Blog post

What happened on July 1

July 1, 2026 marked six years since the Canada-United States-Mexico Agreement (CUSMA) replaced NAFTA, and the deal’s text set that date as a decision point: each country had to declare whether it wanted to extend the agreement for another 16 years (to 2042) or open it up for renegotiation.

Canada and Mexico both wanted the extension. The United States said no. U.S. Trade Representative Jamieson Greer confirmed that Washington would not renew the agreement in its current form, citing what the administration describes as the deal’s shortcomings and America’s trade deficits with both partners.

Three things are important to understand about this outcome:

The deal is not dead. CUSMA remains fully in force until 2036 unless a party gives six months’ formal notice of withdrawal — something President Trump has criticized the deal publicly but has stopped short of doing. Roughly 90 per cent of Canadian exports to the U.S. continue to cross the border tariff-free under CUSMA compliance, covering about $1.3 trillion in annual trade.

The failure to extend was expected. Prime Minister Carney said ahead of the meeting he wasn’t anticipating drama, and Trade Minister Dominic LeBlanc has repeatedly described July 1 as “not a cliff.” Markets and negotiators had largely priced this in.

What changes is the process. Because the U.S. declined the 16-year extension, CUSMA now enters an annual review mechanism for the next decade. Instead of one big renewal decision, the three countries will revisit the agreement every year until either a new extension is agreed or the deal expires in 2036.

What to expect over the next few months

The U.S. has signalled it wants to renegotiate, not withdraw. Formal bilateral talks with Mexico are already underway — two rounds completed, a third scheduled for late July — while a formal schedule with Canada has not yet been announced, though ministers are meeting regularly.

The negotiating positions are becoming clear:

• U.S. priorities: more American content in automobiles, greater access to Canada’s supply-managed dairy market, and addressing what it views as structural trade deficits. Administration officials have also said the U.S. intends to keep import controls on steel, aluminum, and autos on national security grounds.
• Canada’s priorities: relief from the sectoral tariffs on steel, aluminum, autos, and softwood lumber that sit outside CUSMA’s protections. These have been in place since early 2025 and are the single biggest irritant for Canadian industry.

The tension is obvious: Canada’s top ask (tariff relief) is the very thing the U.S. has publicly signalled it is least willing to put on the table.

On timing, there are two credible scenarios. One school of thought holds that the White House would benefit politically from announcing a deal before the U.S. midterm elections this fall — a Labour Day win it could campaign on, backed by strong pressure from U.S. manufacturers, automakers, and the agricultural lobby, all of whom support the agreement. The other view, held by Canada’s former chief trade negotiator Steve Verheul among others, is that talks are more likely to run past the midterms and possibly into 2027.

What it means for Canada

The direct, immediate impact on cross-border trade is minimal — goods flow today exactly as they did last week. The real cost is uncertainty, and it shows up in a few places:

Business investment. Companies making decade-long capital decisions about plants, supply chains, and hiring now face annual renegotiation events instead of a stable 16-year horizon. Trade economists across the spectrum have flagged that this drag on investment is the main economic cost, even if the deal ultimately survives — which most analysts still expect it to.

Interest rates and housing. The Bank of Canada has held its policy rate at 2.25% since October 2025, in part because monetary policy can’t resolve trade uncertainty. Ongoing CUSMA ambiguity keeps a risk premium in Canadian bond yields and gives the Bank reason to stay on hold. For borrowers hoping for rate relief, prolonged talks likely mean prolonged waiting.

Regional exposure. The impact is uneven: Ontario’s auto sector, B.C.’s forestry industry, and Alberta’s energy exports are most sensitive to how the sectoral tariff question resolves.

The Bank of Canada’s scenario map. In its January analysis, the central bank laid out the possible paths: a renegotiated deal with tighter rules of origin (raising trade costs), withdrawal (a major increase in barriers), or the current path — annual reviews with no resolution, which simply prolongs uncertainty.

What it means for the U.S.

There’s a reason the administration is renegotiating rather than terminating. CUSMA has broad support inside the United States — from the National Association of Manufacturers, the association representing GM, Ford, and Stellantis, and the politically powerful agricultural lobby, which has been actively campaigning for renewal. Nearly $2 trillion in annual North American goods and services trade depends on the framework. That domestic constituency is the strongest argument that the deal survives in some form.

What it means for the relationship

The bigger story is structural. The annual review process institutionalizes friction: instead of one negotiation per generation, Canada and the U.S. will now have a built-in annual pressure point where grievances get relitigated. As one U.S. trade analyst put it, annual consultations are rarely harmonious.

Canada is responding on two tracks. First, it has formed a common front with Mexico in the talks. Second, it continues diversifying — including a January agreement with China trading reduced Canadian EV tariffs for lower Chinese canola tariffs, a move that itself creates friction with Washington given CUSMA’s rules of origin were designed partly to keep Chinese goods from entering North America through the side door.

The Canada-U.S. trade relationship isn’t breaking, but it is changing character: from a settled framework both sides took for granted to a managed, continuously negotiated arrangement. For businesses and families with interests on both sides of the border, the practical takeaway is that trade policy is now a permanent variable rather than a background constant.

The bottom line for cross-border families

Nothing changed on July 2 that requires immediate action. CUSMA remains in force, the vast majority of cross-border trade remains tariff-free, and the most likely outcome remains a renegotiated deal rather than a rupture. But the era of set-it-and-forget-it North American trade policy is over. Currency, interest rates, and sector performance on both sides of the border will continue to react to negotiation headlines for the foreseeable future — which is a reason for diversified, plan-driven portfolios, not headline-driven decisions.