The odds are against reaching a new trade agreement between the United States, Canada and Mexico before the U.S. midterm elections and any such pact would include tariffs, according to an analysis by S&P Global Mobility.

That bleak prediction comes as the negotiators for the three nations are fighting a July 1 deadline to complete a mandatory review of the U.S. Mexico Canada Agreement , or USMCA, that’s been in place since July 1, 2020, replacing the North America Free Trade Agreement.

At the same time, the United Auto Workers union has made a list of demands it wants included in an updated version of the trilateral trade agreement.

“We believe that there's at least a 40% chance of a trade agreement, probably well before the U.S. midterms, as the pressure starts to build, not only for the U.S., but for both Mexico and Canada to come to an agreement,” said Michael Robinet, vice president of forecasting, S&P Global Mobility during an online presentation to members of the Automotive Press Association on Wednesday.

That was a best-case scenario, illustrated in the chart below, descending to a 30% of an extension of the review period to mid-2027, a 10% chance of shifting to bilateral agreements with Mexico and Canada, all the way down to a 5% chance of ending the agreement, reverting to installing most favored nations tariffs.

In the middle, at 15% is something Robinet termed a “zombie” agreement.

“Essentially that is where you come to a trade agreement, but you strip out a number of different industries, and it really is sort of a shell of its former self,” explained Robinet. “So agriculture, lumber, autos, these are all possibilities. Labor could be another one that gets sort of stripped out. We feel that that's a much lower probability, and again, it's not probably in the best interest of really any country to do that.”

Among possible features of an updated USMCA the S&P analysis predicts include:

  • U.S. tariffs on USMCA-compliant vehicles built in Mexico and Canada at about a 10% level.
  • A “modest” U.S. value-add for vehicles built in Mexico and Canada sold in the United States. Robinet characterized figuring out how that would be determined as “a very complicated calculation.”
  • An increase in the labor content value to ensure a larger proportion of components in each vehicle are produced in the nation where vehicles are assembled.
  • Some method to control or limit content produced in China.

That last point is a major challenge since China has already made some inroads into North America through Mexico and its arrival on the continent is more of an eventuality, according to Robinet.

“The door is open,” he said. “Let's make sure we govern what's coming in the door, and this point forward, we want to try and use any FTA agreement to try and also structure how China competes in our market going forward.”

While it may be possible to hold off the arrival of Chinese automakers into North America for the next few years, Robinet predicted that longer term they’ll find their way in through joint ventures or acquiring an automaker.

Meanwhile, the UAW, which represents workers at each of the three Detroit-based automakers and workers at the Volkswagen plant in Chattanooga, Tennessee, has issued a set of demands for an updated USMCA centered on not only protecting U.S. jobs but improving economic conditions for workers in Mexico.

“There is no way back to the American dream without undoing the damage that NAFTA and its successor, the USMCA, have done,” said UAW president Shawn Fain in a webcast on May 21. “There's no future for the U.S. working class that doesn't address the free trade disaster.”

A key demand is finding an equilibrium in the imbalance in the proportion of vehicles built in the U.S. to those sold here.

To illustrate that imbalance, the union displayed the chart below asserting only 61 of every 100 vehicles sold in the U.S. are built here—an unfavorable comparison to the situation in other nations.

“What we put forward in our proposal is a quota system that would be based on this metric for light duty vehicles in particular,” said UAW legislative director Rajiv Sicora. “What it says is, if you want preferential tariff treatment, you add on an OEM by OEM basis, you have to get that ratio up.”

The union is also demanding a certain percentage of content be produced by workers earning “high wages,” which would include raising wages for workers in Mexico.

“We need to close the wage gap, we need to end the exploitation of Mexican workers, we need to raise wages, and that's not only to disincentivize offshoring, that's important, but it's also because Mexican workers deserve to make a living wage,” said Sicora.

The UAW also proposed creating a tri-national commission that would allow all three countries in a renegotiated USMCA to coordinate on industrial policy, according to Sicora.

The incentive to reach an agreement on an updated USMCA by July 1 is compelling. Failure to do so would accelerate the interval between mandatory reviews from six years to one, creating annual trade uncertainty in the region.