USMCA Break-Up: An Underrated Risk

This report evaluates the risks surrounding the USMCA, concluding that while a break-up is possible, it is unlikely due to the high economic and political costs. Current market pricing shows minimal anticipation of a treaty failure, leaving room for volatility if negotiations toward a 2027 renewal falter.

Key Takeaways

• 1.The treaty is likely to survive with modifications as economic costs for a break-up outweigh the ideological benefits.
• 2.Markets are currently pricing in a very low probability of a USMCA break-up.
• 3.A break-up scenario would cause severe macroeconomic shocks, particularly impacting Mexico's GDP and the Mexican Peso.

Table of Contents

• USMCA Break-Up: An Underrated Risk
• Will the treaty survive?
• Is a break-up already priced in?
• When can we expect an agreement between the three countries to ratify the treaty?
• If it does survive, what would the general contours of a revised version look like?
• What would a break-up mean for the US and Mexican economies — and which financial markets would feel it, and by how much?
• Appendix: FX models results
• Disclaimer

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