China’s Role in the USMCA Review

The Dragon Outside the Negotiating Room

When the review of the United States-Mexico-Canada Agreement (USMCA) takes place in 2026, and officials from the three North American countries sit down together to see whether they can agree to extend the agreement for 16 years, Chinese representatives will not be in the room. However, Chinese trade and investment will be on the minds of the North American negotiators; as with the North American Free Trade Agreement (NAFTA) renegotiation that created the USMCA, China will be the non-party that will feel the most impact from any changes to North American trade and investment rules.

In particular, China may be affected by the following: 1) efforts to coordinate policies of the USMCA parties on issues such as tariffs, economic security, or labor rights; and 2) any tightening up of rules of origin in the auto or other sectors that limits the flow of Chinese content to the North American market.

This brief examines the details of existing USMCA rules that address Chinese trade and investment issues, looks at developments that occurred after the USMCA came into effect, and considers stakeholder input being offered as part of the three governments’ preparation for the review. Finally, it sets out some possible areas for policy changes targeting Chinese trade and investment as part of a decision to extend and revise the USMCA.

Laying the Foundation in the NAFTA Renegotiation

Trade with China was an important issue in the 2017–19 NAFTA renegotiation. A key demand from the U.S. was to tighten up the rules of origin for trade in automobiles between the parties, by establishing a higher level of North American content for automobiles that are deemed to originate in the three parties and benefit from the agreement’s lower tariffs. By requiring more North American content, the agreement would have the effect of limiting components from China and elsewhere.

Concerns about China also led to the creation of the Article 32.10 Non-Market Country FTA provision in the USMCA. This provision explains that a non-market country “is a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement.” This covers more than just China, but it is clear that China was the non-party that was the focus of the provision. (The provision technically applies to all three USMCA parties, but it was “likely aimed primarily at Canada,” which was taking serious steps to negotiate an FTA with China around that time.)

The provision sets out some procedures to follow before any of the USMCA parties “commence free trade agreement negotiations with a non-market country.” At least three months prior to the negotiations, a party shall inform the other parties of its intentions. And upon request, the party “shall provide as much information as possible regarding the objectives for those negotiations.” Before the date of signature of the FTA, the party “shall provide the other Parties with an opportunity to review the full text of the agreement.” Entry by a party into such an FTA “shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).”

Practically speaking, the provision may have been more of a formal confirmation of how the U.S. would approach these issues, as it could have put pressure on Canada and Mexico even without a provision such as this one. Nevertheless, formalizing the policy through an explicit provision in a trade agreement gives it a bit of extra weight and importance.

Building New Walls Before the USMCA Review

For several years now, the U.S. government has been pushing for greater alignment by Canada and Mexico with regard to economic relations with China, on policies related to both trade and investment. The Biden administration began this effort, and the Trump administration has continued it.

In Canada, the previous government led by Prime Minister Justin Trudeau followed the U.S. lead in imposing high tariffs on certain imports from China. In August 2024, the Canadian government announced that it would impose 100% tariffs on imports of electric vehicles (matching U.S. tariffs on these products) and 25% tariffs on Chinese steel and aluminum, along with initiating discussions on imposing tariffs on additional products, including batteries and battery parts, semiconductors, solar products, and critical minerals.

Not surprisingly, the Canadian actions have led to trade tensions and several formal trade disputes with China, including the following. First, China filed a World Trade Organization (WTO) complaint against the Canadian tariffs. It also initiated a domestic anti-discrimination investigation, the findings from which it used as the basis for imposing a 100% tariff on rapeseed oil, oil cakes and peas and a 25% tariff on various other items, including aquatic products and pork (it later made a preliminary finding of dumping related to Canadian canola oil as well). Canada then filed its own WTO complaint against these Chinese tariffs.

