Global Navigator from KPMG Economics

The New Trade Math for North America

Supply chains reworked for resiliency, not lowest cost.

June Edition

June 23, 2026

This edition of Global Navigator examines how shifting trade policies, led by the return of tariffs and uncertainty around the future of the United States–Mexico–Canada Agreement (USMCA), are raising trade costs, increasing policy volatility and reshaping global supply chains. Domestic producers are looking to shore up the resilience of their supply chains, while foreign producers seek to circumvent US tariffs by strengthening ties with each other. Europe has grown concerned about its trading relationship with China, which it is attempting to navigate along with the US. North American trade is not collapsing; it is becoming more expensive, fragmented and harder to plan around.

Written by Ben Shoesmith and Valentina Skryabina.

Tariffs reshape trade and geopolitical relations. The postwar consensus around global trade has broken. Tariffs have moved from a temporary negotiating tool to a durable feature of trade policy, raising costs, rerouting trade flows and deepening geopolitical divides.
USMCA review drives trade uncertainty and realignment. The July review marks a new phase for the agreement, with annual reviews likely to keep uncertainty elevated. The US wants reshoring and leverage, Mexico wants predictability and market access, and Canada is hedging by diversifying trade ties beyond the US.
Resilient supply chains replace pure cost optimization. Firms are pivoting from cost efficiency toward resilience by diversifying suppliers, building inventory buffers and adding redundancy. That means more suppliers, larger safety stock and higher working capital needs. That is the price of keeping goods moving through tariff, logistics and geopolitical shocks.

After World War II, the US and much of the world embraced trade to boost growth and deepen ties. The gains were real but unevenly distributed: inequality narrowed across countries as millions were lifted out of poverty, while inequality within countries intensified. Weaker worker bargaining power and automation amplified the backlash, turning free trade from a consensus policy into a political fault line.

The start of the US-China trade war in 2018 marked the inflection point when tariffs moved from a temporary bargaining tool to a durable feature of US trade policy. Those tariffs were carried through two administrations and had bipartisan support.

Tariffs have not stopped global trade, which is up 33% since the US-China trade war began in 2018. They have fragmented it, pushing firms toward lower-tariff economies. Emerging Asia benefited most, but the added complexity has left supply chains more vulnerable to shocks. Emerging market investors are more sensitive to trade restrictions and trade policy uncertainty.

A crescendo came in April 2025, when the administration announced, “reciprocal tariffs.” The initial increase eclipsed the 1930s and, if fully implemented, would have produced the highest tariffs since the early 1900s.

Financial markets tanked and trade policy uncertainty soared. The administration settled on a lower, but still elevated, tariff regime. Companies sought carve outs and waivers. The effective tariff rate peaked at less than half the April 2025 announcement. That was still many times its level at the start of the year.

Legal setbacks did not end tariff policy. The administration leaned heavily on the 1974 International Emergency Economic Powers Act (IEEPA) to levy tariffs. The Supreme Court ruled those illegal in February, prompting the administration to use other temporary tools. The latest plan, slated for August, layers additional sectoral and country tariffs on 60 trading partners, including Canada and Mexico. Court challenges are likely.

The new tariffs would help backfill revenue lost after the Supreme Court ruling. Tariff revenue initially blunted swelling deficits, but IEEPA refunds are draining $166 billion from the collected pot.

The loss matters because tariffs are now part of Washington’s budget math, used to offset revenue losses from tax cuts. Deficits and debt continue to rise.

USMCA is the main reason the tariff shock has not hit North American supply chains harder. The agreement has acted as a partial firewall. Supply chains were designed over decades to take advantage of the region’s natural resources, labor pools and manufacturing environments of the three member countries.

The absence of a renewed USMCA throws companies into supply chain purgatory: no promise of low-friction, low-cost supply chains and no promise of nearshoring security.

USMCA anchors one of the world’s most consequential trading relationships. The pact is up for review July 1, and the risk of a drawn-out renewal process is high. Canada’s exclusion from the initial talks suggests a quick trilateral renewal is unlikely.

