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JOINT BASE ANDREWS, MARYLAND – JULY 27: U.S. President Donald Trump returns from a trip to Michigan on July 27, 2026 at Joint Base Andrews, Maryland. Trump visited the General Motors’ Milford Proving Ground facility and spoke to supporters about U.S. auto manufacturing, tariffs, and supporting Republican candidates ahead of the August 4 primary. (Photo by Andrew Harnik\/Getty Images)<\/p>\n
Getty Images<\/p>\n
My calendar for July had two dates circled in red:<\/p>\n
July 1: This was the deadline for the Trump administration to renew the United States-Mexico-Canada Agreement (USMCA) for an additional term of 16 years. USMCA is the trade pact that operates as successor to the much-maligned North American Free Trade Agreement. Mexico and Canada already signaled their desire to extend USMCA under the agreement\u2019s joint review process (article 34.7); the United States declined to do likewise. The pact remains in full force through its original expiration date of July 1, 2036, unless extended, terminated, or renegotiated before then. The White House wants portions of USMCA rewritten.July 24: This was the expiration date for President Trump\u2019s initial batch of replacement tariffs, imposed under section 122 of the Trade Act of 1974. These tariffs were announced in February, within hours of the Supreme Court decision invalidating Trump\u2019s previous tariffs based on the International Emergency Economic Powers Act (IEEPA). (Prior analysis: Tax Notes Int\u2019l, Mar. 2, 2026, p. 1707<\/a>.) They applied to a wide range of imports and a wide range of countries, functioning much like a baseline tariff; a sort of across-the-board price for accessing the vast U.S. consumer market. By statute, section 122 tariffs expire after a period of 150 days, unless extended by an act of Congress. The section 122 tariffs rested on dubious legal grounds. They were justified on a balance-of-payment crisis that is nonexistent. Several importers have successfully challenged them before the Court of International Trade and are owed refunds.<\/p>\n These calendar entries have much in common. They hint at a protracted drama that complicates U.S. trade relationships and causes uncertainty for businesses. As a reminder, a major purpose of trade pacts, like USMCA, is to make cross-border trade more stable and more predictable. What we see is the opposite.<\/p>\n Dismantling USMCA<\/p>\n As August begins, two of the three parties to USMCA (Mexico and the United States) are willing to renegotiate key provisions; the third side (Canada) is not. In fact, U.S. trade officials have been speaking with their Mexican counterparts for some time. U.S. Trade Representative Jamieson Greer traveled July 21-23 to Mexico City for the third leg of USMCA talks, meeting with Mexican President Claudia Sheinbaum and Economics Minister Marcelo Ebrard. It\u2019s awkward to be holding bilateral talks regarding the fate of a trilateral trade pact.<\/p>\n Although the government of Canadian Prime Minister Mark Carney took part in the USMCA joint review process, which was mandatory, it is not participating in recent talks to renegotiate the substance of the trade pact. The refusal makes a tactical statement \u2014 nations should respect their treaty obligations. That\u2019s in direct response to Trump who, during his second term, has implemented tariffs that violate USMCA. Trump apparently feels unconstrained by the terms of his own trade deal. That\u2019s a serious problem for Canada.<\/p>\n WASHINGTON, DC – DECEMBER 05: Mark Carney, Prime Minister of Canada, and U.S. President Donald Trump chat during the FIFA World Cup 2026 Official Draw at John F. Kennedy Center for the Performing Arts on December 05, 2025 in Washington, DC. (Photo by Dan Mullan\/Getty Images)<\/p>\n Getty Images<\/p>\n It\u2019s not as though USMCA is some rusty relic of a past era. It was initially signed in 2018, signed again (after minor alterations) in 2019, and ratified in 2020. Trump once celebrated the agreement, calling it \u201cthe largest, fairest, most balanced, and modern trade agreement ever achieved.\u201d (White House, \u201cRemarks by President Trump at a Signing Ceremony for the USMCA<\/a>\u201d (Jan. 29, 2020).) Also, the agreement is massive in scope, easing barriers for an estimated $2 trillion in annual trade, accounting for roughly 30 percent of global GDP. Moreover, the agreement seems to be operating as intended, at least from a regional perspective. Since USMCA took effect intraregional trade has risen 37 percent, with intraregional foreign direct investment climbing 16 percent. Yet, these days Trump makes a point of publicly saying the United States would be better off without the USMCA. What has caused Trump to turn so sharply against one of the major achievements of his first term?