Whether the two governments can find a permanent resolution to all of their trade irritants is unclear, although they recently announced a deal that addresses a number of them. Implementation may face some hurdles though, as Canada is under pressure from the United States to restrict Chinese imports, and Canada’s dependency on the U.S. market for a large portion of its trade will make it difficult to go against U.S. wishes.

Turning to Mexico, the Biden administration had pushed the Mexican government for enhanced foreign investment screening to serve as a check on Chinese investment in Mexico, based on concerns about national security, and the Trump administration has continued with these demands.

More recently, the Mexican government proposed tariffs on imports from non-FTA partners, with Chinese imports to be affected the most. The legislation was passed in December 2025 and came into effect on January 1. Unlike the Canadian tariff actions, Mexico’s new tariffs appear to be within the limits allowed under its WTO obligations, which makes them easier to defend at the WTO. Nonetheless, China decided to launch a domestic investigation against Mexico’s “restrictive measures,” claiming that they “will seriously damage the trade and investment interests of Chinese companies.”

Stakeholder Input Ahead of the USMCA Review

All three USMCA governments are soliciting stakeholder input on the negotiating objectives they should pursue in the review. Concerns related to China have played a prominent role in the stakeholder comments submitted in each country.

In Canada, as part of a study by the Standing Committee on International Trade in the House of Commons that began in October 2025 (there was also a study in 2024), the following issues have been raised by Members of Parliament (MPs) or by the witnesses providing testimony:

• An MP pressed an associate assistant deputy minister in Prime Minister Mark Carney’s government about U.S. pressure on issues related to China, asking whether the U.S. government has been “raising any concerns about Canada forging closer ties with China.”
• Another MP brought up “strategic coordination with the United States, as compared to China,” noting that “in many respects, the United States doesn’t trust Canada, perceiving it somewhat as a sieve, and at times, as a partner that is not very serious from a strategic standpoint,” and then asking a stakeholder: “How do you think we could strengthen that coordination and allay some of the fears of the Americans?”
• When asked by an MP if Mexico serves as a “conduit” for Chinese auto parts and vehicles, an industry representative confirmed the practice. This activity, he said, has prompted both Canada and successive U.S. administrations to focus on "closing the doors" to such imports via Mexico. And a representative of the Canadian Vehicle Manufacturers’ Association said: “We must align with the United States on the approach to China. ... we are strongly supportive of what the government has done with respect to the China surtax order, which levies a 100% tariff on Chinese-manufactured EVs. If we are going to secure a trade agreement with the Americans, we simply cannot be out of step with them on China, and we think that the government should do even more. There should be efforts to ban certain Chinese-connected vehicle software — again, aligned with what the U.S. has done — and to strengthen trade policy and investment authorities to ensure we can be more responsive to anti-subsidy investigations and any national security threats in the EV battery supply chain.” Also on autos, another MP asked whether the auto parts representative would “recommend that the government reduce the tariffs on Chinese imported electric vehicles?” The response was: “No. There’s no upside to that.”
• A trade policy expert from a U.S. think tank testified that: “The central policy choice for Canada will be the extent to which it is asked to replicate the U.S. tariff and investment screening regimes with respect to imports and investment from China, and possibly other countries as well. Failure to address U.S. concerns about circumvention risks a successful USMCA review and could lead to ongoing, or even higher, U.S. restrictions on trade with Canada.”
• A representative from the Canadian Manufacturers and Exporters association discussed “unfair” Chinese practices, stating: “Canada does a lot of business with China. We sell a lot to China. Canadian manufacturers rely on a number of Chinese inputs that cannot be accessed in Canada or in the North American Market, so it is not completely one or the other. However, there are specific sectors and activities where we know China is undertaking these unfair activities. Those are where we think there’s opportunity to continue to align with the U.S., in particular, and with Mexico to protect the North American market.”
• A former Canadian trade negotiator offered thoughts on the problem of Chinese dumping that comes through Mexico, and whether existing USMCA rules are sufficient: “Without a doubt, we need to go further. This is one of the issues on which we can work with the U.S. Mexico will be a bit more difficult, but I think they won’t have a choice but to join in. China is dumping products in our markets, overproducing, being forced to find other markets for the various things they produce and subsidizing products very heavily. This is one of the areas where we can have common effort with the U.S., which would put us on the same page, in part, in the upcoming negotiations. We can take common approaches against China so that we have a coherent North American approach to deal with these issues. Don’t just do it country by country, because there’s always going to be one country that’s weaker than the others. Let’s have a common approach to deal with this.”

