Trump Trade 2.0: USMCA Not Extended, Section 301 On German Pharma

U.S. Declines To Renew and Extend USMCA as Negotiations Continue

On July 1, U.S. Trade Representative Jamieson Greer announced that the United States would not agree to a 16-year renewal the United States-Mexico-Canada Agreement (USMCA) in its current form, opting instead to conduct annual reviews of the pact. The decision has no immediate effect, as it does not terminate USMCA. The Agreement remains in force, and its duty-free framework covering roughly $2 trillion in annual trilateral trade continues to apply while the three parties negotiate through the annual review process. Absent a subsequent joint decision to extend, USMCA would sunset in 2036, giving the three parties a decade-long runway to resolve outstanding issues (though any country could withdraw from the agreement with six months' written notice). In effect, today’s decision simply means that the U.S., at this time, is declining to extend the USMCA from 2036 to 2042.

The July 1 milestone marked the six-year anniversary of USMCA's entry into force, the deadline for the three governments to jointly decide whether to extend the Agreement for another 16 years through 2042. "The United States did not agree to renew the USMCA in its current form. As a result, the USMCA is not renewed," Greer said in a statement, adding that the U.S. "will continue to engage with Mexico and Canada to address the Agreement's shortcomings and our trade deficits with these countries." A senior administration official told reporters that President Trump "chose not to rubber stamp a USMCA renewal without addressing existing issues," identifying persistent U.S. trade deficits with both partners as the President's primary concern. Speaking to Bloomberg News ahead of the announcement, Greer said the Administration is "not prepared to rubber stamp the agreement" and that "several changes are needed to address imbalances."

Rules of origin, especially around automobiles, remain a key sticking point. The U.S. is pushing to raise the regional value content threshold from 75% to 82%, along with a new requirement that at least 50% of a vehicle's value be sourced from the United States. Concerns over Chinese-origin content routed through Mexican and Canadian manufacturing are also driving the U.S. push to tighten origin rules and screen third-country transshipments.

The Administration is continuing its bilateral negotiating with Mexico while talks with Canada remain relatively stagnant. Following the first bilateral round in Mexico City on May 28-29 and a second round in Washington on June 16-17 covering agriculture and "a level playing field," a third round is scheduled for the week of July 20 in Mexico City. Mexican Economy Secretary Marcelo Ebrard acknowledged the U.S. decision on X and said he does not expect the Agreement to be scrapped, but for negotiations to continue. Canadian Prime Minister Mark Carney said he expects a “constructive exchange” between the three countries. “The priority is to get a new deal. We're ready to negotiate an improvement of this agreement.”

Business groups including the U.S. Chamber of Commerce and the Business Roundtable have urged the Administration to strengthen and extend the Agreement, warning that rolling annual reviews create prolonged uncertainty for cross-border supply chains built on long-term investment horizons

Section 301 Investigation on Germany

On June 18, USTR initiated a Section 301 investigation into Germany's "persistent underpayment for innovative pharmaceutical products," marking the Administration's first Section 301 action targeting a European and NATO ally. The investigation examines whether Germany's drug pricing and reimbursement policies are unreasonable or discriminatory and burden or restrict U.S. commerce. It follows a May 2025 Executive Order which directed federal agencies to address foreign practices that suppress pharmaceutical prices below fair market value.

USTR is targeting two specific policies: a mandatory 9% price discount imposed on manufacturers as a condition for keeping negotiated prices confidential, and draft 2026 legislation that would impose a new mandatory rebate on patented medicines starting in 2027, beginning at 3.5% before transitioning to a variable rate that industry estimates could reach 20% by 2030. USTR cites a 3.9x price disparity between U.S. and German consumers for brand-name drugs as evidence that Germany's policies shift a disproportionate share of global pharmaceutical R&D costs onto U.S. patients and payers.

"President Trump has made clear that American patients should not be shouldering a disproportionate share of global pharmaceutical research and development," Greer said. The investigation runs parallel to the Section 232 pharmaceutical tariff regime announced April 2, which imposes duties of up to 100% on patented pharmaceuticals and active ingredients.

Written comments and hearing requests are due August 10, with a public hearing scheduled for September 22. See the full Federal Register notice here.

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