<\/p>\n There\u2019s little evidence USMCA has lessened the U.S. trade deficit \u2014 an issue of particular emphasis to the White House. According to the USTR, the U.S. trade deficit with Mexico for 2025 was $197 billion \u2014 an increase of 14 percent relative to 2024. The trade deficit with Canada for 2025 was $46 billion \u2014 a 25 percent decrease from 2024. The recent data might not be representative of the broader trends under USMCA, because of the atypical activity witnessed during 2025. Trump\u2019s International Emergency Economic Powers Act tariffs included carveouts for USMCA-compliant goods, but Mexico and Canada felt the full brunt of Trump\u2019s section 232 tariffs on steel and aluminum \u2014 which applied irrespective of USMCA obligations. Ditto for Trump\u2019s worldwide tariff on automobiles and auto parts, which initially applied in full to autos imported from Canada and Mexico in violation of USMCA. He later amended the auto tariff to permit exceptions for the U.S.-content of the vehicles, but the USMCA violation remained.<\/p>\n Over the last 18 months, Mexico and Canada have adopted very different approaches for dealing with these tensions. Mexico has been more willing to offer concessions (including non-tax issues such as immigration and fentanyl). Canada has been more confrontational, reflected in Carney\u2019s flat refusal to renegotiate USMCA. Thus, we have the current state of affairs. Canada is content to live with USMCA, as ratified, for the foreseeable future. The White House views that as obstinate. The result, unsurprisingly, is more tariffs aimed at Canada. There\u2019s a nontrivial chance Trump will attempt to unilaterally terminate USMCA, allowing him to sign a stand-alone bilateral trade deal with Mexico and isolate Canada in the process. The question of termination is complicated by a Senate Finance Committee report which opines that the executive branch cannot terminate trade pact without congressional approval. That\u2019s economic diplomacy in 2026.<\/p>\n Beer, Cheese, and Hockey Sticks<\/p>\n Separately, the Trump administration has spent the first half of the year seeking alternate legal authority for its aggressive trade stance. IEEPA tariffs are off the table (thankfully), and section 122 tariffs were always a temporary fix. We learned in June that Trump\u2019s next batch of replacement tariffs would be based on section 301 of the Trade Act of 1974, justified (supposedly) by foreign \u201cforced labor\u201d practices. The section 301 tariffs took effect July 24, concurrent with expiration of the section 122 tariffs. The newer measures aren\u2019t quite a global baseline tariff, but they\u2019re close. They cover imports from about 80 countries, representing the bulk of U.S. imports. They apply at rates ranging between 10 percent and 12.5 percent. (Prior analysis: Tax Notes Int\u2019l, June 22, 2026, p. 2201<\/a>.)<\/p>\n Beyond those of section 301, the additional tariffs aimed at Canadian imports are noteworthy for the statutory framework on which they\u2019re based. Here, Trump dares to venture down a path few thought he\u2019d take. He\u2019s relying on section 338 of the Tariff Act of 1930, better known as the Smoot-Hawley legislation. It\u2019s the first time any U.S. president has done that in 96 years.<\/p>\n It\u2019s natural to draw historical comparisons. Trump is borrowing a page from Hoover\u2019s economic playbook. Let\u2019s hope things work out better than they did in 1930. If it\u2019s any small comfort, we can be pleased that these new tariffs are not officially linked to the wildfires in rural Ontario that recently caused sooty air to foul the skies over U.S. cities \u2014 contrary to Trump\u2019s previous threat.<\/p>\n WASHINGTON, DC – JULY 17: Smoke from massive wildfires in Canada and Minnesota engulf the Washington, D.C. skyline, reducing visibility and casting a colored haze over the U.S. Capitol Building on July 17, 2026 in Washington, D.C. Authorities are continuing to monitor for unsafe conditions as air quality alerts are in effect across a vast portion of the United States. (Photo by Finn Gomez\/Getty Images)<\/p>\n Getty Images<\/p>\n Until now, Smoot-Hawley has been known for two things \u2014 neither of them favorable. First and foremost, the statute is blamed for making the Great Depression much worse and much longer than it needed to be. Section 338 bears a natural link to the beleaguered presidency of Herbert Hoover, whose name is indelibly associated with economic decline and mass unemployment \u2014 as in \u201cHoovervilles.\u201d The second connotation is a cinematic snippet (from the 1980s classic Ferris Bueller\u2019s Day Off) that is now a cultural meme for academic discussions that lull participants to sleep out of sheer boredom.<\/p>\n To that list, we can add a third entry. Section 338 authorizes the president to impose ad valorem tariffs at rates up to 50 percent upon the finding that a foreign government has discriminated against U.S. exports. The discrimination \u2014 real or imagined \u2014 is the basis for new tariffs targeting a hodgepodge of Canadian goods totaling $20 billion per year. The affected goods include wine, dairy products, cement, plywood, wigs, men\u2019s suits, and (symbolically) hockey sticks.<\/p>\n