Turning to the U.S., the stakeholder input process consisted of both written comments and a three-day hearing. The submissions and discussions that touched on China are too numerous to summarize here, but two illustrative ones are as follows.

Silverado, a think tank, argued for “a diversified North American supply chain that reduces reliance on China,” with several specific suggestions:

1. Adopt unified external tariffs on Chinese critical mineral inputs, equipment, and downstream products. This coordinated front would signal the necessity of supply chain shifts, even if implemented gradually.
2. Implement a common transshipment tariff modeled after the July 2025 U.S. measures to address duty circumvention.
3. Establish rules of origin for minerals mined, processed, recovered, or recycled in North America to incentivize regional demand through preferential tariff treatment.

With regard to the broader issue of “countering China,” Silverado noted that its recommendations “are designed to counter China’s use of export restrictions, price manipulation, and supply control in the global minerals market by creating a unified North American front under the USMCA.”

In a submission reflective of general domestic industry concerns, the Alliance for American Manufacturing (AAM) pointed to China’s strategic exploitation of the USMCA via Mexico. The group stated that the agreement has inadvertently funneled significant “backdoor” benefits to China, with Chinese firms using Mexico as a base to evade U.S. tariffs and exploit rules-of-origin loopholes to import goods duty-free. It argued for action to stop these trends, saying that without “a more robust response by Mexico, gaps in the USMCA’s rules of origin will continue to accelerate a structural shift in wealth and production from the United States to China via Mexico,” which “undermines the agreement’s intent, distorts North American supply chains, displaces U.S. jobs, and erodes the foundation of U.S. manufacturing and national security.”

AAM’s specific recommendations focus on curbing the influence of China and other adversarial nations while synchronizing trade policies to combat non-market imbalances. In this regard, AAM said “Canada and Mexico should accelerate their ongoing efforts to align their trade policies with U.S. measures on tariffs, China engagement, and supply chains.” Additionally, AAM advocates for screening mechanisms for Chinese foreign direct investment to favor North American content and support reshoring efforts. Finally, the group calls for heightened oversight of imports in sectors like steel, aluminum, and autos to address overcapacity, the creation of a surge protection tool modeled after Section 421 relief, and the rigorous enforcement of existing bans on goods produced with forced labor.

After receiving the comments and holding the hearing, U.S. Trade Representative Jamieson Greer reported to the relevant congressional committees on the Trump administration’s preparations for the USMCA review. In doing so, he made reference to various China-linked issues that were raised by stakeholders: “numerous stakeholders highlight[ed] the need to address the distorting effects of non-market policies and practices, such as industrial overcapacity, on the USMCA free trade area,” while others “advocated for further cooperation on export controls and foreign investment screening mechanisms.”

Outside the context of the formal USMCA review, Oren Cass, a conservative commentator who is influential within the Trump administration, argued in a Financial Times piece that a new USMCA should emphasize “sovereign control rather than the physical presence of companies and a common external boundary rather than global integration.” In this regard, he noted that under existing rules, if Chinese automaker BYD “set up shop in Mexico and produced under USMCA-negotiated rules, its cars were welcome in the US market.” However, he noted, “BYD building in Mexico does not alter the fact that it is controlled and subsidized by the Chinese Communist party.” To address this vulnerability, he advocates that the three North American allies “jointly commit to a policy of ‘China out,’ and extend it to other countries that integrate their supply chains with China’s.”

