USMCA Negotiations Unravel as US Economy Faces Uncertainty

The US economy is facing uncertainty due to elevated inflation and rising unemployment, said Ben Johnston, Chief Operating Officer of Kapitus. The combination of these factors has put the Federal Reserve in a difficult position, as they try to balance two goals that are currently pulling against each other: controlling inflation and promoting employment.

The market still expects at least one more rate hike before the end of 2026, but Johnston cautioned that the path forward remains unclear. Inflation is being pushed higher by energy prices, while employment data trends in the wrong direction.

Rural America and the agricultural sector are particularly affected by tariff treaties and trade negotiations, said Johnston. The ag industry is trying to plan for the future while also absorbing higher energy costs on a day-to-day basis, which he described as more immediately disruptive than uncertainty over export markets.

The USMCA negotiations have become contentious, with Mexico willing to negotiate towards a middle ground and Canada growing increasingly resistant. The administration's goal is to shrink the trade deficit with both countries, said U.S. Trade Representative Jameison Greer. In 2025, the overall U.S. trade deficit with Mexico was $197 billion, including $19 billion in agriculture.