North American Trade at a Crossroads on the Deadline of USMCA Review

Risk Outlook: July 1, 2026

Jul 01, 2026

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Elton Smole and Carter Spahn examines the state of the USMCA review process.

North American Trade at a Crossroads on the Deadline of USMCA Review

By Elton Smole and Carter Spahn

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On July 1, 2026, the United States, Mexico, and Canada must decide whether to extend the US-Mexico-Canada Agreement (USMCA). When USMCA was initially negotiated in 2020, the parties agreed to a 16-year term. However, the US proposed a “sunset clause,” which calls for the parties to meet six years after the agreement’s implementation for review. With USMCA’s sixth anniversary now upon us, it appears unlikely that the agreement will be extended by 16 years, meaning it will enter an annual joint review process until 2036, with termination on the table. The US wants to extract additional concessions to narrow its trade deficit and avoid the transshipment of Chinese goods, while Mexico and Canada seek to broadly preserve USMCA. Amid strained US relations with its neighbors, the rocky negotiations risk a continuation of tariffs on Mexican and Canadian goods and greater uncertainty around long-term investment decisions from companies.

In today’s full analysis:

From NAFTA to USMCA
North American Leaders Divided on Key Revisions
High Stakes and Emerging Risks

Read the Full Report Here

Global

The World Bank drops its target for 45% of its funding to go to climate financing. The Trump administration has pressured the international lender, arguing that the goal distorted economic decision-making and moves the bank away from its core mission. The World Bank decision came after months of negotiations, with European and developing countries supporting retaining the target and the climate action plan. However, the US holds effective veto power as the largest contributor to the bank. Significantly, the World Bank Group announced at the same time that it extended the Climate Change Action Plan, first adopted in 2016.

World Bank leadership is signaling that the drop of the planning target is unlikely to impact actual climate-related financing. Demand remains strong and the switch to a “smart development” strategic framework that targets real-world development outcomes, such as job creation, food security and adaption over migration, integrating resilience and sustainability into core lending. The new strategic framework addressed US objection by focusing on results, rather in amount of spending. The climate focus does not disappear, but is termed as “climate co-benefits” to development projects supported by the bank.

Read More: Reuters [paywall], Financial Times [paywall], World Bank

Europe

The EU and China are establishing a high-level consultative mechanism to balance the bilateral trade relationship, standing at an annual EU deficit of €360 billion. The EU’s Trade Commissioner, Maroš Šefčovič, suggested that tangible results could be seen by October across four buckets of dialogue: trade and investment balancing, export controls, intellectual property rights, and WTO reform. The first step will be setting up a mechanism to monitor trade flows and identify spikes that could warrant a ministerial-level meeting.

The agreement undertakes a cooperative managerial rather than confrontational approach. The EU is worried about the competitiveness of its industrial base, which is struggling against the economies of scale and lower energy costs of Chinese competitors. At the same time, the EU does not want to trigger Chinese export controls on critical minerals as it embarks on its own industrial policy, like the anticipated Industrial Accelerator Act (IAA), which will utilize public procurement to cultivate European champions in the electric vehicle, battery, and renewable sectors.

The dialogue gives the European Commission flexibility while EU member states settle on a China approach. The EU bloc is divided on how to engage China. Some, like France, seek greater protection of European champions, while countries like Germany favor free trade. After a European Council summit in mid-June, the Commission is reportedly drafting additional trade tools to give the bloc greater leverage in negotiations and potential escalation.

Read More: Politico, Reuters [paywall], Stepwise Risk Outlook

Middle East

President Trump was briefed on options to return to all-out war with Iran but has opted to continue negotiations, sources in the Administration told the Wall Street Journal. The briefing (and the fact that they were leaked) point both to the US’ commitment to the diplomatic path and to a desire to maintain some leverage over Tehran in the form of potential future attacks. The president has repeatedly publicly threatened to return to active conflict if Iran does not concede at the negotiating table, but the incentives to seek a deal are strong for the US, chief among them the economic shocks of a full re-closure of the Strait of Hormuz. President Trump was previously reported to say he would only return to hot conflict if an American was killed.

Trump also reportedly okayed negotiations with Iran stretching past August 18th, the 60-day deadline in the MOU. The tacit extension of the deadline gives the talks more time to work than the 60-day cap, which was already seen as quite short. However, it puts into question other elements of the MOU that are also on a 60-day timer, like Iranian commitments to provide safe passage through the Strait (already inconsistently applied) or oil and gas sanctions waivers. The Trump administration was always unlikely to restart the conflict in the thick of midterm campaigning, though, and may be allowing for an imperfect but stable ceasefire to carry through November.

Read More: Wall Street Journal [paywall], The Jerusalem Post, Time Magazine

Asia-Pacific

An Indonesian court sentenced the country’s most prominent tech tycoon to 10 years in prison on Tuesday. Nadiem Makarim, who co-founded the app Gojek, was convicted of abuse of power and causing losses to the state over a contract to purchase Google computers while Makarim was minister of education. Prosecutors alleged that the non-competitive contract cost the government around $85 million in markups.

The high-profile case has shaken investor confidence in Indonesia. Critics within Indonesia’s legal community have questioned the fairness of the trial, raising concerns about the impartiality of the country’s legal system. This comes as investor confidence has already been shaken by an uncertain MSCI review of Indonesia’s status as an emerging market, and by the policies of President Prabowo Subianto. Subianto has introduced plans to expand government control of commodities exports.

