Societe Generale expects the USMCA to enter a prolonged negotiation cycle rather than lapse, after remarks from Mexican and US officials indicated disputes are not irreconcilable. The bank points to an annual-review framework that can keep talks active and sustain pressure points, particularly around trade imbalances, rules of origin, and the presence of third-country—especially Chinese—content in North American supply chains.
The framework is described as giving Washington continued leverage to seek concessions on manufacturing localisation, supply-chain security, and market access. As a result, further rounds of negotiation-related headlines are likely as the review process repeats, although structural factors such as regional supply-chain integration, business lobbying, bipartisan backing in the US Congress, and the strategic aim of competing with China underpin expectations of an eventual compromise.
USMCA Review Dynamics and Integration
Given the ongoing 2026 USMCA review, we see a period of extended negotiation rather than a collapse of the trade agreement. The review process is being used to exert leverage on issues like rules of origin and Chinese content in supply chains. This means traders should prepare for a steady stream of market-moving headlines but not position for a full rupture.
The economic integration is simply too deep for the agreement to fail, with U.S. trade with Canada and Mexico totaling over $1.5 trillion in the last year. This reliance, especially in the auto and manufacturing sectors, creates a strong foundation for an eventual compromise. The strong bipartisan support for the pact in Washington further reduces the tail risk of a termination.
Market Impact and Trading Strategy
We anticipate this environment will create significant short-term volatility in currency markets, mirroring the sharp swings seen in the Mexican Peso during the original NAFTA renegotiations in 2017-2018. Recent statements from USTR officials regarding unresolved concerns have already caused minor fluctuations in the USD/MXN and USD/CAD pairs. We expect this pattern of headline-driven price action to continue through the summer.
This outlook suggests traders should consider selling longer-term, out-of-the-money puts on assets exposed to North American trade, capitalizing on the low probability of a worst-case scenario. It may also be profitable to purchase short-dated straddles on currency pairs ahead of scheduled talks to benefit from the expected price swings. This strategy positions to harvest volatility while viewing a catastrophic outcome as unlikely.
