By John M. Weekes

September 30, 2025

As Canada, the United States, and Mexico gear up for the review of the Canada-United States-Mexico Agreement (CUSMA) scheduled for July 1st, 2026, now is a good time to take stock. How is Canada doing in its efforts to maintain and restore exports lost to the American market over the past several months of tariff disruption, to strengthen our economy, and diversify our trade with other markets?

It has been a difficult, chaotic, confusing year on the trade front. Donald Trump’s disruptive, protectionist actions and threats have sent shock waves through the Canadian economy and spooked businesses contemplating new investments in Canada. So much has happened that it is hard to keep track of the various onslaughts in Trump’s assault on the global trade status quo rationalized by an effort to repatriate the manufacturing of goods intended for the US market. The Canadian Federation of Independent Business has produced a good summary of the current situation in what they call the “Canada-U.S. Trade War”. The Department of Finance has a web page that documents the responses of the Canadian government to the American actions.

Throughout late September, the three North American partners all launched their own domestic consultations designed to gather input on how to approach the review of the CUSMA scheduled by the agreement for next Canada Day. Canada’s consultation process began on September 20th and runs through November 3rd.

The essential task of the review will be to assess the operation of the agreement and to determine whether it should be extended for a further period of 16 years beyond 2036. Without such agreement, the CUSMA will terminate on July 1, 2036. (Per Article 34.7, Section 1: “This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term”) As part of this review, the agreement envisages under Article 34.7, Section 2 that each country “may provide recommendations for the Commission (of ministers set up to manage the agreement) to take action at least one month before the Commission’s joint review meeting takes place.” Such recommendations could include proposals to amend the CUSMA.

Of course, the Trump administration could also decide to simply withdraw from the agreement under Article 34.6, after giving the required six months’ notice. However, such action would still leave the CUSMA in force between Canada and Mexico. Another possibility is that Trump might decide to completely ignore American obligations under the agreement thereby rendering it useless. But for the moment at least, the Trump administration seems to be preparing for the CUSMA review in a way that suggests they are taking it seriously.

Canada is not alone in facing this erratic behaviour from the U.S., so we need to keep an eye on what is happening more broadly as we try to improve Canada’s prospects.

A few considerations stand out and should play an important role in shaping the Canadian approach to the CUSMA review and managing our trade interests more broadly.

• Importantly, the actual impact of the headline tariffs imposed by Trump on Canadian exports has turned out to be much less than was anticipated back in March when the 25% fentanyl/border tariff was announced on all Canadian and Mexican exports. These tariffs were increased to 35% on August 1. The key point is that these tariffs only apply to non-CUSMA-compliant goods from Canada. To prove compliance to US Customs, documentation must be provided that shows the product qualifies under the CUSMA rules of origin as being Canadian. Before Trump, many businesses that could qualify didn’t bother because the most favoured nation (MFN) duty applied by the U.S. to almost all imports was zero or very low. This way, Canadian businesses avoided having to pay the administrative cost of proving compliance. In February, only about 35% of Canadian exports to the U.S. were CUSMA compliant which meant that some 65% of Canadian exports would be subject to the duty. By July, nearly 85% of Canadian exports were compliant. So, it became apparent that for most Canadian exports the U.S. was respecting the CUSMA requirement for duty-free treatment. This meant most Canadian (and Mexican) exports were enjoying much better treatment than those of any other country. Six months ago, it seemed Trump had effectively torn up the CUSMA. Now it seems CUSMA is offering Canadians lower duties than any other country except Mexico. A chart from the National Bank provides insight into what has happened. Throwing out the CUSMA in disgust over American behaviour is not a good strategy for Canada.
• Unfortunately, some important sectors of Canadian exports are still burdened by high U.S. duties: lumber (35%) automobiles (25%), steel and aluminum (50%) and some copper products (50%). And Trump is proposing new tariffs in other sectors. These American sectoral tariffs apply to imports from all countries.
• At the end of July, Trump announced a series of so-called reciprocity tariffs on about 90 countries at varying rates, supposedly to reflect how open each market is to U.S. exports. In addition, the administration has been pursuing new trade deals with other countries to provide better access for American exporters. The deals that have been reached accord lower across-the-board duties to many of the United States’s most important partners, including the UK (10%), the EU (15%), Japan (15%), South Korea (15%), Indonesia and the Philippines (19%), Vietnam (20%). All these tariffs are a clear violation of the WTO’s Most Favored Nation (MFN) obligation and also American tariff obligations under the WTO. And the so-called deals agreed with the U.S. are really just “handshake” or “framework” deals that provide no assurance of durability such as being enacted into American law by the Congress. Another systemic problem with these deals is that America’s partners have granted more favorable access to the Americans than to other non-free trade partners. This means these countries are also in violation of their MFN WTO obligations. So not only has the U.S. gone rogue but the WTO is under duress from actions by other countries as well.
• Overall, uncertainty prevails for all countries about what tariff rates will apply to their trade particularly in the U.S. market. Without strong remedial action, this uncertainty will lead to general economic decline.
• Another key factor to keep in mind is that domestic U.S. support for Trump’s trade and tariff policies is waning. In fact, his policies may well be blamed for any increased inflation and any economic slowdown, both of which seem likely. Canadians shouldn’t be pressing for an early conclusion to the process of reviewing and possibly renegotiating the CUSMA. While deliberate delay could prove counterproductive, we certainly shouldn’t be in a hurry to conclude a deal that is not in Canada’s interest. As we get closer to next year’s midterm Congressional elections, American support for Trump’s policies is likely to erode dramatically.

