Podcast Summary: Thoughts on the Market

Episode: The Future of North American Trade

Host: Ariana Salvatore, Head of Public Policy Research, Morgan Stanley
Date: February 11, 2026

Episode Overview

This episode explores the forthcoming review of the US-Mexico-Canada Agreement (USMCA) and shifts in trade integration expectations across North America. Ariana Salvatore examines policy developments, geopolitical tensions, and the broader implications for markets—with particular attention to Mexico and Canada. The focus is on how recent changes may impact the trajectory, timing, and depth of regional trade alignment, especially as the USMCA’s first mandatory review approaches in 2026.

Key Discussion Points and Insights

1. USMCA Review: Context and Baseline Expectations

• Structural Foundation Remains Strong:
  Despite evolving circumstances, the USMCA is considered structurally resilient, with built-in protections that minimize the risk of major disruption before 2036.

  • “Structural contingencies built into the agreement, we think cap downside risk and tilt most outcomes toward preserving and over time, deepening North American trade integration.” (00:38)

• Shifting Timelines and Depth of Integration:
  Recent developments suggest that broader and more ambitious updates to the agreement may be delayed, with a slower and less comprehensive integration process than previously expected.

2. Potential Updates and Policy Goals

• Targeted Updates Likely:
  The expectation is for negotiators to resolve specific frictions (such as auto rules of origin and labor enforcement) but limited progress on more expansive policy chapters.

  • "We still see a scenario where negotiators resolve targeted frictions and make limited updates." (01:23)

• Challenges for Ambitious Goals:
  Introducing new chapters on advanced topics like artificial intelligence, critical minerals, and controlling third-country investments (especially Chinese investment in Mexico) faces significant hurdles before the upcoming deadline.

  • “Some of the more ambitious policymaker goals... may be harder to formalize ahead of mid-2026 deadline.” (01:36)

3. China’s Role and North American Alignment

• Incremental Steps on Transshipment:
  Mexico will likely align more closely with US trade priorities regarding China, but enforcement mechanisms are expected to be limited.
  • “We expect incremental steps by Mexico to reduce transshipment risk... though likely without a fully institutionalized enforcement mechanism by mid-2026.” (02:16)

4. Structural Safeguards and Future Pathways

• Escape Clause as a Safety Net:
  USMCA's 10-year escape clause extends stability, making a disruptive trade event unlikely.

  • “The USMCA's 10 year escape clause keeps the agreement in force at least through 2036... probability of a disruptive trade shock is structurally quite low.” (02:29)

• Possible Delays and Parallel Agreements:
  Comprehensive integration may come later or through side agreements, which carry risks due to lack of Congressional approval.

  • “A more comprehensive agreement may ultimately come, but possibly with a longer runway or through side agreements... Those come with an enforcement risk, just given the lack of congressional backing.” (02:44)

5. Market and Macroeconomic Implications

• Mexico:
  Ongoing tariff-free US access remains vital. Continued integration, especially in manufacturing, is likely but without accelerated nearshoring.

  • “For Mexico, maintaining tariff free access to the US continues to be essential… stable but short of a full near shoring acceleration.” (03:24)

  Peso may experience gradual gains from reduced uncertainty; however, absent new strategic chapters, significant short-term impacts are unlikely.

  • “The peso benefits from reduced uncertainty, but the effect is likely gradual.” (03:41)

• Canada:
  Near-term volatility may be underestimated, but a limited agreement should eventually support Canadian dollar appreciation.

  • "Near term volatility around the review is likely underpriced, but a limited agreement should eventually lead to medium term dollar CAD downside." (03:49)

• North American Manufacturing and Supply Chains:
  The region will remain a robust manufacturing bloc, even if supply chain diversification from China remains incomplete in the near term.

  • “The review would reinforce North America as a manufacturing block even if it didn't fully resolve supply chain diversification from China. We think that remains true today…” (03:56)

6. The Bottom Line

• Pragmatic, Measured Outcome Expected:
  The most likely result is a pragmatic resolution that maintains core trade benefits and reduces uncertainty, but may leave some opportunities for deeper alignment open for future negotiation.
  • “Our base case remains a measured, pragmatic outcome that reduces uncertainty but preserves the core benefits of North American trade and supports growth across key asset classes.” (04:04)
  • “…may leave some strategic opportunities on the table for now, setting the stage for deeper alignment later on a slightly longer horizon or through a more flexible framework.” (04:10)

Notable Quotes & Memorable Moments

• "The risks were skewed modestly to the upside; structural contingencies built into the agreement, we think cap downside risk..." – Ariana Salvatore (00:33)
• "Ambitious policymaker goals... may be harder to formalize ahead of [the] mid-2026 deadline." – Ariana Salvatore (01:38)
• "The USMCA's 10-year escape clause keeps the agreement in force at least through 2036... the probability of a disruptive trade shock is structurally quite low." – Ariana Salvatore (02:29)
• "Our base case remains a measured, pragmatic outcome that reduces uncertainty but preserves the core benefits of North American trade..." – Ariana Salvatore (04:04)

Timestamps for Important Segments

• 00:00 – 00:59: Opening overview and USMCA review context
• 01:00 – 01:45: Developments and shifting expectations for integration
• 01:46 – 02:23: Focus on targeted updates, China’s influence
• 02:24 – 03:04: The 10-year escape clause, risks of enforcement-limited side deals
• 03:05 – 03:55: Implications for Mexico, Canada, and the Peso
• 03:56 – 04:10: Macro outlook and manufacturing integration reinforced
• 04:11 – End: Bottom line and future outlook

Summary prepared for listeners who want a comprehensive, engaging breakdown of the February 11, 2026, episode on North American trade dynamics and the evolving future of the USMCA.