If the pact is not renewed, it enters “zombie mode.” The agreement remains in force, but the countdown to full expiration in 2036 begins. The administration appears comfortable with annual reviews, which would keep uncertainty elevated even if the agreement survives.

Renegotiations will likely center on geopolitics, national security and energy security. Recent disruptions around the Strait of Hormuz have underscored the strategic value of keeping North American energy flows open.

Ahead of the review, the three countries are seeking different outcomes.

US: The administration is prioritizing bilateral leverage, reshoring, stricter rules of origin, national security and critical supply chains. US labor advocates will lobby for stricter enforcement of the minimum wage in Mexico; Mexican workers make less than Chinese workers. Bilateral agreements may resolve specific disputes more efficiently but are less effective for integrated issues such as rules of origin and critical minerals.
Mexico: The country is seeking to extend USMCA given its deep dependence on US demand. Nearshoring has been a tailwind. USMCA has provided the firm ground beneath it. Mexico's priorities are to reduce demand uncertainty, increase predictability and avoid tariffs.
Canada: Negotiations with the US are at a standstill, but preserving access to the US market is ideal. Energy, automotive manufacturing and critical minerals are seen as key areas of mutually beneficial cooperation. As a hedge, Canada is intensifying engagement with the EU, India and Turkey, pursuing greater trade diversification.

Our base case is for the three countries to “muddle through,” meaning annual reviews and bilateral deals become the norm. Under that scenario, effective tariff rates across North America rise above current levels. The ambiguity surrounding the review is delaying investment decisions.

Chart 1 illustrates the value of USMCA. In a worst-case scenario where the agreement expires without bilateral deals, the effective tariff rate would rise by 6 percentage points. That outcome is unlikely, but it shows how much the agreement buffers North American trade.

Chart 2 shows Mexico’s share of US imports has risen, surpassing China’s as US-China trade restrictions and supply-chain rerouting reshape sourcing patterns. Mexico and Canada are highly dependent on the US market, which accounts for the vast majority of each country’s exports.

The US AI buildout is reliant on Mexican exports of GPUs and servers, according to the Center for Strategic and International Studies. To ease US concerns around Chinese firms skirting tariffs, Mexico imposed a 50% tariff on nearly 1,400 product categories from China and other trading partners.

Chart 1: The USMCA restrains the effective tariff rate

Effective tariff rate including FTZ adjustment and substitution effects, percent

Source: KPMG Economics, United States Census Bureau

Chart 2: Mexico replaces China as the biggest exporter to the US

Share of US imports, BOP, percent

Source: KPMG Economics, Census Bureau, Haver Analytics

Key sectors sensitive to the outcome of negotiations include:

Autos: Market access and rules-of-origin requirements affect capital expenditures, sourcing and demand planning. This sector takes top billing in renegotiations.
Energy: Free flow of energy products and the role of state-owned corporations impact energy prices and competitiveness.
Steel and aluminum: Tariff exposure shapes input costs, sourcing security and reshoring economics.
Advanced technology products: Mexico’s rising role as a supplier to the US raises the stakes for electronics, machinery and AI infrastructure.
Critical minerals: Secure supply is essential for batteries, data centers and the AI buildout.
Agriculture: Enforcement of quotas and market access concerns create vulnerabilities for farmers in all three countries.

Resilient supply chains replace pure cost optimization

The new supply chain model is not cheaper; it is more resilient, trading lower efficiency for greater protection against tariffs, logistics shocks and geopolitical disruption. The shift shows up in margins, capital expenditure timing and supplier-risk assumptions.

The 2026 KPMG CEO Outlook Pulse Survey found that nearly three-quarters of CEOs made strategic adjustments to improve agility last year; two-fifths are planning agility investments this year.

Companies are devoting more management time to tariff scenario planning, supplier mapping and contingency sourcing, pulling attention from core operations and growth initiatives. The reallocation of resources to supply chain planning is now a cost of doing business.

