(Not So) Fun Fact: As of May 24, the Strait of Hormuz remains effectively “closed” as traffic sits at about 5 percent of normal levels before the Iran conflict.

How’s That USMCA Review Going?

What’s Happening: This week, delegations from the United States and Mexico will hold the first in a series of three bilateral trade negotiations. These talks are centered around the upcoming Joint Review of the United States-Mexico-Canada Agreement (USMCA) – the North American trade agreement reached during President Trump’s first term and implemented in 2020. In this review, the Trump Administration will decide whether to extend the USMCA for 16 years, let it expire in 2036, or withdraw entirely. The May 28–29 meeting will focus primarily on economic security and rules of origin for industrial products traded between the United States and Mexico, while the next meeting in mid-June will focus on agricultural products and creating “a level playing field” – likely referring to labor rights. The final meeting is scheduled for July 20 and may conclude with notable announcements on the future of USMCA, particularly the U.S.-Mexico trade and economic relationship. Meanwhile, there seems to be little progress between the United States and Canada on tariffs, trade, and other economic security issues. Likely further complicating the USMCA review, Canada recently announced it will require large streaming service companies to spend 15 percent of their annual Canadian revenue on local Canadian content and a fund that supports Canadian broadcasting.

Why It Matters: If the USMCA were to be disrupted or eliminated entirely, U.S. tariffs on Mexico and Canada would skyrocket as USMCA-compliant goods would no longer qualify for – or benefit from – tariff exemptions. Currently, 80 to 90 percent of all U.S. imports from both countries are exempted from tariffs, meaning an end to USMCA could raise costs for U.S. businesses and consumers by approximately $7 billion – assuming current tariff levels. The fact that the United States Trade Representative and its Mexican counterpart have held repeated discussions and plan to move forward with USMCA negotiations is welcome news for those seeking greater North American trade certainty. From a diplomatic and strategic perspective, Mexico has played its cards well in the face of U.S. economic pressure. The country did not retaliate against the “Liberation Day” tariff regime, has been willing to work with the Trump Administration on countering the flow of fentanyl, and has its own set of tariffs on China which help ease transshipment and security concerns. Each of these moves will likely improve Mexico’s negotiating posture with regard to the United States and provide room to collaborate and expand upon these efforts on better terms. This is not to say that negotiations will be easy or result in extraordinarily low trade barriers as the Trump Administration has made clear it seeks to reduce the trade deficit and address Mexico’s preferential treatment of its companies – as well as what some claim are inadequate labor laws.

For the United States, trade tensions with Canada have been far more pronounced than with Mexico due to a plethora of factors, ranging from high U.S. tariffs to claims that Canada could be the 51st U.S. state. At the same time, Canada was one of the few countries that retaliated with counter tariffs after “Liberation Day.” Canada also agreed to form “a new strategic partnership” with China that allows tariff-free imports of 49,000 Chinese EVs and repeatedly targeted digital services that primarily impact U.S. companies. While Canada has pursued efforts to appease the Trump Administration such as reversing a 3-percent tax on digital services and expanding efforts to combat fentanyl, Prime Minister Carney has continually stressed the importance of his nation diversifying its economy away from the United States, relying less on the U.S.-dominated world order, and creating partnerships with “Middle Powers” amid the U.S.-China rivalry. In addition, Canada’s recent decision to require streaming companies to contribute 15 percent of their income generated in Canada to Canadian broadcasting funds and various local content projects has caused trade relations to degrade further. The rules target streaming services that make more than about $18 million annually in Canada and add further requirements for those that make more than $73 million per year – nearly all of which are U.S. companies. This rule will tie up hundreds of millions of dollars in revenue that U.S. streaming services such as Netflix, Disney, Apple, and Amazon can no longer use elsewhere, with the Shipment estimating that Netflix alone will contribute close to 20 percent of the rule’s roughly $1.5 billion annual target. These actions will almost certainly set roadblocks to future negotiations and may explain why Mexico rather than Canada has been progressing in USMCA talks.

Looking Ahead: There is still a lot that can happen between now and the end of July when many of the details from the USMCA Joint Review will begin to surface. There are many valid critiques of both Canada’s and Mexico’s trade policies, from non-tariff barriers that discriminate against U.S. companies to differences in economic or strategic objectives. That said, the Trump Administration is not likely to prescribe free-market solutions to rectify these issues but instead will likely focus on the trade deficit and require these countries to purchase more U.S. products in one way or another. This may be plausible with Mexico, but Canada has shown time and again it is far more willing to stick it to this administration than concede to tariffs. As July approaches without noteworthy progress in negotiations between all involved parties, the likelihood of a “clean” USMCA renewal diminishes while the possibility of withdrawal, substantial alterations, or the implementation of yearly reviews becomes more likely.

In Other News

A Brief Update on Tariff Refunds: This week, Customs and Border Protection (CBP) provided a few updates on the status of International Emergency Economic Powers Act (IEEPA) tariff refunds which are currently being handled by the Consolidated Administration and Processing of Entries (CAPE) portal. Before entering the refund process, importers must submit a refund request (known as a CAPE declaration) which may include up to 9,999 separate import entries. According to the court filing, there have been approximately 157,400 CAPE declarations submitted, of which 108,800, or nearly 70 percent, have passed the first validation round. Of the CAPE declarations that passed the first round, 15.9 million, or 82 percent, of the individual import entries passed the second validation round. This time around, CBP provides some explanations of why importers’ requests might be failing the validation process. These reasons include importer of record mismatches within the CAPE declarations, incorrect import entry codes, the submitted file not following the correct template, import entries being submitted on multiple CAPE declarations, import entries falling outside of the phase 1 qualifications, and import entries lacking the criteria-specific code required to identify the IEEPA tariffs paid. This last reason for failed validations is something the Shipment predicted could become an issue as it indicates that at least some importers are filing refund requests for tariffs outside of IEEPA such as the various Section 232 national security tariffs.

A Significant Refund Revision: A noteworthy footnote within the recent CBP court filing is the fact that it revised its May 12 tariff refund estimate from $35.46 billion to $25.46 billion. This means that CBP overstated the anticipated refunds entering the refund process at that time by $10 billion due to “an inadvertent error in the data query used to calculate the figure” – or simply put, a calculation error.

Figure 1: Status of the IEEPA Tariff Refund Process (As of May 22, 2026)

Source: United States Court of International Trade Court Filings

Figure 2: Strait of Hormuz Transit Calls by Number of Ships (As of May 24, 2026)

Source: International Monetary Fund, University of Oxford