President Donald Trump’s recent imposition of tariffs on Canada and Mexico is highly controversial and potentially violates the United States-Mexico-Canada Agreement (USMCA). While the Trump administration argues that these tariffs are allowed under Article 32.2 of USMCA for national security reasons, many experts and trade officials disagree.
USMCA language was attached to Chapter 98 of the Harmonized Tariff Schedule of the United States (HTSUS). The United States International Trade Commission modified the HTSUS to include additions related to the USMCA, including changes to Chapter 98. Specifically:
- General Note 11 was added to the HTSUS, incorporating the USMCA rules of origin for preference purposes.
- The special program indicator “S” or “S+" for the USMCA was inserted in the HTSUS “special” rate of duty subcolumn.
- Subchapter XXIII of Chapter 98 of the HTSUS was modified to insert U.S. Note 11, which contains information on Mexican and Canadian textile and apparel goods eligible for special tariff treatment subject to Tariff Preference Levels (TPLs).
These modifications were made to implement the preferential tariff treatment and related customs provisions of the USMCA, ensuring that the HTSUS reflects the agreement’s requirements for determining eligibility for preferential tariff treatment under the USMCA
There are several reasons why President Trump’s new tariffs on Canada and Mexico are seen as problematic under USMCA:
- Violation of free trade principles: The USMCA was designed to promote free trade among the three North American countries. The imposition of broad 25% tariffs goes against this core principle.
- Undermining the agreement: Trade experts argue that these tariffs “blow a complete hole” in the USMCA, making it “virtually worthless” to Canada and Mexico.
- Potential breach of USMCA: A report from the U.S. Congress warns that the unilateral implementation of these tariffs could breach the USMCA, potentially sparking a trade conflict.
- Disruption of integrated supply chains: The tariffs threaten to disrupt the highly integrated North American production chains, which could harm industries in all three countries.
- Erosion of trust: The tariffs are seen as damaging to the trust and relationships built between the U.S. and its closest trading partners.
Bottom line: While the Trump administration claims the tariffs are justified under the national security exception in USMCA, this interpretation is contested. The broadening of the “essential security” clause in USMCA compared to NAFTA does give more leeway, but it’s debatable whether it extends to the current situation, sources advise. While the legality of the tariffs under USMCA is disputed, many experts argue that they should not have been imposed as they undermine the spirit and intent of the agreement, potentially harming economic relationships and integrated industries across North America.