By Santiago Pérez in Mexico City, Gavin Bade in Washington and Paul Vieira in Ottawa

The U.S. declined to extend its signature trade pact with Mexico and Canada on Wednesday, setting up a decadelong review process that casts uncertainty over businesses that move goods across the world's busiest export borders.

The U.S. decision came as no surprise. President Trump has effectively ripped up parts of the U.S.-Mexico-Canada trade agreement that he signed in his first administration, imposing tariffs on a range of goods. He has mused about terminating the agreement altogether.

"The United States did not agree to renew the USMCA in its current form, " U.S. Trade Representative Jamieson Greer said on Wednesday, the deadline for the three countries to extend the USMCA for 16 years, something Canada and Mexico were eager to do.

The U.S. refusal means American trade representatives will have to meet every year for a decade with Mexican and Canadian officials to continually review the deal. Negotiations can continue in the meantime.

Greer said that the U.S. would continue to engage with Mexico and Canada to address the USMCA's shortcomings, chief among them narrowing the U.S. trade gap with its top trading partners.

The pact, known in Canada as CUSMA and in Mexico as T-MEC, underpins nearly $2 trillion in annual trade. Last year, combined U.S. exports to Mexico and Canada surpassed $670 billion, according to U.S. statistics. In comparison, U.S. exports to China last year amounted to about $106 billion.

What is at stake?

The U.S. is likely to renegotiate aspects of the deal, said Kelly Ann Shaw, who was deputy director of the National Economic Council during Trump's first term.

"That process will carry on throughout the rest of the summer, if not into the end of this year," she said. The eventual pact could look much different from the trilateral agreement that took effect in 2020, perhaps with separate addendums for Canada and Mexico, Shaw added.

The U.S. says that it wants a level playing field to reduce trade deficits with its two neighbors. "They need to treat us better," Trump said last month.

Uncertainty over the USMCA is holding back the economies of Mexico and Canada because companies can't make long-term investment plans without clear rules. Business investment in Canada has declined for five straight quarters, and hiring remains stagnant. Mexico's automotive sector has lost 100,000 jobs since 2025 because of the uncertainty.

Mexico's economy minister, Marcelo Ebrard, has said that the two rounds of bilateral trade talks held in recent weeks show that the U.S. is engaged in USMCA discussions. A third round is scheduled for later this month.

"What matters is that there's no disengagement in talks, because that would send a bad signal," said Gerónimo Gutiérrez, who served as Mexico's ambassador to the U.S. during the USMCA negotiations under the first Trump administration.

Can Trump's rhetoric derail talks?

Canadian and Mexican officials see Trump's rhetoric as a negotiating tactic. He said last month that the U.S. doesn't need anything that Canada and Mexico have.

Observers expect Trump to muddy the waters and increase pressure on Canada and Mexico by threatening to leave the agreement even as his negotiators continue talking.

What are Trump's demands?

The USMCA has shielded most Canadian and Mexican goods from Trump's tariffs, with some notable exceptions such as autos, steel and aluminum or softwood lumber. Both nations are now the main trading partners of the U.S.

American officials have said that a renewed deal would include some level of tariffs on Canada and Mexico, rather than extending duty-free treatment to most of their goods.

The U.S. is pushing for higher U.S. content in goods that comply with the pact, particularly automobiles. It recently presented a proposal to require half of the components and materials in an automobile to come from U.S. sources.

The USMCA currently requires three-quarters of a vehicle's materials to come from North American sources, but has no U.S.-specific content requirement. Mexico has initially rejected such a proposal, said people familiar with the negotiations.

The U.S. will also push for limits on Chinese content in such products, and for Canada and Mexico to curb imports of Chinese cars and trucks.

The starting positions in USMCA negotiations are likely to change over the coming months as talks progress. Negotiations with Mexico and Canada tend to advance on parallel tracks before the three partners hammer out final details in the last stages of negotiations.

What has been Mexico's response so far?

Mexico's top priority is to ensure the USMCA's survival, Ebrard told Mexican media last week. The second priority is to keep the majority of Mexican goods sold in the U.S. tariff-free or with the lowest tariff compared with any other country.

If U.S. levies remain in place, Mexico wants the value of U.S. content in goods it exports to be subtracted from tariffs.

Mexico proposed a plan to boost manufacturing in North America, reduce imports from Asia and develop local suppliers. It is also willing to discuss joint-tariff policies, said one person familiar with the talks. Officials also want to avoid annual USMCA reviews.

Would tension with Canada affect talks?

Dominic LeBlanc, the Canadian minister responsible for U.S.-Canada trade, said the pact ensures Canadian businesses retain secure and predictable access to two of their most important trading partners.

"Canada approaches these discussions from a position of strength," he said on Wednesday. "At a time of global economic uncertainty, Canada is a stable, reliable and trusted partner."

Canada and the U.S. are in a less advanced stage of talks than Mexico. Canadian officials claim this is because the list of issues that the U.S. has to work through with Mexico is longer.

While Mexico has recently made proposals to the U.S. about deficit reduction, the Trump administration sees Canada in a different position. Along with China, it was among the few countries to impose retaliatory measures against the U.S.

Canada also has yet to address many of the trade issues and non-tariff barriers that the Trump administration opposed.

"The danger for Canada is that the U.S. and Mexico will reach agreement on changes to important provisions of the treaty, and then show up in Ottawa presenting those changes on a take-it or leave-it basis," said Patrick Childress, a lawyer at Holland & Knight and former assistant general counsel at the U.S. Trade Representative's Office.

Canada and the U.S. were close to an agreement last year that would have eased some of the U.S. tariffs on Canadian steel and aluminum, but Trump suspended talks after Ontario's government paid for an advertisement featuring a recording of former President Ronald Reagan making the case against tariffs.

The Trump administration has pushed for changes to Canada's agricultural policies that protect dairy producers in the provinces of Quebec and Ontario. The U.S. has also objected to a provincial ban on the sale of U.S. wines and spirits in most government-operated retail outlets imposed in response to Trump's tariffs.

There are "fundamental flaws" with the U.S. approach of hefty tariffs on goods like Canadian steel, aluminum and automobiles as it would take years or longer for the U.S. to replace foreign supply with domestic capacity, said Steve Verheul, Canada's former chief trade negotiator for the USMCA.

Canada "should not be in a hurry on any of this," he said.

Write to Santiago Pérez at santiago.perez@wsj.com, Gavin Bade at gavin.bade@wsj.com and Paul Vieira at Paul.Vieira@wsj.com