CUSMA at a Crossroads: Mapping the Pathways That Could Redefine North American Trade

With the upcoming review of the Canada-United States-Mexico Agreement (CUSMA), uncertainty around US trade policy is once again emerging as a major macroeconomic risk for Canada. The range of possible outcomes remains especially wide. At one end of the spectrum is a scenario where the agreement is abandoned, exposing Canadian exports to broad punitive tariffs. At the other end lies the possibility that the agreement is renewed and the existing sector-specific tariffs are lifted. This would bring North America back to a free-trade arrangement like the one in place before Donald Trump returned to the White House. Our baseline economic scenario assumes that the current tariff policy remains in place following the recent US Supreme Court ruling, but the agreement is nevertheless renewed.

This report also presents two alternative scenarios to show what could happen if the outcome of the CUSMA review is less favourable than our baseline scenario assumes. For each scenario, we estimate the implied trajectory of the effective tariff rate on Canadian exports to the United States and then add these assumptions to our macroeconomic frameworks. This allows us to measure the possible effects on variables such as exports, business investment, inflation, interest rates and the exchange rate.