Given this background and the damaging prospect of continued uncertainty, Canada should urgently:

1. Continue efforts to reform and improve our domestic economic performance through regulatory reform and eliminating internal barriers to trade.
2. Take bold steps to strengthen Canada’s capacity as a natural resource powerhouse using this as a primary way of diversifying and strengthening trade and investment ties with European and Pacific partners. There has never been a more propitious time to achieve these diversification objectives. Our European partners are desperate to reduce their dependency on Russia for the supply of needed industrial materials including oil and gas and critical minerals. Our Asian partners in the CPTPP are worried by the growing strength of China and the unpredictability of the United States. The efforts of the Prime Minister and his ministers to make the case with foreign leaders, businesses and international investors should be intensified in the months ahead. Some are questioning whether strengthened partnerships with these partners will make any difference in a meaningful time frame and whether the government can afford any investment that might be needed to develop new resource projects. Prime Minister Mark Carney’s meetings with German Chancellor Friedrich Merz in Berlin last month and the agreement on critical minerals they announced on August 26 show that securing German participation and investment for such projects is well within reach. In fact, Canada’s clear objective should be to get international partners to finance such investment while respecting Canadian laws and regulations.
3. Work with our European and TransPacific partners to salvage the multilateral trading system centered in the WTO. This system should be strengthened and reformed. It will be needed to underpin Canada’s efforts at diversification.
4. Attach top priority to preparing for the review of CUSMA and its potential renegotiation. The United States is and will remain for the foreseeable future Canada’s dominant trade and economic partner. The government should:
   • develop a full analysis of the operation of the CUSMA that will enable Canada to participate in the review in a constructive and forward-looking manner,
   • develop Canadian proposals for how the operation of the agreement could be improved,
   • consider how to respond to likely American proposals for changes to the CUSMA. Such responses should allow Canada to listen constructively but resist anything which is not in Canada’s interest,
   • work closely with the provinces, the private sector and all interested Canadians and groups of Canadians in developing Canada’s approach,
   • work closely with congressional members, state governments, and groups and individuals to explain Canada’s thinking and explore common approaches,
   • work closely with Mexico, with whom Canada shares the objective of ensuring the continuance of a strong and effective CUSMA, while recognizing that on some matters our interests will inevitably differ.

While the challenges may appear daunting, the government should use the coming year to build the groundwork for Canada’s future prosperity and security. Looking back 50 years from now, we may well conclude that these changes would not have been possible without the shocks to Canadian complacency from Donald Trump.

John Weekes, who was Canada’s chief negotiator for the original NAFTA and ambassador to the WTO, is a member of the Expert Group on Canada-U.S. Relations, and a fellow of the Canadian Global Affairs Institute.