Finally, as for Mexico’s consultations with stakeholders, while its process has not been open to the public, news reports provide a few details. Maria Lourdes Medina, president of Mexico’s National Manufacturing Chamber, has explained that “this [consultation process] will be useful to all of us because it is a timely exercise, and indispensable for Mexico to arrive at the revision scheduled for 2026 with a single, solid, technical, and unified stance.” She added that Mexico’s position “must be shaped by the interests of those who produce, export, innovate, and generate employment.”*

According to Mexican commentators, one of the big issues will be China. Oscar Ocampo of the IMCO think tank has said: “The question is how to take on this challenge, how to align a policy of trade and investment with China, the United States and Canada, so as not to affect Mexico’s competitiveness. There are products where China is a very big partner, for example, car imports, given that in the sale of imported vehicles in Mexico, China has a market share of 30%. In a few words, during the revision the subject of China will be quite relevant.”*

As noted above, Mexico has already imposed tariffs on Chinese imports, as a preemptive measure. However, it is still trying to find a balance in its relations with China, and while it did impose tariffs of up to 50% on some Chinese imports, it actually adjusted some of the tariffs downward on a few of these products.

Economic Relations With China Under a Revised USMCA

If the USMCA parties decide to extend the agreement as part of the review, there are likely to be some changes that target Chinese trade and investment, either based on the stakeholder input or developed internally by the three governments. These changes could be part of a revised agreement text or they could be reflected in informal policy coordination.

Forced Labor

One area of possible USMCA changes related to China is import restrictions based on concerns about the use of forced labor. In recent years, the U.S. has ratcheted up its efforts to enforce Section 307 of the Tariff Act of 1930 as it relates to imports made with forced labor, with more Withhold Release Orders being issued for  these imports. There has been some litigation in U.S. courts on these issues, but at this point the full impact of this U.S. law and the ability of Chinese exporters to comply or push back remains uncertain. Along the same lines, the Uyghur Forced Labor Prevention Act (UFLPA) was enacted to target a specific subset of forced labor concerns. Litigation in this area is ongoing as well, with the Trump administration recently rejecting a company’s request to be removed from the list.

At the USMCA stakeholder input hearing in the U.S., a representative of the National Council of Textile Organizations recommended that the U.S. government request Canada and Mexico “to adopt legislation similar to the Uyghur Forced Labor Prevention Act to crack down on goods made with Xinjiang slave labor.” Canada has already held parliamentary hearings that touched on forced labor policies, with discussions of whether to move Canadian policies in the direction the U.S. has taken. At a recent hearing, a Canadian MP noted that “the United States has stopped far more shipments [on the basis of forced labor concerns] than we have,” and asked the expert witnesses providing testimony whether doing more on forced labor would improve Canada’s engagement with the U.S. One response was that “it’s absolutely a win-win situation in terms of going to the renegotiation table with something in hand that says that we will definitely do better, that we can do better and that we’ll prove it.” For Mexico, this issue may be a more sensitive one, as Mexico has often been accused of unfair labor practices itself. In relation to the USMCA review, any new USMCA provisions in this area could be similar to those already incorporated in the trade agreements the Trump administration has negotiated with Malaysia and Cambodia.

U.S. Trade Representative Greer’s report to Congress on the USMCA review also mentions this issue, noting the need for Canada and Mexico to more effectively implement their prohibitions on goods produced with forced labor.

Rules of Origin

Second, as with the original NAFTA renegotiation, rules of origin will be a key area of reconsideration in the USMCA review, focusing on how Chinese exports to North America are treated under the agreement. As Greer put it in recent testimony to Congress, “rules of origin need to be addressed, because I want to make sure that the benefits of the agreement go to the members of the agreement, and not some third country in Asia somewhere.”

