do with dairy. US furniture and apparel makers, categories that returned to Canada’s retaliation list at the top 50 percent tier after being spared since 2025, describe the whiplash of planning around a tariff that vanished a year ago and has now reappeared at double the original rate.
Steel communities on both sides of the border are absorbing the hardest arithmetic. American mills selling into Canada face 50 percent counter-duties on rods, bars, sheet, and wire, while Canadian producers have lived under 50 percent US Section 232 tariffs since mid-2025. Fabricators in Michigan, Ohio, and Ontario that trade semi-finished products across the border multiple times in a single production cycle report that the stacked duties are making cross-border workflows uneconomical, accelerating a quiet regionalization in which each country’s fabrication increasingly stays home.
Canadian consumer sentiment adds a further drag that does not show up in tariff schedules. Boycott movements targeting American consumer brands, travel, and produce have persisted through the year, and US tourism operators in border states report sustained declines in Canadian visitors. Trade economists note that this informal retaliation, unpriced and unlegislated, may ultimately cost some American sectors more than the formal counter-tariffs.
In Mexico, the anxiety runs in the opposite direction: not escalation, but exclusion. Mexican business chambers have urged the Sheinbaum government to close a deal in Washington this month precisely because the Canadian example shows what the alternative looks like. President Sheinbaum has balanced cooperation with Washington, including on security and migration files that the administration has explicitly linked to trade goodwill, against domestic pressure not to concede the auto content rules that anchor Mexico’s industrial base. Her government has simultaneously raised Mexico’s own tariffs on Chinese goods, a move widely read as aligning with Washington’s continental security agenda and buying negotiating capital for the USMCA endgame.
Business Is Not Waiting
Whatever the diplomats decide, companies are already moving. Foreign direct investment in Mexico is down roughly 10 percent year over year amid the extended uncertainty, a notable reversal for a country that spent three years as the poster child of nearshoring. In Canada, a KPMG survey found 42 percent of manufacturers have shifted or plan to shift production to the United States, and 57 percent have paused or cut capital spending because of the trade uncertainty. None of this reflects any change in USMCA’s legal status, the agreement remains fully in force, but it demonstrates that supply chains are being redrawn on expectations rather than outcomes.
For US businesses, the practical exposure map looks like this. Exporters of steel, aluminum, furniture, apparel, dairy, appliances, and seafood to Canada face immediate margin pressure when the September 8 duties land, and should be evaluating Canada’s remission process, tariff engineering options, and in some cases whether Canadian customers can source from third countries. Importers of Canadian goods in the Section 338 categories, autos, alcohol, and building materials among them, are already paying 50 percent duties with no sunset date and should monitor the expected litigation closely. Companies with Mexican supply chains have a more hopeful watch: the Washington round this month is the most likely venue for tariff relief on autos, steel, and aluminum, and Mexican officials continue to signal that a deal, or at least an interim arrangement, is achievable this fall.
The Economic Arithmetic of a Two-Front Squeeze
Economists tallying the costs of the North American standoff emphasize that tariffs at these levels do not merely tax trade; they reroute it. A 50 percent duty is generally understood as prohibitive rather than revenue-raising, and early customs data on the Section 338 categories bears that out, with covered Canadian shipments falling sharply within weeks of the August 22 effective date. The pattern mirrors what happened to US beef, whiskey, and motorcycles under earlier retaliation rounds: volumes collapse, alternative suppliers absorb the business, and the trade often does not return even after duties lift, because supply relationships, once broken, are expensive to rebuild.
For consumers, the effects arrive with a lag but arrive nonetheless. Canadian duties on US steel and aluminum products feed into Canadian construction and manufacturing costs, while American duties on Canadian building materials, alcohol, and autos press on US housing, hospitality, and vehicle prices. Cross-border dairy and seafood duties raise grocery costs in both directions. Because the two economies are each other’s largest customers for so many categories, the dispute functions less like a conventional trade war between rivals and more like a tax the continent has imposed on itself, with the burden distributed by the accident of which products landed on which list.
The fiscal ledger is equally double-edged. Tariff revenue flows to both treasuries, and Ottawa has pledged to recycle its collections into support for affected industries, including the 1.5-billion-dollar Regional Tariff Response Initiative for small and medium-sized businesses, with expanded details expected September 8, the same day the counter-tariffs begin. Washington has made no comparable commitment to the American exporters absorbing Canada’s retaliation, a gap that farm-state and border-state lawmakers have begun raising as the costs concentrate in their districts.
What to Watch Next
Three markers will define the next month. First, the outcome of the US-Mexico round in Washington, which analysts across the spectrum identify as the review’s next concrete checkpoint. Second, whether Ottawa and Washington find a path back to the table after the September 8 counter-tariffs take effect, or whether the retaliation triggers a further American response; the President has said Canada’s dollar-for-dollar matching would be met in kind. Third, the first court filing against the Section 338 duties, which would open a legal front that could reshape the entire dispute.
The broader question, whether North America’s 30-year experiment in integrated trade survives in recognizable form, will not be answered this month. Greer’s own timeline concedes that the structural rework of the agreement will slip into 2027. But the two-track pattern of September 2026, a functional if difficult negotiation with Mexico and a tariff war with Canada, is hardening into the operating reality for every business that builds, grows, or sells across the continent’s borders. The agreement is alive. The certainty it was designed to provide is not.