Policy Matters: It’s the Year of the USMCA Review. What Does This Mean for Canada?

We published our first Policy Matters on USMCA (also known as CUSMA in Canada) in August 2024. As a quick refresher, the United States-Mexico-Canada Agreement is a free trade agreement that underpins the critical economic partnership among our three North American economies. USMCA took effect in March 2020, replacing the North American Free Trade Agreement (NAFTA). It’s up for review in July at which time the three countries will decide whether to extend USMCA for a new 16-year term. If they choose not to, there will be a review every year until the Agreement terminates in 2036.

This review was on our radar back in 2024 because of the looming United States presidential election and the growing bipartisan consensus on “Buy American” protectionist policies that was — and still is — at odds with USMCA’s goal of North American economic cooperation. At the time, we launched a concerted outreach campaign reminding Americans of why a healthy relationship with Canada is important to their communities, their businesses and their nation’s economy.Unfortunately, in spite of these efforts and the efforts of the Canadian government, President Trump followed through on his tariff threat and created a highly uncertain trade and business environment for all three USMCA nations.

Why Is USMCA Important?

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Because of USMCA, Canada, the United States, and Mexico share one of the largest trading relationships in the world, jointly accounting for almost a third of global gross domestic product (GDP). There is concern that the United States will seek changes to USMCA that are detrimental to the interests of Canada and Canadian businesses — or pull out of the Agreement all together.

Businesses across Canada rely on the stable and predictable trading environment USMCA has created. Last year, business use of USMCA reached a 20-year high. The share of goods exports to the U.S. claiming NAFTA/USMCA tariff preferences surged to 53% in 2025, up from around 37% in 2024. USMCA shielded Canada from some of the worst potential economic fallout caused by the U.S. tariffs.

What Do We Want from the “New” USMCA?

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Understandably, many Canadians are wary of the upcoming review — wary of past U.S. behaviour on tariffs and unpredictable policy shifts, and wary of a process that could disrupt an already fragile trade situation. Despite these reasonable concerns, Canada has an opening not just to protect our access to the U.S. market, but to help shape a future-proofed continental trade framework that includes digital commerce, regulatory coherence, and integrated supply chains.

To ensure that the 2026 USMCA review is successful and beneficial to all three contributing countries, we think it should focus on the following strategic priorities:

Secure the continuity of the Agreement and its existing key provisions. A fractious USMCA review would harm businesses that rely on the stability and predictability of the trilateral trading relationship enabled by the Agreement.

The three countries must avoid turning the review into a renegotiation that drastically changes the terms of the Agreement. Any changes should be additive and transparent and done with the objective of updating and modernizing the Agreement, while avoiding negative impacts to business or sectors within any of the three economies. Additionally, retaining the trilateral character of the Agreement is essential. Businesses benefit substantially from trade rules that apply across the breadth of the North American economies.

Implement targeted measures to strengthen the Agreement and enhance North American economic security. The review is an opportunity to build upon the successes of the Agreement, address shared geopolitical challenges, enhance North American competitiveness, and access the untapped potential of the North American economic relationship.

Our recommendations:

• Establish North American regulatory alignment.
• Enhance workforce development and mobility.
• Establish a robust competitiveness agenda for the automotive, aerospace and defence, critical minerals, energy, life sciences, advanced manufacturing, and financial services sectors.
• Ensure that the Agreement keeps pace with advancements in digital technologies and heightened cyber threats.
• Modernize rules of origin requirements and the processes that presently hinder customs administration and trade facilitation.
• Develop North American coordination on trade and security risks posed by non-market economies.

Strengthen North American economic integration by reducing or eliminating tariffs. Tariffs within North America disrupt integrated supply chains, raise costs for consumers, and weaken our global competitiveness.

Our recommendations:

• Unwind recent Section 232 tariffs against Canada and Mexico.
• Broaden preferential tariff treatment for USMCA compliant goods.
• Introduce a USMCA rapid response mechanism for tariff escalation.

Getting USMCA right would give our three North American economies a more predictable and attractive business environment in which we compete not with each other but with the shifting global economic forces that threaten the rules and norms stable economies rely on.

We shared our priorities with the Office of the U.S. Trade Representative, Global Affairs Canada, and Mexico’s Ministry of Economy in 2025. Our full submission is available here.

What Happens if USMCA Doesn’t Go Our Way?

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Canada has everything we need to be economically prosperous and resilient — natural resources, a talented and educated workforce, a rules-based market. Except, to take full advantage of our potential, we must first address our underlying economic challenges:

• Declining competitiveness and appeal as a place to do business
• Low productivity
• Burdensome taxes and regulatory red tape
• Shrinking business investment
• Lack of incentive to retain IP instead of selling it
• Overreliance on individual trading partners

If we act now and address the main challenge, Canada’s overall competitiveness and appeal as a place to do business, many of the secondary problems will consequently get resolved. Then, no matter what happens with USMCA, we can exceed economic expectations and secure our prosperity.