CUSMA Renewal Denied: Annual Review Process Triggered for North American Trade Pact

On July 1, 2026, the United States formally declined to renew the Canada-United States-Mexico Agreement (CUSMA) for a new 16-year term, activating a provision in the agreement that will subject North American trade to annual reviews until at least 2036. The decision, confirmed following a virtual meeting between U.S. Trade Representative Jamieson Greer, Canada-U.S. Trade Minister Dominic LeBlanc, and Mexico’s Secretary of the Economy Marcelo Ebrard, was anticipated by officials in all three countries, but marks a significant shift in the stability of North American economic integration.

CUSMA, known as USMCA in the U.S., replaced NAFTA in 2020 and includes a sunset clause (Article 34.7) mandating a joint review every six years. Unless all signatories agree to extend the deal for another 16-year term, the agreement continues for a further 10 years with annual reviews. Any party retains the right to withdraw from the pact with six months’ notice—a step President Donald Trump has not ruled out but has so far avoided, citing domestic political considerations and support for the agreement among agricultural interests in Congress.

U.S. Trade Representative Jamieson Greer stated, “The United States will continue to engage with Mexico and Canada to address the agreement’s shortcomings and our trade deficits with these countries. However, the Agreement remains in force pending resolution of these issues or until the Agreement’s termination.” This position reflects the Trump administration’s desire to renegotiate certain provisions, rather than terminate CUSMA outright, and leaves the door open for bilateral or trilateral amendments, referred to by U.S. officials as "protocols."

Canada and Mexico have both expressed support for extending CUSMA for another 16 years. Canada’s Trade Minister Dominic LeBlanc reaffirmed the country’s “unwavering support for the CUSMA and its renewal,” emphasizing that the agreement remains fully in force until 2036 and could be extended at any time by mutual consent. Mexico’s Secretary Ebrard noted, “If (Trump) wanted to leave, the United States would have done it by now.” Both countries are prepared to continue negotiations, with Mexico and the U.S. having already scheduled further bilateral talks, while Canada awaits confirmation of the next round of Canada-U.S. discussions.

The U.S. administration has identified several priority issues for renegotiation. These include increasing the required North American content in automobiles from 75 percent to 82 percent—with at least 50 percent U.S. content—expanding American access to Canada’s dairy market, and tightening rules of origin to prevent non-market economies, primarily China, from using Canada or Mexico as entry points to the U.S. market. U.S. officials have also cited concerns over Canada’s recent reduction of tariffs on Chinese electric vehicles and new strategic partnerships with China, which American officials argue undermine CUSMA’s intent to block Chinese backdoor access.

Enforcement of existing provisions has emerged as another point of contention. The U.S. Trade Representative agency concluded in June that Canada is “failing to effectively enforce” its forced-labour import ban, citing a low number of blocked shipments compared to U.S. actions under a similar law. The USTR described Canada as a “dumping ground” for goods rejected by U.S. border officials and proposed a 10 percent tariff on Canadian goods not covered by CUSMA, with hearings set for July 7.

Sectoral tariffs remain a major irritant. While CUSMA shelters most Canadian exports from U.S. tariffs, key industries—autos, steel, aluminum, copper, and lumber—remain subject to significant surcharges, in some cases up to 50 percent. Canadian and Mexican negotiators have prioritized addressing these tariffs, but there is little indication that the U.S. is willing to offer reciprocal concessions. The Canadian Vehicle Manufacturers’ Association and the Auto Parts Manufacturers’ Association have both called for a durable agreement that supports the integrated North American automotive industry, warning that current tariffs render the sector uncompetitive.

The annual review process is expected to generate ongoing uncertainty for businesses and investors in all three countries. Steve Verheul, Canada’s former chief trade negotiator, does not anticipate a quick resolution, suggesting negotiations could extend beyond the U.S. midterm elections and possibly into 2027. Goldy Hyder, president of the Business Council of Canada, warned that “the ongoing instability results in delayed investment,” noting that Canadian exports to the U.S. fell 5.8 percent in 2025, and that the current 90 percent tariff exemption is all that stands between Canada and recession.

The economic impact of the uncertainty is already evident. The Bank of Canada projects that GDP will finish 2026 about 1.5 percent below its pre-tariff trajectory, with half of the shortfall due to reduced potential output. Deloitte’s summer outlook reports anemic growth and stagnation, citing CUSMA uncertainty as a leading culprit, and forecasts only 0.7 percent GDP growth for Canada in 2026. Investment flows have shifted sharply: the gap between Canadian capital invested abroad and foreign capital invested in Canada widened to $828.4 billion by 2025, the largest capital outflow in modern Canadian history.

Fixed income and currency markets are reflecting the heightened risk. The Canadian dollar is near its lowest level against the euro in 25 years, a situation attributed partly to trade uncertainty. Institutional investors are adjusting their risk scenarios, with analysts noting that while most of Canada’s exports still enter the U.S. duty-free, the persistent uncertainty could dampen business sentiment and deter long-term investment. BMO’s chief economist Doug Porter noted that while equity markets have largely moved on, bond and currency markets remain sensitive to trade developments.

Despite these challenges, some analysts argue that Canada’s position remains stronger than often perceived. University of Toronto economist Joseph Steinberg highlighted that Canada’s effective tariff rate is comparable to Europe’s, even after accounting for sectoral surcharges, and that Canada should avoid making blanket-tariff concessions that could harm its economic interests. Former Conservative MP Ed Fast advocated for broadening the negotiations into a “continental trade and security agreement” with stronger enforcement provisions, rather than accepting a rushed renegotiation.

Political considerations are shaping the negotiation dynamic. The Trump administration’s approach has included public musings about Canada as a “51st state,” engagement with Alberta separatists, and the use of tariffs as leverage. Domestic polling in Canada indicates rising support for a more assertive posture in trade talks, even as uncertainty weighs on economic performance. Prime Minister Mark Carney has stated that Canada seeks a “realistic, fair deal” and has emphasized the importance of maintaining a united front domestically, while also pursuing diversified partnerships abroad.

For now, the CUSMA agreement remains in force, with the prospect of annual reviews and ongoing negotiations for up to a decade. Any party may trigger withdrawal with six months’ notice, but absent such a move, the agreement’s provisions largely continue. The next steps involve sectoral negotiations, particularly regarding autos, steel, and agriculture, while both Canada and Mexico seek to mitigate the impact of U.S. tariffs and preserve the benefits of continental integration. The outcome of these discussions will have significant implications for North American supply chains, investment, and the broader global position of the three economies.