The CUSMA conundrum continues

Author: Tasneem Azim-Khan, Chief Investment Strategist, RBC PH&N Investment Counsel (With contributions from Noha Fazili, research analyst)
Dated as of: June 30, 2026.

Overview: Canada has made meaningful progress diversifying trade away from the U.S. while CUSMA renegotiation uncertainty dominates the near-term outlook. Complete dissolution of the agreement is unlikely, but prolonged negotiations and targeted U.S. concessions from Canada and Mexico remain the most probable path forward.

Summary

Canada has navigated the post-Liberation Day trade environment with measured resilience. According to RBC Economics, the U.S. share of total Canadian exports declined from over 75% to below 70% by end-2025. A $29 billion increase in exports to non-U.S. trading partners — largely fuelled by elevated gold prices, which rose to become Canada's second-largest export after crude oil — broadly offset a 6% year-over-year decline in U.S.-bound shipments. The result is a meaningful, if nascent, diversification of Canada's export base.

CUSMA has served as a critical buffer. The Canada-U.S.-Mexico Agreement — governing approximately $2 trillion in annual continental trade — has shielded Canadian exporters from the full force of the Trump administration's aggressive tariff posture. Following the U.S. Supreme Court's ruling that President Trump exceeded his executive authority in invoking the 1977 International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs, the U.S. Trade Representative (USTR) launched a Section 301 investigation targeting 60 countries. The proposed additional duties — 10% on certain Canadian goods and 12.5% on 44 other trading partners — would not apply to CUSMA-compliant goods, reinforcing the agreement's indispensable role as a trade shield. In response, Canada has signalled forthcoming parliamentary measures to strengthen prohibitions against imports made with forced labour.

July 1 is a pivotal inflection point. Three outcomes formally remain on the table: a full 16-year renewal, a rollover into annual reviews, or complete dissolution. Officials from all three parties acknowledge the July 1 deadline will likely be missed. In the absence of a formal agreement, CUSMA remains in place until at least 2036 under rolling annual reviews — preferable to cessation, though uncertainty persists. Canadian officials are reportedly preparing for negotiations that could extend until the end of the Trump term in early 2029.

The negotiating positions are asymmetric. Canada's ask is straightforward: relief on Section 232 sectoral tariffs crushing autos, steel, aluminum, and lumber. Washington's demands are far more expansive — higher North American content rules in autos, tighter rules of origin, and broad policy concessions spanning dairy quotas to streaming regulations.

Prime Minister Carney's pivot toward "Fortress North America" — a strategic framework positioning Canada as an essential partner through deep supply chain integration and aligned economic and security policies — signals a more conciliatory approach and, we believe, a strategically sound move ahead of imminent negotiations. This posture must nonetheless be carefully balanced against the preservation of Canadian sovereignty and existing international trade alliances.

RBC PH&N Investment Counsel's medium-to-long-term view remains constructive. Historical precedent is instructive: NAFTA was successfully renegotiated during Trump's first term. CUSMA-compliant goods continue to receive tariff exemptions, and by RBC Economics' assessment, 95% of U.S. goods exported to Canada in 2024 entered duty-free under the agreement. Canada is the top export market for more than 50% of U.S. states — a lever that ultimately constrains how far the U.S. can push before harming its own constituents. U.S. Trade Representative Jamieson Greer has acknowledged that separate side arrangements with Canada and Mexico — built atop the existing trilateral framework — are a plausible outcome, preserving the agreement's core architecture while addressing specific U.S. grievances.

Investors should expect continued bellicose rhetoric from Washington and episodic market volatility. The broad strokes of CUSMA 2.0 are expected to remain intact.

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Highlights

● Canada's U.S. export share fell from over 75% to below 70% by end-2025 (RBC Economics)

● Canada generated a $29 billion increase in non-U.S. exports, largely offsetting a 6% decline in U.S. exports

● Gold rose to Canada's second-largest export behind crude oil in 2025

● CUSMA governs approximately $2 trillion in annual continental trade

● The July 1 CUSMA renegotiation deadline is expected to be missed by all three parties

● In the absence of a deal, CUSMA rolls into annual reviews and remains in place until at least 2036

● 95% of U.S. goods exported to Canada in 2024 entered duty-free under CUSMA (RBC Economics)

● Canada is the top export market for 50%+ of U.S. states

● PM Carney's pivot to "Fortress North America" signals a conciliatory negotiating posture

● USTR Greer has indicated separate Canada and Mexico side arrangements are a likely near-term outcome