Summertime, and Canada’s Uneasy

With the upcoming celebration of Canada Day on July 1, most Canadians will be taking a well-deserved day off after another volatile start to the year. Following President Trump’s return to the White House in January 2025, the Canadian economy has been hit with an ongoing series of economic shocks. And the end isn’t yet in sight.

Let’s start with Canada Day. July 1, 2026, marks the mandatory six-year review date for the Canada–United States–Mexico Agreement (CUSMA). On that day, Canadian, American and Mexican officials are scheduled to meet to discuss renewing the pact for another 16 years. And it’s all but a forgone conclusion at this point that that isn’t going to happen, despite a late-game push by Canada and Mexico. That sets CUSMA on a path to annual reviews for the next decade. However, the July 1 CUSMA review date has been rightly characterized as a checkpoint as opposed to a cliff by trade experts and officials on both sides of the US–Canada border. Nothing is expected to change for Canadian exporters overnight. The US tariff exemption for CUSMA-compliant goods that has supported a relatively low overall tariff rate for Canada is anticipated to remain, at least in the near term. This said, the move to annual reviews risks entrenching uncertainty for businesses regarding future access to the US market. That could further restrain domestic and international investment as well as hiring in response to, and in anticipation of, still subdued demand for Canadian exports south of the border. But it’s a far cry from a full-on exit from CUSMA by the US, which would need to be announced with six months’ notice. If that were to occur, it could be deeply damaging to the short- and long-term prospects for the Canadian economy, depending on the trade arrangements that would ultimately be negotiated. Regardless, the Trump administration will do what it wants, and any new agreement is likely to be tested soon after it’s signed. (See our CUSMA scenarios External link. for more information, as well as our recent op-ed External link. and podcast episode External link. on the topic.)

Then there is the conflict with Iran External link.. A framework for an agreement between the US and Iran is in place but remains shaky, with both sides sabre rattling at any hint of a ceasefire violation. And while oil and fuel prices have come back down from crisis highs, they remain well above pre-conflict levels just in time for the summer driving season. That helped to push Canadian inflation External link. to the highest level in two and a half years in May 2026, at 3.2% year over year. Fortunately, higher energy prices haven’t yet started to show up meaningfully in underlying inflation, although our research External link. suggests it’s just a matter of time until elevated fuel and fertilizer costs start to make an appearance in non-energy prices, even if only modestly. But high and rising prices were already hurting Canada’s most vulnerable External link. prior to the energy price shock. The Government of Canada was prompted to send cheques External link. to these households to help offset this pre-Iran-conflict inflation, to the tune of $3.1B on June 5. On Friday, July 3—just two days after Canada Day—low- and middle-income households will receive GST/HST credit cheques (now referred to as the Canada Groceries and Essentials Benefit) that are 25% larger than previously planned. According to the Parliamentary Budget Officer External link., the expanded support for households is expected to cost more than $12B over six fiscal years. This should help to provide some additional relief to those Canadians who need it most, although it’s unlikely to completely fill the affordability gap left by sharply higher prices since the COVID‑19 pandemic.

All told, economic uncertainty looks as though it’s here to stay External link. for the next few months and possibly even years. It’s no wonder that business and consumer confidence remain weak in Canada. But even as Canadians look ahead to an uneasy summer, they should take time to enjoy it. It’s summertime, and the livin’s easy. Have a great holiday!

Please note that there will be no release of the Weekly Commentary from June 29 to July 24, 2026, inclusive. However, we will continue to publish the “Economic Indicators of the Week” section.