What If There Is No Canada-US Trade Deal? The CUSMA Reality Every Canadian Business Needs to Understand

Shannon Peel,

A Narrative Brand Strategist, Marketer, and Communications Professional

When I recorded a video in July 2025, the August 1st deadline for a Canada-US trade agreement was a week away and both Carney and Trump were signalling it was going nowhere. I said Canada should stay polite and move on. What has happened since then has only deepened that conviction, and added considerably more data to the picture.

CUSMA, the Canada-United States-Mexico Agreement, is heading into its mandatory July 2026 review. Every Canadian business leader is asking questions about what this means:

• What happens if talks fall apart?

• Does CUSMA end?

• Can Trump pull the plug unilaterally?

• And what does that mean for Canadian businesses?

This article will examine the mechanics of CUSMA, what the experts are saying, and where the opportunities sit in every scenario.

What is the July 2026 CUSMA Review? Can Trump Pull the US Out of CUSMA? What Does Canada Export to the US? No Canada-US Trade Deal, What do the Experts Say?

What Does This Means for Canadian Businesses?

The Bottom Line on CUSMA

Canada is Not Powerless

What is the July 2026 CUSMA Review?

There is enormous confusion about this, so let's be precise.

CUSMA does not automatically expire in 2026.

The agreement is set to run until 2036. The July 1, 2026 deadline is a mandatory joint review, a structural checkpoint built into the agreement at Article 34.7, known as the "sunset clause." At that review, each country must confirm in writing whether it wants to extend CUSMA for another 16 years, to 2042.

If all three parties agree, the agreement is extended, and the next review will be scheduled for 2032. If any party does not confirm its support for an extension, CUSMA remains in force but annual joint reviews must take place until the agreement's scheduled expiry in 2036.

So the answer to "does CUSMA end if talks fail?" is: NO, not automatically and not immediately.

As international trade lawyer Alexander Hobbs of Cassidy Levy Kent put it plainly: "Unless the United States withdraws, the CUSMA agreement will stay in force for another 10 years. We are not at risk of the agreement expiring in July. That's not how this works."

Trade lawyer John Boscariol of McCarthy Tétrault describes the review differently: "On paper, this is not a point at which the agreement must be renegotiated, torn up or expired. It's a review among the parties to ensure it's working the way they want it to work."

Can Trump Pull the US Out of CUSMA?

Yes, and this is the scenario that keeps Canadian business leaders awake at night.

Any of the three countries that are parties to the agreement could choose to withdraw from it by providing six months' notice according to Article 34.6. If Trump gave notice tomorrow, CUSMA would effectively end six months later, even if Canada and Mexico stayed at the table.

However, unilateral withdrawal is not as simple as it sounds in practice.

"One example is with rules of origin," Boscariol explains. "Right now, the customs laws in the United States provide that Canadian product that meets the rules of origin under CUSMA can enter the US duty free. Those are domestic laws that would have to change if the US were to withdraw."

In other words, pulling out of CUSMA would create significant legal and operational disruption inside the United States, not just for Canada. That is leverage for Canada.

The more realistic scenario, according to most analysts, is that Trump uses the *threat* of withdrawal as a negotiating cudgel rather than following through. Trump has not pulled the withdrawal lever, a bluff expressly called out by Carney. Still, Trump is arguably the biggest deciding factor in the fate of CUSMA. Not only is the US the largest economy of the three, Trump has also concentrated decision-making power, removing the credibility and agency of his senior officials to make policy decisions.

Eurasia Group's risk analysis frames the most likely outcome starkly: CUSMA will not be formally renegotiated, extended, or terminated in 2026, it will stagger on as a "zombie," neither fully dead nor alive. The good news is that tariff exemptions for CUSMA-compliant goods will keep free trade on life support, leaving Canada with lower average effective US tariff rates than much of the world. The bad news is that Trump will use sectoral tariffs on goods such as autos, steel, and aluminum as leverage in endless negotiations, where Washington will seek to divide and conquer Ottawa and Mexico City.

That "zombie CUSMA" scenario is not catastrophic, but it is exactly the kind of prolonged uncertainty that makes business planning difficult and investment hesitant. Which is why the path forward for Canadian businesses is not to wait for the review outcome. It is to act now, during the uncertainty, rather than after it resolves.

What Does Canada Export to the US?

To understand the stakes, you need to know what is actually moving across the border.

According to Statistics Canada, in 2024, Canada's domestic exports totalled $721.1 billion, with 75.9% of these exports destined to the United States. Energy products was the top export product category by far at $195.3 billion, with the vast majority (88%) of these exports being sent to the US market.

The breakdown by category (UN COMTRADE data, 2024):

• Mineral fuels and oil: $125.7 billion to the US

• Vehicles and auto parts: $51 billion to the US (94.1% of total auto exports go to the US)

• Machinery and nuclear reactors: $31.2 billion to the US

• Metals and non-metallic minerals: $91.7 billion globally, 56.9% to the US

• Aluminum: $11.2 billion to the US

• Iron and steel: $7.6 billion to the US

• Pharmaceuticals: $8.4 billion to the US

The picture is clear: Canada's exports are heavily concentrated in raw materials, energy, and integrated manufacturing. These are exactly what the US needs if it wants to reshore pharmaceutical, semiconductor, and auto production, which means Canada's leverage is real, no matter what Trump says about our cards.

What has changed since the trade war began?

The numbers tell a painful but not catastrophic story. Almost 90% of Canadian exports to the US remained tariff-free in 2025, largely thanks to an exemption for trade compliant with CUSMA. Yet Canada's share of the US import market edged lower, posting the second-largest decline among major US trading partners, from 12.6% in 2024 to 11.2% in 2025.