Kenneth Smith Ramos, the Chief Trade Negotiator for Mexico from 2017 to 2018 and one of the architects of the USMCA, has explained the important role of Chinese investment in Mexico and its ties to rules of origin issues. Since 2015, he noted, this investment has increased by a multiple of five. The auto parts sector in particular has been a focus. While he said that currently we are “not seeing Chinese OEMs producing vehicles to export in the United States,” nevertheless that has become “an issue of political concern in the United States — to what degree Chinese investments in Mexico would be looking to evade specific restrictions that the U.S. has imposed on China.”

Smith Ramos has questioned whether adjustments to the USMCA’s rules of origin would be an appropriate way to address this issue. He noted that, if the U.S. tried “to tinker with the rules of origin in order to discriminate specifically against China” as part of the USMCA review, that would be “a dangerous precedent internationally, because we will be changing a paradigm that we’ve been using for decades, if not for half a century, on how to establish rules of origin in trade agreements, at the WTO and of course in the North American region.”

Nevertheless, despite the external warnings, the Trump administration is likely to push for exactly this kind of change, based on stakeholder input it has received and its own view of the issue. In this regard, Greer’s report to Congress sets out the following objective: “Strengthening the rules of origin for non-automotive industrial goods to ensure that the benefits of trade in those products flows substantially to the Parties.”

And while Mexico has been the focus of rules of origin concerns, similar issues have been raised in relation to Canada. U.S. business groups claimed during the U.S. stakeholder input process that Canada has been a back door for Chinese products to get into the U.S. market.

Economic Security

A third area that could be addressed by the USMCA parties is additional coordination on the issue of economic security, including concerns about foreign investment from China and the treatment of Chinese “connected vehicles.”

On foreign investment, a focus here could be the establishment of a formal investment screening authority in Mexico, which, as noted above, the Biden administration had been pushing the Mexican government on. Such a mechanism would apply to all foreign investment but would likely focus its efforts on the large amount of Chinese foreign investment in the country. This screening would be about security in a very general sense, giving Mexico the flexibility to reject investments in a broad range of sectors. Mexico may be a bit hesitant to proceed, however, both because of its need for investment and the potential political fallout in its relations with China, as well as the resources needed to manage such a mechanism. On this point, Greer’s report to Congress notes that Mexico has already been working to finalize “a legislative proposal that establishes a mechanism to review inbound investment for national security risks.”

As to “connected vehicles” made by Chinese companies, the Biden administration took action to restrict these vehicles in the U.S. market. Canada has been considering following the U.S. lead, and there has been a push from members of the U.S. Congress for Mexico to do the same.

Tariff Coordination

A final area for possible changes as part of the USMCA review is something along the lines of the common external tariff called for by various stakeholders. While perfectly coordinated external tariffs among all three USMCA governments may be unlikely, the recent moves by Canada and Mexico to increase some of their tariffs so that they are better aligned with U.S. tariffs indicates that this idea has some government support. On this issue, Greer’s report to Congress notes that Mexico’s tariffs on imports from non-FTA partners was an example of Mexico taking “significant concrete steps to address our concerns.”

The Trade Stakes for North America

Any changes along the lines set out above as part of the USMCA review will need to be navigated carefully by Canada and Mexico, which run the risk of increased tensions with China. Their proximity to, and economic dependence on, the United States means that they need to put that relationship first, but nevertheless China is an important economic partner for both countries, and they cannot ignore the potential for negative economic impacts from adopting these new policies.

Notably, no one in the administrations of any of the three USMCA governments is talking about “decoupling” from China these days. Whatever tweaks are made will be carefully crafted and somewhat narrow, maintaining a Chinese trade and investment relationship with all three countries. Nevertheless, assuming the USMCA is extended, there are likely to be changes as part of the USMCA review that reduce China's economic involvement in North America to some degree, and this will be one of the most significant outcomes of the review.

*Translated from the original Spanish by the Claudio X. González Center for the U.S. and Mexico, unless otherwise noted.

This publication was produced by Rice University’s Baker Institute for Public Policy. Wherever feasible, the material was reviewed by outside experts prior to release. Any errors or omissions are solely the responsibility of the author(s). 

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