As the U.S., Mexico, Canada trade negotiations are underway, agriculture groups are united around one priority: protect the integrated North American market that has become critical for U.S. producers. But those close to the Trump administration say it’s not so simple.
Former U.S. Trade Representative Bob Lighthizer says Mexico will likely be the biggest challenge in the talks, not Canada, pointing to the current trade deficit with Mexico as the major reason why. The latest round of discussions between the U.S. and Mexico as part of an ongoing annual review process was held in Mexico last week. The two countries agreed on a formal fourth round of bilateral negotiations, which is scheduled to be held in Washington, D.C. in early September.
Also adding another layer of uncertainty to USMCA discussions, President Donald Trump announced last week plans to impose a 50% tariff on certain Canadian goods, escalating trade tensions between the two countries after months of political friction. The administration used Section 338 of the Tariff Act of 1930 to respond to what it calls discriminatory treatment of U.S. products. The tariff increases, which cover a range of Canadian exports including wine, honey, textiles, fishing rods, jewelry and furniture, are set to take effect Aug. 19. Unlike previous tariff actions against Canada, products covered under the U.S.-Mexico-Canada Agreement will not be exempt from the new duties.
Still, even with the fresh trade uncertainty, Lighthizer says Mexico is the country to watch.
By the Numbers: U.S. Growing Trade Deficit With Mexico By the Numbers
Speaking at the Iowa Economic Summit hosted by the Iowa Farm Bureau in July, Lighthizer says he believes agriculture should remain a bright spot in the negotiations, with opportunities for expanded access to Mexico.
While some agricultural groups have urged negotiators to “do no harm” to existing trade flows, Lighthizer says he sees growth potential, pointing to the current trade deficit as proof. The U.S. trade deficit with Mexico was $196.9 billion for the full year 2025, according to the U.S. Trade Representative, marking a 14.8% increase compared to 2024.
That widening gap is driven in part by companies shifting manufacturing from China to Mexico and the deeply integrated North American supply chain. Advanced electronics and automotive manufacturing are two of the main culprits of the growing gap.
As the U.S. deficit with China has narrowed, Mexico has become one of America’s largest trade deficit partners. But it’s also a reminder that USMCA discussions revolve around much more than agriculture.
“We have a net deficit with them in agriculture, but an enormous amount of that is processed foods. So the commodity products, we have a pretty good relationship with them. It’s unimaginable to me that those worsen in any way. I just don’t think there’s a chance. I think there is a reasonable chance that we get more access in the commodity products area. Pork, and others, I think there’s a reasonably good chance of that,” says Lighthizer.
Lighthizer says Mexico’s trade imbalance with the U.S. will be a central issue in negotiations and believes Mexico has three options: reduce exports, increase Mexican content in products it exports or buy more U.S. goods.
“I think they’re going to pick the last two,” he says. “They’re going to get higher concentrations of what does come and less overall exports, but more imports, and I think that’s in everyone’s interest. It’s clearly in the interest of American agriculture.”
Lighthizer points to Mexico’s growing trade relationship with China as one of the biggest challenges facing the U.S.-Mexico relationship.
“Mexico has the China problem,” he says. “Canada may get it, but it doesn’t have it in a big way yet.”
Mexico is Still a Top Trading Partner for U.S. Ag
The USTR’s office recognizes Mexico as a top trading partner, saying the country has consistently ranked as one of the top two trading partners for the U.S. USTR says most recently, in 2024, Mexico was the second-largest destination for U.S. exports and the top source of U.S. imports.
“In 2024, over 80 percent of total Mexican goods exports were to the United States and over 40 percent of total Mexican goods imports were from the United States,” adding that the country buys more than $30 billion in agricultural products, including corn, pork and pork products, dairy products, and soybeans.
Mexico’s leading exports to the United States are vehicles, machinery, electrical machinery, and medical devices, together with over $48 billion in agricultural products, including fresh vegetables, beer, distilled spirits, and fresh fruit.
According to the USDA Economic Research Service, the United States imports more horticultural products, specifically fresh vegetables, fresh fruits, and alcoholic beverages, from Mexico than from any other category. Combined, those consumer-oriented goods account for over 70% of the total $43.8 billion in annual U.S. agricultural imports from the country.
And if you look at just fresh produce, that’s dominated heavily by tomatoes, which are valued at $2.5 billion, as well as fresh peppers, with Mexico supplying over 60% of all U.S. vegetable imports. Avocados are another big one, accounting for 80% of the U.S. market.
Lighthizer Optimistic U.S. and Mexico Can Find Common Ground
Lighthizer says he remains optimistic the U.S. and Mexico can find common ground in the next phase of USMCA discussions, pointing to Mexico’s leadership as a reason for confidence. He praised Mexican President Claudia Sheinbaum, saying she is focused and capable of navigating the challenges facing the two countries.
“I think Sheinbaum in Mexico is really good,” Lighthizer says. “She’s very smart, and she’s really focused, and I’d be surprised if she doesn’t work this out.”
Lighthizer acknowledges the negotiations will not be without challenges, including immigration, cartel issues and broader trade concerns. However, he also praised Mexico’s economic minister, Marcelo Ebrard, calling him “one of the more talented people” he has worked with during his time in government.
