The president’s threat to exit a North American trade agreement could trigger the price surge that tariffs have so far failed to produce
When President Donald Trump unveiled his sweeping Liberation Day tariffs in April, economists warned Americans to brace for sticker shock at checkout counters nationwide. Eight months later, inflation has crept upward but remains far below the catastrophic levels many predicted. The reason might surprise consumers who assumed tariffs would immediately squeeze their wallets.
Nearly everything imported from Mexico and Canada, America’s two largest trading partners, has remained exempt from duties as long as products comply with the United States Mexico Canada Agreement. Trump himself negotiated this trilateral pact during his first term to replace the North American Free Trade Agreement. Now he appears ready to walk away from the very deal that has kept prices stable.
A shield against Trump tariff increases
The agreement is scheduled for review in July, and the president has already begun signaling his willingness to let it expire. Speaking Wednesday, Trump suggested the administration would either allow the deal to lapse or potentially negotiate fresh terms with both neighboring countries. US Trade Representative Jamieson Greer reinforced this stance in a recent interview, noting that officials deliberately built a review period into the agreement specifically to enable revisions or a complete exit.
White House spokesman Kush Desai cautioned that discussions about hypothetical trade negotiations remain meaningless speculation at this stage. Still, the threat alone has economists and industry groups sounding alarms about potential consequences for American consumers.
Compliance surges as businesses adapt
Before Trump’s second term began, goods from Mexico and Canada entered the United States essentially duty free regardless of whether they met agreement requirements. No tariffs existed to enforce compliance. But the president changed that calculus by imposing 25% tariffs on non compliant Mexican products and 35% on Canadian goods that fail to meet standards.
The impact was immediate and dramatic. Last year, only 38% of Canadian imports and 49% of Mexican imports complied with the trade agreement, according to Commerce Department data. By August of this year, those figures skyrocketed to nearly 86% for Canada and 87% for Mexico. Businesses scrambled to adjust their supply chains and meet requirements to avoid the steep penalties.
Erica York, who serves as vice president of federal tax policy at the Tax Foundation, noted that increased compliance has shielded billions of dollars worth of imports from the new tariff regime. Without these exemptions, she emphasized, Americans would confront significantly higher prices that would diminish worker purchasing power and undermine business competitiveness for no meaningful benefit.
What elimination would mean for shoppers
Consumer electronics and automobiles face particular vulnerability if the agreement disappears. The United States has grown increasingly dependent on its neighbors for these products, and supply chains have become deeply interwoven across all three nations. Components frequently cross borders multiple times during assembly processes, meaning that even domestically produced goods rely heavily on Canadian and Mexican inputs.
Chris Mitchell, vice president for global government relations at the Global Electronics Association, warned that the agreement represents a cornerstone of North American electronics manufacturing. Terminating it would disrupt the production systems that American manufacturers depend on, triggering longer lead times and higher input costs. Those pressures would inevitably flow through to consumer prices for automotive, consumer and medical electronics.
The situation creates a strange irony. Trump imposed tariffs to pressure trading partners and protect American interests, yet the agreement he negotiated during his first presidency has served as the primary mechanism preventing those very tariffs from hammering American consumers. If he follows through on threats to abandon or radically restructure the deal, shoppers may finally experience the price shock that has been looming since Liberation Day arrived eight months ago.