Don’t Go in Weak. Canada Must Prepare Now for CUSMA Negotiations

May 23, 2025 – Canada must take a strategic approach combined with clear tactics as it heads toward a full renegotiation of the Canada-United States-Mexico Agreement (CUSMA) in 2026, according to a new Communiqué from the C.D. Howe Institute’s Trade Crisis Working Group.

The expert group, which met on May 16, warns that Canada cannot enter these negotiations from a weak position. US concerns over Canada’s digital services tax, dairy tariff quotas, and demands for tighter auto rules of origin will drive tensions at the July 1, 2026 deadline for a trilateral review of CUSMA (or USMCA in the United States) approaches.

Many Canadian products including vehicles, steel, and aluminum remain subject to 25 percent US tariffs imposed under grounds of either a proclaimed national emergency at the bilateral border, or because they threaten US national security. These barriers must be addressed before serious negotiations begin, otherwise Canada risks trading concessions for nothing.

To turn the tables, the Communiqué calls on Ottawa to build leverage now – not later. That means putting forward a broader proposal that ties trade to deeper cooperation on defence, security, and supply chains. While they will be difficult to navigate with China, Canada can also leverage likely US demands related to its security concerns centred on Chinese investment, influence, and unfair trade practices.

 Other priorities include better coordination with Mexico to avoid being sidelined into bilateral talks, and re-engaging the US in smarter regulatory alignment – particularly in autos and agriculture – to cut border delays and strengthen North American competitiveness, while keeping Canada “inside the tent.”

The group also flagged a growing sense of fatigue and uncertainty in the business community. The lack of clarity on tariffs, standards, and future rules is starting to weigh on investment more than the tariffs would by themselves.

The bottom line: Canada needs to be ready, clear-eyed, and prepared to show it’s an indispensable North American partner. That work needs to take the form of concrete proposals by Canada – and it starts now.

The Trade Crisis Working Group will meet again to assess ongoing developments and explore ways Canada can protect its interests. The working group consists of experts drawn from the C.D. Howe Institute’s International Economic Policy Council, Supply Chain Working Group, and other relevant experts.

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For more information, contact: Daniel Schwanen, Senior Vice-President, C.D. Howe Institute; Raquel Schneider, Communications Officer, C.D. Howe Institute, 416-479-9520 ext. 9520, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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