Ultimately, Lighthizer says the economic ties between the two countries create a strong incentive for cooperation. He says the U.S. has a vested interest in Mexico’s economic success because of the countries’ shared border, cultural connections and integrated economies.
“There are a lot of synergies and one of the things I like to say, which I think is important to be able to focus on, the United States has an interest in prosperity in Mexico, for a whole lot of reasons,” says Lighthizer. “They’re on our border. There’s just a whole cultural affinity. We have a lot of Americans who are of Mexican descent. There are a lot of reasons for us to want them to prosper. And for sure they have a stake in our prosperity, where 28% of their GDP is sales to the United States. So with that kind of synergy, it’s just hard to see it not working out.”
Dairy Says Canada Remains a Major Concern
While Lighthizer views Mexico as the biggest hurdle, Gregg Doud, CEO of the National Milk Producers Federation, says dairy producers are focused on Canada. Doud says Mexico remains the largest market for U.S. dairy exports, with Canada ranking second.
“Mexico’s our best market for U.S. dairy exports. It’s growing like crazy. Canada’s our second-best market,” Doud says. “We have to keep in mind that it isn’t as though we have some sort of tragic problem going on here. There are great markets for us.”
However, Canada is the only major dairy export market where U.S. sales have declined this year, Doud says.
The dispute centers on Canada’s implementation of tariff rate quotas, or TRQs. Under the system, a certain volume of product can enter Canada at low or zero tariffs, but higher tariffs apply after that threshold is reached. Doud says Canada has not implemented those quotas in a way that allows U.S. dairy exporters full access.
“They give those out to people that don’t want to use the tariff or don’t want to use the product. That’s not the way anybody else in the world does it. We’ve got to get that fixed,” adds Doud.
Doud says the solution is not necessarily to rewrite the USMCA, but to ensure Canada follows the agreement already in place.
“Do what was in USMCA,” he says. “That’s all they have to do. It isn’t as though we have to negotiate anything new and different.”
However, he says dairy remains politically sensitive in Canada, particularly in Quebec.
“Canada and dairy, it’s a very protectionist thing,” Doud says. “This is very political in Canada. This is going to be a tough conversation.”
Meat Industry: “Do No Harm” Remains the Goal
For the U.S. red meat industry, Erin Borror, vice president of economic analysis for the U.S. Meat Export Federation, says the priority is protecting what has become a highly integrated North American marketplace.
Borror says the negotiations remain in the early stages, with many of the initial discussions focused on broader issues outside agriculture, including rules of origin, autos, metals and critical minerals.
When it comes to meat exports, Borror says the industry is unified around maintaining the current trade relationship.
“For the U.S. red meat industry, we’ve been unified on that. It’s a do-no-harm. USMCA for us has been very successful, and having that integrated North American market is absolutely critical,” says Borror.
Borror points out that, unlike many other trading partners, the U.S. has not faced significant trade barriers with Canada and Mexico under USMCA.
“It’s been, again, an integrated, relatively seamless trade, zero duties, and pretty minimal issues across the board.”
Agriculture’s Message: Protect Market Access
While negotiators may debate broader issues involving trade deficits, supply chains and geopolitical concerns, agriculture leaders say the foundation of USMCA has worked. For producers, the biggest priority remains certainty. But Lighthizer, who was instrumental in negotiating the current USMCA, understands its importance to U.S. ag.
“For agriculture, what we need is consistent certainty of market access,” Lighthizer says.
And for the meat industry, Borror says that means preserving one of agriculture’s most important trade relationships.
“Having that integrated North American market is absolutely critical,” she says. “It’s been a relatively seamless trade.”
Canada’s Push for Food Security Could Shape Trade Negotiations
Canada’s broader push to strengthen domestic food security could also influence its approach to USMCA negotiations. The country recently unveiled a National Food Security Strategy focused on building a more resilient food system through “more choice, more control and more Canada.”
The strategy aims to reduce Canada’s dependence on foreign suppliers by expanding domestic food production and processing, improving supply chains and increasing access to Canadian-grown products. While the plan is designed around affordability and resiliency, it could also reinforce Canada’s desire to protect sensitive agricultural sectors during trade discussions.
Canada’s strategy highlights vulnerabilities created by reliance on imports, noting that the U.S. remains Canada’s largest agri-food trading partner, accounting for more than half of Canada’s agricultural imports and more than 60% of its exports. However, the government says tariffs, geopolitical tensions and supply chain disruptions have exposed risks in the current system.
“A country’s sovereignty depends on its ability to feed itself, fuel itself, and defend itself. And right now, Canada is not fully in control of our own food system. Our overreliance on foreign suppliers has left us vulnerable to global shocks — to conflicts overseas, to droughts, and to tariffs,” Canada’s new National Food Security Strategy says.
For agriculture, the strategy emphasizes expanding domestic processing capacity, improving access to farm inputs and strengthening Canada’s food sovereignty. That could create tension in areas where Canada has historically protected domestic industries, including dairy, where U.S. exporters continue to push for greater access under USMCA.
As negotiations continue, Canada’s focus on food independence may shape how it balances maintaining its critical trade relationship with the U.S. while protecting domestic producers and processors.
