The trade arrangement, which encompasses a market of over 500 million consumers, is currently uncertain. The treaty, which replaced the NAFTA (North American Free Trade Agreement) in July 2020, requires a joint formal review on its sixth anniversary from all three participating nations to consider a 16-year extension.
While Canada and Mexico requested a full extension, the Donald Trump administration declined to renew USMCA in its current 16-year term. And the last-minute breakdown of the trade talks between Washington and Ottawa, followed by “tit-for-tat tariffs” from both sides, has further complicated things.
While admitting that Honda is close to full production capacity in North America and needs a new factory, the Japanese automaker’s Executive Vice President Noriya Kaihara told reporters at a roundtable in Washington that any decision regarding the venture committing to fresh investments and capacity upgrades in this part of the world will solely depend on USMCA’s continuation.
“If there is no USMCA agreement in the future, we may have to change our direction,” Kaihara said, adding the company will need to make a decision within a year or two and would like the plant to be running by around 2030.
Canada’s retaliatory measures will take effect on September 8 in response to the United States imposing 50% tariffs on USD 20 billion of Canadian products entering American shores.
“Honda will be taking a wait-and-watch approach, instead of passing on the costs of tariffs to buyers in North America,” said Kaihara.
In 2025, Hyundai Motor complained about the uncertainty about USMCA to the Trump administration, stating that the delay was hurting its investment decisions.
“Early confirmation of USMCA’s extension would immediately unlock over USD 20 billion in new American investments. Every month of ambiguity slows job creation, site selection, and technology development,” the automaker said back then.
The uncertainities around USMCA come amid Honda having a memorable year in North America. The Japanese automaker had its best July in seven years. Not only did unit sales go up by 36% during the month, but interest in the company’s hybrid and other fuel-efficient models soared as well, with oil prices experiencing high volatilities since the start of the Iran war.
Honda in May scrapped its long-term EV sales target, including its goal of having EVs make up a fifth of its new car sales in 2030. It now plans 15 new hybrids by 2030. It has indefinitely suspended its Canada EV project, an USD 11 billion investment plan to produce electric vehicles and batteries.
It also cancelled three planned EVs for the American market. To avoid potential tariff issues, Honda announced in 2025 that it would move production of its US-bound five-door Civic hybrid model from Japan to Indiana.
Uncertainties everywhere
Canada, on Tuesday, hit back at the Donald Trump administration with retaliatory tariffs on about USD 20 billion worth of US annual imports. The Mark Carney government also rolled out aid for businesses and workers, matching Washington’s latest duties dollar-for-dollar.
“The counter-tariffs on American goods will take effect on September 8 and impose duties of 15%, 25%, and 50% across around 700 products imported from south of the border,” a government statement said.
While Trump’s new 50% tariffs on USD 20 billion of Canadian imports took effect on Saturday after talks between the two countries collapsed, the Republican threatened to rename Lake Ontario, which straddles both countries, as “Lake America.” He has also promised to put 50% tariffs on auto imports from Canada from January 2027, remarks that marked a new low in relations between the longtime allies.
Additionally, the 50% tariff threat raises concerns about the future of the highly integrated automobile manufacturing and logistics network spanning the US, Canada, and Mexico, which not only contributes approximately USD 1.2 trillion to the American economy but also employs around ten million workers.
“Our dollar-for-dollar rate for rate counter-tariffs as well as a multi-billion dollar support package will protect workers, farmers, families, and businesses,” Canada’s Finance Minister Francois-Philippe Champagne said.
“We have levied the 50% tariffs on steel, aluminum, furniture, and clothing; set the 25% tariffs on cheese, appliances, and some seafood; and placed the 15% tariffs on electronics and tools,” a Canadian government official told reporters.
Canada’s retaliatory tariffs, calculated using 2024 trade figures, cover goods accounting for nearly 4.5% of Canada’s imports from the United States.
Industry Minister Melanie Joly said the counter-tariffs will serve two purposes: protect Canadian businesses and apply political pressure before Americans vote in the November 3 midterm elections.
“We need to make sure that the competitors don’t have access to the Canadian market in a better way than their own… products, and that’s why the retailers need to show that from Canada. Second, we’re also targeting products that will target states in the US, and so we’re being wise and strategic to put political pressure, and that’s why we think it’s the right thing to do right now,” she remarked.
The Canadian tariffs will cover some prepared foods, perfumes and toiletries, plastics, lumber, wood pulp and paper products, carpets and clothing, apart from targeting American industrial goods, including iron and steel, aluminum, hand tools and other metal products, machinery and electrical equipment, as well as rail engines, motorcycles, furniture and gaming equipment.
Canada also unveiled a CUSD 7.5 billion package of measures featuring support for small and medium-sized businesses (SMEs), a stream for funding cash flow of companies, and support for workers at risk amid the tariff warfare.
“The Business Development Bank of Canada, a federal lender, will provide part of the support to affected businesses, offering interest-free loans of between CUSD 2.5 million and CUSD 5 million. Companies would not be required to make repayments for 36 months,” Joly said.