The Canada-United States-Mexico Agreement (CUSMA) serves as the “operating manual” for North American trade. It’s aimed at improving the economic performance of the three signatories by creating a regional free trade zone and establishing clear rules and regulations.

CUSMA did not prevent the Trump administration from imposing a wide range of tariffs last year, but it has provided the basis for the U.S. to exempt most Canadian goods from otherwise punishing blanket tariffs. U.S. sectoral tariffs on a variety of goods including steel, aluminum, copper, softwood lumber, and auto parts remain in place while Canada is presently subject to a 10% blanket tariff for other non-CUSMA compliant merchandise exports to the U.S. Although trade uncertainty continues to weigh on the economy, it is this CUSMA exemption that has contributed to a much more resilient Canadian economy than we expected in the spring of 2025.

Now, the agreement is facing a test. When CUSMA replaced the North American Free Trade Agreement (NAFTA) in July 2020, it included a provision that it must be reviewed every six years. That first review deadline is approaching on July 1. Although Canada’s Chief Trade Negotiator, Janice Charette, describes this date as a "checkpoint…not a cliff,” the process comes at a time when relations with the U.S. are tense, making the outcome uncertain.

Today’s Twenty-Four explores the implications of the upcoming review by drawing on some of the themes in ATB’s newly-released CUSMA Playbook, which will be updated as more information on the review becomes available.

The ties that bind

Canada’s economic performance remains deeply and intricately tied to the U.S. economy. This is highlighted by the fact that 72% of Canadian merchandise exports are destined for the United States, making it our most critical customer.

Alberta plays an outsized role in this relationship. In 2025, the province accounted for 29% of Canada’s merchandise exports to the U.S., which is more than double its share of the national population.

At 85% of the total, Alberta's international sales are even more heavily focused on the U.S. While the province sells a wide variety of things to U.S. buyers, one category stands out at 82% of the total: energy (especially oil and natural gas). And even though exports of energy to Asia have spiked, they remain a fraction of what is sold to U.S. buyers.  

Trade diversification

While the U.S. remains foundational, the Canadian government and Canadian exporters have increased efforts to reduce the risks of relying so heavily on a single market. In addition to providing a way to grow overall exports, trade diversification (i.e., selling more to a wider range of international buyers) acts as a buffer when U.S. demand shifts or U.S. trade policy restricts access (as it has under President Trump).

Trade diversification is, of course, easier said than done. Canada’s deep economic relationship with the U.S. did not come about for no reason. Being the physical neighbour of the world’s largest economy makes economic ties between Canada and the U.S. both logical and fruitful. After decades of integration, cutting those ties is neither easy nor prudent. With that said, more trade diversification is a worthy goal.

Trade diversification makes sense, but it won’t happen overnight and it can’t replace Canada’s relationship with the U.S.

CUSMA scenarios: What 2026 holds

The CUSMA review is a potential flashpoint amid ongoing tariff tensions. It is unlikely that the U.S. will refrain from opening a can of worms by seeking to negotiate parts of the agreement and/or introduce new demands on Canada and Mexico. The U.S. has already signaled interest in revisiting areas such as supply management, digital services, regional content requirements, and the dispute mechanism, potentially through bilateral negotiations rather than a trilateral approach.

There are many possible outcomes, but three stand out:

• Continued access - CUSMA is renewed this year and largely “as-is”; the exemption from blanket U.S. tariffs is maintained; sector-specific U.S. tariffs remain in place.
• Prolonged uncertainty - Status quo on tariffs, but negotiations drag on indefinitely with few, if any, concrete results this year.
• Breakdown of the agreement - The U.S. pulls out of the agreement and the CUSMA exemption to the blanket tariff on Canadian goods is lost.

Our base case forecast is a combination of the first and second outcomes. We assume the current tariff regime remains in place, but with more certainty about future tariffs.

Ultimately, the 2026 review is not just a policy check-in; it is a test of North American economic integration. While trade diversification is gaining momentum at the margins, key sectors in both Alberta and Canada will remain highly integrated with, and highly dependent upon, the U.S. for the foreseeable future.

Answer to the previous trivia question: The last interest rate cut by the U.S. Federal Reserve was on December 10, 2025.

Today’s trivia question: What is the combined population of Canada, the United States and Mexico?