Firms are adding supplier countries to reduce concentration risk, but diversification is not the same as decoupling. China’s share of US imports has fallen sharply, while some trade flows appear to be rerouted through third countries to reduce tariff exposure.

Inventory buffers were built as a hedge ahead of tariff announcements. Most of the 2025 buildup has been drained, though we expect a rebuilding over the next couple years. Imports surged in early 2025 as companies pulled forward orders before early-April tariff announcements. The trade-off is working capital for supply security.

Establishing new manufacturing facilities takes several years, leading firms to countries with lower regulatory and trade risk. Skilled workers and reliable infrastructure are prerequisites. Full supply chain redesigns are expensive and can take more than a decade, making resilience a long-term capital allocation decision rather than a short-term procurement adjustment.

Economic security, energy security and the AI buildout will be at the center of USMCA talks.

Benjamin Shoesmith

KPMG Senior Economist

The new trade math is less about where goods can move and more about what it costs to keep them moving. Without the conflict in the Middle East, the USMCA renegotiation would likely be dominating headlines. Economic security, energy security and the AI buildout will be at the center of USMCA talks. A new, full trilateral agreement is unlikely any time soon. The base case is not collapse, but a more complicated, higher-cost trade environment.

Firms will continue shifting toward multi-country, resilience-first supply chains, embedding flexibility but higher costs into their operating models. That means trade policy becomes a planning variable for margins, working capital, capital expenditures and sourcing decisions. Expect a more fragmented and less predictable global trade environment, where cross-border activity continues to expand, but along more segmented and policy-driven lines.

Global growth is expected to moderate to 3.0% in 2026 before rising to 3.3% in 2027 from 3.4% in 2025 on a purchasing power parity basis. The forecast has been upgraded since May on expectations of lower peak oil prices and resilience in the largest economies.

Global inflation is expected to rise more sharply than in our previous forecast, reaching 4.8% in 2026 and 4.2% in 2027 from 3.8% in 2025. Additional pressure on inflation, beyond oil prices and transport costs, will come from many sectors including food prices amid fertilizer shipment disruptions.

Growth in Asia is forecast to moderate to 4.7% in 2026 and 4.5% in 2027, from 5% in 2025. It remains the world’s fastest growing region, supported by robust domestic demand, excluding China, and the AI-driven technology booms in Taiwan and South Korea. Emerging Asia felt the harsh effects of the closure of the Strait of Hormuz. It will still take quarters for snarled supply chains to completely unfurl.

Growth in Europe is forecast to slow to 1.1% in 2026 and 1.5% in 2027, from 1.7% in 2025. Higher energy prices and rising inflation are likely to keep interest rates elevated, weighing on investment and growth.

Growth in the Middle East and Africa is expected to fall to 2.7% in 2026 before recovering to 4.5% in 2027 from 4.1% in 2025. Energy infrastructure in the UAE, Qatar and Kuwait has suffered significant damage from the conflict. Part of the affected capacity is expected to return by early 2027; the full restoration of some facilities could take three to five years.

Growth in North America is forecast to remain stable at 2.0% in 2026 before rising slightly to 2.1% in 2027. AI-related investment continues to support the resilience of the US economy despite elevated inflation and interest rates. Banxico has signaled that its rate-cutting cycle has come to an end. Higher energy prices strengthen the Canadian economy while the Bank of Canada expects that weak demand amid elevated unemployment will keep inflation in check.

Growth in Oceania is forecast to remain steady at 1.7% in 2026 before picking up to 2.2% in 2027. Australian inflation has picked up. To counter this, the Reserve Bank of Australia raised rates in May. Higher natural gas export revenues help offset the negative impact on economic growth.

Growth in South America is forecast to slow to 2.1% in 2026 and 2.6% in 2027, from 3% in 2025. Brazil’s economy is slowing after strong growth in 2025. Agricultural exports and Chinese demand for metals and critical minerals continue to support growth across the region.

Global Outlook Forecast - June 2026