The sectors specifically targeted by Trump's tariffs took the hardest hits. Looking at 2025 as a whole, nominal Canadian goods exports were down 0.2%, as significant increases in gold exports were not enough to offset declines in most other product categories, notably:

• steel -31%

• aluminum -7%

• forestry -10%

• motor vehicles and parts -3%

  
  

The manufacturing sector was particularly exposed. Exports overall dropped 11%, with the decline to the US even sharper at 17%.

Nearly 51,800 manufacturing jobs were lost over the past 12 months, with plant closures and shift reductions rippling through Ontario's automotive sector alone.

Canada's share of US-bound exports reached its lowest non-pandemic level since records began, with exports to the United States in October 2025 accounting for 67.3% of all exports the lowest level since the current method of data calculation was established in 1997.

But there is a counter-trend worth noting: Canada has been finding new markets. Exports to countries other than the US rose 30% year-over-year in December 2025, though much of this was driven by elevated overseas exports of gold. The direction is right; the base is still being built.

No Canada-US Trade Deal, What do the Experts Say?

If the US were to provide six months' withdrawal notice and follow through, the economic modelling is serious.

The Bank of Canada's analysis is measured but clear: An unfavourable outcome of the CUSMA review would weaken the competitiveness of Canadian exports, lowering export volumes. Faced with weaker demand, exporters would reduce production, investment and hiring.

In a scenario where the US withdraws, the Ontario government projects that the US would impose 12% tariffs on Canada and maintain existing tariffs, which would slow Ontario's projected economic growth from 1% in 2026 to 0.3%.

The Peterson Institute estimates that the initially proposed US tariffs on Canadian imports could lower Canadian GDP by around 1.25% by 2027. Given that Canada's exports to the US represent almost one-quarter of its GDP, even a partial degradation of trade conditions ripples through the entire economy, not just the directly affected sectors.

Patrick Leblond of the University of Ottawa is blunter about the power dynamic: Leblond has publicly characterized the US posture as telling Canada, "We're going to put the gun to your head, and you're going to give us what we want."

Trade lawyer Boscariol urges businesses not to wait for resolution: "I do think it's a mistake to view the CUSMA review as a singular event. I think this is an ongoing process that we're going to have to deal with over the next 10 years." He urges firms to prepare for continued volatility in access to the US market.

And Hobbs raises the compliance credibility issue that cuts deeper than the legal text: "People are no longer looking at CUSMA as a binding instrument," pointing to instances where the US has taken actions that appear inconsistent with the agreement.

What Does This Means for Canadian Businesses?

The trade war has created real pain, especially in steel, aluminum, auto parts, and forestry, concentrated in Ontario and Quebec. That pain is not evenly distributed. Businesses in those sectors that were waiting for the situation to normalize have already paid the price for waiting.

But the majority of Canadian trade, close to 90% by value, continued to flow under CUSMA protection through 2025. And the diversification that Carney has been pushing, and that I have been talking about for the past year, is actually beginning to show up in the numbers. The share of exports going to non-US markets is growing.

The one industry that won't recover is the BC Forestry Industry because it was already dying due to a perfect storm of bad decisions..

The Possible CUSMA Scenarios According to Shannon:

If CUSMA is extended with limited changes: The businesses that used this period to diversify their customer base are in a stronger position than they were before the trade war started. The ones who waited are back at baseline.

Use this window, NOW, to build export relationships in Europe, the UK, and Asia while the political environment for Canadian products is favourable.

If CUSMA moves to annual reviews (the "zombie" scenario), Prolonged uncertainty is the new operating environment. This rewards businesses that have optionality, multiple customer markets, flexible supply chains, domestic revenue streams that are not dependent on US access. The Buy Canadian momentum is real and measurable.

Build your Canadian customer base now so it is not a fallback, it is a foundation.

If the US withdraws: This is the scenario everyone fears and most analysts consider unlikely in the near term, but it is not impossible. In that scenario, Canadian critical minerals, energy, and agricultural products retain strategic value because the US cannot easily replace them. The businesses that have already built export relationships outside the US are the ones positioned to absorb the shock and find new buyers faster. The businesses still 90% dependent on US customers are the most exposed.

In all three scenarios, the same actions are correct: diversify your customer base, know your CUSMA compliance status, pursue government programs to support adaptation, and build domestic Canadian revenue so your survival is not a single-variable equation.

The government support is real.

• Export Navigator is a free resource for Canadian businesses to find international buyers.

• The Trade Commissioner Service has offices in markets across Europe and Asia.

• BDC loan programs support manufacturers looking to adapt and expand.

These tools exist. Most Canadian businesses have never used them.

The Bottom Line on CUSMA

CUSMA does not end in July 2026 if talks fail. It enters a period of annual reviews that could extend for a decade. Trump can withdraw with six months' notice, but doing so would cause significant domestic disruption in the US as well, which is a constraint on how aggressively he can use that lever.

The real risk is not a sudden end. The real risk is what Boscariol called the "ongoing process", years of uncertainty, sectoral pressure, and negotiating leverage used against specific Canadian industries.

The businesses that will navigate this well are the ones that stopped treating CUSMA as a guarantee and started treating resilience as a strategy. That means more markets, more domestic revenue, more flexibility and less dependence on any single country's political goodwill.

Canada is Not Powerless

The United States still took 71.7% of Canadian goods exports in 2025, even as that share fell to its lowest level since the early 1980s. The interdependence is deep. Canada's resources are what the US needs to build the factories Trump keeps promising. That is leverage, not infinite leverage, but real leverage. Use it.

Stay polite. Take Action. Move forward.

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Shannon Peel is the founder of MarketAPeel and a Narrative Strategist She publishes analysis on Canadian trade, business resilience, and brand strategy.