This is not a prediction, but the odds favour a renegotiated trilateral trade agreement among Canada, the U.S. and Mexico.
The options for the three countries are to renew, renegotiate or withdraw from the Canada-U.S.-Mexico Agreement (CUSMA), which is scheduled for review by July 2026. Negotiations will begin much sooner than that.
As matters stand, most Canadian exports continue to enter the U.S. tariff free because they comply with CUSMA’s country-of-origin provisions.
Most observers of the trade debacle focus on what Canada stands to lose in the looming trade talks. But the U.S. also has much to lose.
For instance, an end to CUSMA makes U.S. President Donald Trump’s hoped-for Canadian partial financing of his Golden Dome missile defence system a non-starter.
And Canada’s role in the North American Aerospace Defense Command (NORAD), whose purpose is to defend the U.S., not Canada, could be scaled back or eliminated.
Here are some other reasons why a renegotiated but highly recognizable CUSMA 2.0 is the most likely outcome of our trade nightmare.
• CUSMA is among the world’s biggest free-trade regions. The U.S. economy has more than quadrupled in size since the 1993 inception of CUSMA’s predecessor, the North American Free Trade Agreement (NAFTA). CUSMA, known in the U.S. as the U.S.-Mexico-Canada Agreement (USMCA), is a deeply integrated super-economy whose dismantling would be chaotic. And the U.S. would be weaker outside of CUSMA against its chief economic rivals, China and the European Union (EU). “The stakes are high,” says the Center for Strategic and International Studies, a Washington, D.C.-based foreign policy institute. “The USMCA remains the foundation of North America’s economic strength and a key counterweight to China’s global influence.”
• Trump said during Prime Minister Mark Carney’s first visit to the White House in May that “we really don’t want Canadian steel, and we don’t want Canadian aluminum and other things because we want to be able to do it ourselves.”
But walking away from CUSMA, which Trump has repeatedly threatened to do, would be incredibly disruptive to the U.S. economy, and especially for the 32 U.S. states whose largest export market is Canada. The U.S. is highly reliant on imports of Canadian electricity, oil and gas, aluminum, lumber, potash, uranium, and other essential goods.
Some examples: The U.S. defence, aerospace, automaking and house-building industries rely on aluminum from Quebec smelters because the U.S. is far from self-sufficient in aluminum. U.S. farmers of every type use fertilizer derived from Saskatchewan potash. U.S. civilian nuclear power uses imported Canadian uranium. Canada supplies about 25 per cent of America’s softwood lumber for housing construction and other applications. And so on.
For the U.S. to obtain those goods internally would require that American industries significantly increase their output to fill the gap.
But they won’t do so.
New U.S. production facilities would be prohibitively expensive to build. And when Trump imposed tariffs on steel and aluminum from Canada and other countries in 2018, the principal effect was to raise costs for U.S. users of the metals and reduce net manufacturing employment by an estimated 75,000 jobs.
• Powerful U.S. industrial and farm lobbies want CUSMA kept intact. Last week, most of the nearly 150 U.S., Canadian and Mexican industry and agriculture representatives who testified on CUSMA at hearings held by the U.S. Trade Representative (USTR) called for preserving CUSMA.
An example is Dave Walton, secretary of the American Soybean Association, who testified that “our industry would not survive a long tariff battle with our two closest customers.”
Walton added that scrapping USMCA would “increase the likelihood that U.S. soybean farmers will end up in the crosshairs of potential retaliation.”
That’s true. In the absence of a free-trade agreement with the U.S., Canada would be compelled to impose counter-tariffs on imported U.S. goods.
That would increase costs throughout the American economy. In a September report, RBC Economics calculated that without CUSMA, tariffs for U.S. importers could rise to more than 20 per cent.
• Trump’s popularity with U.S. voters is slumping. According to Real Clear Politics, Trump’s approval rating has dropped to 42 per cent from 50.5 per cent in January. Trump has broken a 2024 campaign promise to reduce prices, which instead are unchanged or higher since he took office. And that’s before Trump’s inflationary tariffs take full effect.
Trump’s Republicans are heading for a loss of their narrow control of Congress in midterm elections on Nov. 3. A Democratic-controlled Congress could block elements of Trump’s agenda.
Trump needs a major political achievement between now and November. A renegotiated CUSMA would enable Trump to declare victory, as he did ahead of the 2018 midterms after negotiating a CUSMA with only slight modifications to the NAFTA it replaced. “It’s the best agreement we’ve ever made,” Trump bragged when CUSMA was signed in 2018.
As U.S. dealmaking triumphs go, a CUSMA 2.0 would suffer in comparison with, say, the Louisiana Purchase.
But we’ll take it.