Read More: New York Times [paywall], BBC, Reuters [paywall]

Americas

Keiko Fujimori is the winner of Peru’s razor-thin presidential elections. She will take office on July 28. The results will be certified by Peru’s electoral court on Friday. Fujimori defeated leftist challenger Roberto Sánchez by just 49,641 votes, taking 50.1% of the vote. She will become the first female president of Peru after one of the closest elections in the country’s history. She will also take office during a period of deep political division, increasing crime, and profound distrust in political institutions. Fujimori has proposed a strong-handed approach to restoring order in the country, which has drawn comparisons to her father, former president Alberto Fujimori, who was imprisoned for human rights abuses committed during his rule.

Fujimori’s victory makes Peru the latest example of a broader rightward shift across Latin America. Colombia recently elected a conservative political outsider, who will take office on August 7. Chile and Bolivia have also transitioned to the right in the past year. Brazil will hold a historic election this fall, and the right-wing candidate Flavio Bolsonaro is currently embroiled in a major corruption scandal, boosting support for the incumbent leftist president Lula da Silva. Still, the overall trend has aligned much of Latin America closely with the second Trump administration.

The State Department congratulated Fujimori on her electoral victory. The statement highlighted the Trump administration’s aim of expanding collaboration with Peru on security cooperation, investment, and trade. In strengthening ties with Peru, Washington seeks to hedge against the increasing influence of Beijing in the region, which recently completed a $1.3 billion port project in Chancay, Peru.

Read More: The New York Times [paywall], The Guardian, State Department

Africa

The Democratic Republic of the Congo (DRC) is the latest African country to sign a strategic partnership agreement with Nigerian conglomerate Dangote Group, reflecting broader shifts in energy security and intra-African trade. The Dangote Petroleum Refinery has positioned Nigeria as a major exporter of refined petroleum products to African markets, particularly as import-dependent economies seek alternative fuel suppliers following supply chain disruptions from the Iran war.

Dangote Group is rapidly emerging as a strategic force reshaping Africa’s energy market through expanding cross-border partnerships and investments. The company unveiled an ambitious industrial expansion plan to increase its total refining capacity to 2.1 million barrels per day while investing an additional $46 billion in refining, cement, and fertilizer projects between 2026 and 2028. As part of this expansion, the refinery imported crude oil from the UAE for the first time, underscoring its evolution into a globally integrated refining hub.

The company is also reshaping Africa’s financial architecture by testing new sources of domestic capital for large-scale industrial development. Its planned initial public offering, expected to be the largest in African capital markets history, represents an important test of whether African investors can finance world-scale industrial assets. Success could provide a blueprint for mobilizing domestic capital to support the continent’s long-term industrialization and economic development.

Read More: Business Insider Africa, Reuters [paywall], Semafor Africa

Geoeconomics

China is expanding its export-control campaign against Japan, adding 20 Japanese entities to a restricted list that bars Chinese exporters from supplying them with dual-use goods. The new list includes Japan’s National Institute for Defense Studies, ground, naval, and air systems research centers, and multiple Mitsubishi and Kawasaki-linked defense and industrial entities. Beijing also placed another 20 Japanese entities on a watch list, meaning Chinese exporters can no longer use general licenses for those customers and must instead submit individual license applications with end-user risk assessments and written commitments that the goods will not support Japan’s military capabilities.

China is using export controls the same way the United States has used them against China: as a tool to shape security competition through supply chains. China’s Commerce Ministry said the measures are meant to curb Japan’s “remilitarization” and prevent Chinese-origin dual-use goods from strengthening Japan’s defense sector. Japan rejected the action, with Chief Cabinet Secretary Minoru Kihara calling the measures “absolutely unacceptable” and urging China to withdraw them. As a result of the export controls, Japanese companies now face added uncertainty when trying to source Chinese-origin dual-use inputs.

Read More: Associated Press, New York Times [paywall], CSIS

Disruptive Technology

The UK announces a four-year Defence Investment Plan, eyeing defense spending at £80 billion per year by 2029 and £15 billion in anticipated budget trims. The plan de-emphasizes old expensive naval systems, like Type 83 guided missile destroyers and Type 32 frigates, to place emphasis on Common Combat Vessels that act as a “mothership” for collaborative uncrewed crafts, like uncrewed missile platforms and uncrewed sensor platforms. The plan also adopts the same crewed-uncrewed teaming design for the Global Combat Air Programme, a joint venture alongside Italy and Japan. About £5 billion will be allocated to scaling production of autonomous drones, similar to those used on Ukraine’s frontlines.

The plan follows the recent resignation of Defense Minister John Healy, who wanted more funding allocated to the armed forces. Outgoing Prime Minister Keir Starmer has U-turned on efforts to improve government coffers, which has constrained the ability to invest in defense at the annual scale of comparable powers, like France and Germany. The new Defence Investment Plan will improve Starmer’s standing at next week’s Ankara NATO Summit and institutionalize the spending pledge in the next Labour government. However, the next Prime Minister, presumably Andy Burnham, will have to unlock an additional £4.7 billion to finance the full extra-budgetary £15 billion of modernization investments.

Read More: Politico, GOV.UK, BBC