CUSMA at a Crossroads: What the Annual Review Means for Canada’s Trade Future

With the conflict in Iran pushing energy prices higher and raising fears of resurgent inflation, the joint review of the Canada-United States-Mexico Agreement (CUSMA) has taken a back seat in the minds of many Canadians. But negotiations have been ongoing, and the puck continues to move down the ice, even if not at the pace some expected.

Despite this, uncertainty remains high as the many possible outcomes could have wildly different trade and economic consequences. 

Why the CUSMA Review Still Matters for Canada

The key date on everyone’s mind in the CUSMA discussion is July 1, 2026—this coming Canada Day. On that date, the signatory countries must agree to either extend the agreement for another 16 years (to 2042) or shift to annual reviews. Either way, nothing on the ground changes that day, even if CUSMA is not extended.

Unless the US administration changes its mind on allowing CUSMA-compliant imports from Canada to cross the border duty-free, Canada Day should look a lot like June 30 for Canadian exporters. The lead negotiators for the US and Canada—Jamieson Greer and Janice Charette, respectively—have said as much. 

Annual CUSMA Reviews and Their Economic Impact

By all accounts, CUSMA is likely moving to a process of annual reviews starting July 1. In a dialogue at the Hudson Institute in April, Mr. Greer said he would need to inform Congress of his recommendation for CUSMA at the beginning of June. And at the time of the event, he felt there were too many unresolved issues to make a 16-year extension of the agreement likely. 

While the move to annual CUSMA reviews may not have an immediate impact on Canada–US trade, there is a risk that entrenched uncertainty could weigh on business investment in Canada. Real business investment contracted in 2025 and may well do the same in 2026. That’s in large part because Section 232 (national security) tariffs on automobiles, steel, aluminum, copper, and select wood products were unlikely to be removed in any but the most optimistic scenarios. The same can be said for anti-dumping and countervailing duties on US softwood lumber imports from Canada. 

In a world of annual reviews, circumstances are likely to get more challenging for exporters, not less. Scenarios we published in February suggest exports and business investment could slow, bringing down hiring with them. This would likely spill over to the broader economy. 

That was already a sobering outlook, and one in which we viewed the Bank of Canada as likely to respond with at least one rate cut. But since February, the conflict with Iran has complicated the inflation outlook. The concern that elevated energy prices today could push underlying inflation higher in the future has taken some optionality away from the Bank. 

What Happens If the United States Exits CUSMA?

There is a darker possibility still. With six months’ written notice to the other parties, the US can trigger an exit from CUSMA. This would eliminate the tariff exemption for CUSMA-compliant goods and take the outlook for Canadian trade to an entirely new level of uncertainty.

The key question then becomes: what duties would Canadian exports face? Here, the picture is mixed. After the US Supreme Court ended the use of International Emergency Economic Powers Act (IEEPA) tariffs, the US lost one of its main tools for imposing broad trade taxes. Other tariff authorities remain—most notably Section 232, along with Section 301 (retaliation for unfair trade practices) and Section 122 (used for short‑term balance of payments issues). But each of these tools has specific legal limits, which reduces their impact and creates uncertainty about when and how they can be applied.

Export Diversification Beyond the United States

This is why Canada can’t let up in working to diversify its trading partners.

Canada will likely always trade more with the US than with any other country. Proximity and shared law, culture and language all help to make trading easy. But the ongoing trade antagonism from south of the border means Canada can’t put all its eggs in one basket. And there is room for cautious optimism.

As trade with the US slumped throughout 2025, it increased with the rest of the world. Export diversification was broad-based across sectors but particularly notable in energy. The opening of the Trans Mountain Expansion pipeline in May 2024 helped to ensure that happened, with more growth in bitumen exports to Asia over the past two years than to the US. 

Removing Barriers to Strengthen Canadian Trade

There is a lot more work that needs to be done to further diversify Canadian trade. The Prime Minister’s efforts to advance international trade agreements are a positive first step.

But more needs to change at home, too. Reducing remaining barriers to internal trade will better position companies to conduct international trade. And while there has been measurable progress on this over the past year, there is still a long way to go to reach the mutual recognition that US states take for granted.

Harmonizing environmental and other regulations across and within different levels of government in Canada should help, too, in part by supporting trade-facilitating infrastructure to get built more quickly. 

Building a Long-Term Strategy for Competitiveness

Given the hand that Canada has been dealt on trade, policymakers are moving the country broadly in the right direction. Good intentions complemented by a clearer and more comprehensive execution plan would serve to position the country for future success.

A more detailed, economy-wide roadmap would help businesses better understand how to plan and invest with confidence. Recent initiatives, including the Major Projects Office and increased defence spending, are constructive steps but are still vulnerable to execution risk, whereas their impact is currently concentrated on larger firms and selected sectors.

Policymakers could do more to help small and medium-sized businesses expand and compete internationally through streamlined regulation, improved access to capital and simpler trade processes. As public and (hopefully) private investment increases, the focus should be on translating that investment into broader productivity gains across the economy. 

While Canadians may yearn for the days when we had a predictable trade relationship with the US, to paraphrase a famous Canadian hockey legend, you need to skate where the puck is going, not where it’s been.