July 1 marks the 159th anniversary of Canadian Confederation. It also marks the 6th anniversary of the Canada-United States-Mexico Agreement (CUSMA).

The latter is significant because there is a provision in the agreement that requires it to “be reviewed” on the 6th anniversary of it entering into force. The review didn’t have to be a big deal, but given President Trump’s aggressive approach to tariffs and recent comments about not renewing the agreement, it has become one.

The review provision requires each country to confirm in writing that it wants to renew the agreement for another 16-year period with the next review happening in 2032 (i.e. in another six years). If this doesn’t happen, the agreement stays in place, but it will be reviewed annually. This is seen as problematic as it would add to the uncertainty already plaguing trade relations with the U.S.

Speaking of uncertainty, the agreement says that the review and the renewal are to take place on July 1, 2026, but this could be interpreted as starting on July 1 with the actual process taking more time to complete. This is the view of Canada’s chief trade negotiator (Janice Charette) who said that July 1 is a “checkpoint not a cliff.”

Adding to the uncertainty is that any one of the parties can withdraw from the agreement at any time with the withdrawal taking effect six months after written notice is provided. So the review is not the only opportunity for the U.S. to walk away.

So what happens on Wednesday?

We don’t know, but Charette is probably correct with Canada Day serving as the starting point for a fair amount of back and forth before we have clarity on what’s next for CUSMA.

While all of this is important to the future of North American free trade and Canada’s economic prospects, we’ve been arguing for over a year now that the most important factor affecting the Canada-U.S. trade relationship is not CUSMA itself, but the willingness of the U.S. to exempt CUSMA-compliant goods from its blanket tariff on Canada (originally set at 25% before rising to 35% and now at 10%).

The U.S. made this decision back in March 2025 and it has been the key reason why U.S. protectionism has not had a much more deleterious effect on the Canadian economy. The CUSMA exemption allows the majority of Canadian goods to enter the U.S. tariff free. According to U.S. Census Bureau data, we estimate that about 80% of Canada’s merchandise exports to the U.S. met CUSMA rules in April.*

The sector-specific tariffs the U.S. has imposed on goods such as steel and aluminum remain a drag on the economy, but have less of an impact than a blanket tariff would. We estimate that the effective tariff rate** on Canadian exports to the U.S. has gone from close to zero in 2024 to 6.7% as of March 2026.

What this means in the context of the CUSMA review is that, whatever happens, the key thing to watch is whether or not an exemption to the blanket tariff is maintained in some form.

Changes made to CUSMA and whether or not it will face annual reviews is something we will be closely watching, but as long as the U.S. does not pull out of the deal or end the exemption—which is what our base case forecast assumes—the economic consequences are much less dire than if it does.

*Estimated by dividing the value of imported goods from Canada that are CUSMA compliant by the total value of imported goods from Canada.

**The effective tariff rate is the estimated value of duties paid as a share of total U.S. goods imports from Canada. 

Answer to the previous trivia question: Pelé (Edson Arantes do Nascimento) is the only player ever to win three men’s World Cup titles (1958, 1962, 1970).

Today’s trivia question: True or false? The first trilateral CUSMA  Free Trade Commission meeting for the joint review is taking place virtually rather than in person.