CUSMA in Review: Three Scenarios for July 1

May 22, 2026

On July 1, 2026, Canada, the United States, and Mexico will begin the first mandatory joint review of the Canada-United States-Mexico Agreement (CUSMA, also called USMCA and T-MEC). Under Article 34.7, they can agree to extend the agreement for another sixteen years, to 2042, or enter a holding pattern of annual reviews until the deal expires in 2036. Separately, Article 34.6 allows any of the three countries to move toward unilateral withdrawal at any time on six months’ notice, a lever that exists outside the joint review but looms over it.

The review arrives against a complicated backdrop for Canada-U.S. relations. Canada’s trade negotiations with the U.S. broke down in October 2025 and took 5 months to resume in March 2026. U.S. Trade Representative Jamieson Greer has publicly stated the U.S.-Mexico talks are progressing faster than U.S.-Canada talks, and in April testimony to the House Ways and Means Committee characterized Canada as “doubling down on globalization when we’re trying to correct for the problems of globalization,” stating that “the two models don’t fit together very well.” Formal review talks between Washington and Ottawa have yet to officially launch.

Ontario has more at stake than most. Eighty-one percent of Ontario’s goods exports go to the United States, and 42% of the jobs created through Canada-U.S. trade are concentrated in the province. CPA Ontario’s most recent member survey found that Ontario CPAs ranked “the protectionist trade policies of the new U.S. federal administration” as the second-highest challenge facing the province. The businesses CPAs advise are making decisions, building forecasts, and planning years ahead inside a fog that the July 1 review may or may not lift.

This article outlines three possible outcomes and what each could mean for the Canadian economy.

What the United States wants from the CUSMA review

The U.S. Trade Representative's 2026 National Trade Estimate Report, released this spring, provides the clearest view of America's grievances heading into the review. The trade irritants fall into two categories: bilateral and trilateral.

Bilateral irritants are long-running U.S. complaints specific to Canada: dairy supply management, the Online Streaming Act, the Online News Act. Retaliatory provincial bans on U.S. alcohol sales are also listed. The Digital Services Tax also features prominently, even though Canada suspended it in June 2025 and formally repealed it in March 2026.

Trilateral irritants apply to both Canada and Mexico: rules of origin (particularly in autos), Chinese investment and supply chain exposure in North America, and critical minerals.

Canada’s position heading into the July 1 review

Canada’s stated negotiation position is preservation. The Honourable Dominic LeBlanc, Minister responsible for Canada-U.S. Trade, Intergovernmental Affairs and One Canadian Economy, told CTV’s Vassy Kapelos in April that Canada “absolutely” wants CUSMA to remain intact. Janice Charette, Canada’s new chief trade negotiator, sees the July 1 deadline as not an absolute end date, but instead “kind of a checkpoint, rather than a cliff.”

Minister LeBlanc has also been clear about what happens if consensus can’t be found. Speaking at the Canadian Club in February, he laid out the landscape: “If there’s not consensus in the review, the agreement continues on. Then there’s an annual review that starts. And if uncertainty is one of the objectives from one of our CUSMA partners, you can imagine scenarios of how this might go.”

The Carney government has repeatedly stated it will not negotiate in public, which means signs of progress may be hard to see in real time. On April 21, 2026, Prime Minister Carney announced a new 24-member Canada-U.S. advisory committee chaired by Minister LeBlanc; it held its first meeting on April 27. Outputs from that committee are one of the few public-facing signals available.

Against that backdrop, three scenarios are plausible: extension with amendments, annual review, or withdrawal. Each carries distinct economic implications for Canada, Ontario businesses, and the CPAs who advise them.

The agreement that emerges in this scenario will likely look different from what’s on paper today. And Section 232 tariffs on steel, aluminum, autos, copper and lumber sit outside the formal CUSMA review and would require separate resolution.

Scenario Two: Annual review limbo (the “zombie USMCA”)

Article 34.7 of CUSMA provides for a specific mechanism if any of the three parties does not agree to extend the deal: the agreement continues to operate, but the parties enter annual joint reviews until 2036, when the deal would expire absent further action. A party can agree to extend at any point during this period.

The Eurasia Group has dubbed this the “zombie USMCA” scenario, ranking it ninth in its top ten risks for 2026, citing the political risk of continued uncertainty rather than outright expiry. Barry Appleton, Co-Director of the Center for International Law at New York Law School, wrote: "The principal danger is not that USMCA terminates in 2026, but that it functions as though it might."

Kellie Meiman Hock, Senior Counsellor at McLarty Associates, put it more bluntly: “My money is on us being in a scenario where it is a constant negotiation.”

This scenario is the least quantified by Canadian forecasters. The Bank of Canada’s base case assumes uncertainty will decrease through 2026, an assumption the annual review limbo would invalidate. The practical impact is that uncertainty will continue to act like an “invisible tax,” discouraging investment, innovation, entrepreneurship, and economic growth.

Scenario Three: Withdrawal from CUSMA

Withdrawal from CUSMA is the most disruptive of the three scenarios, but the process for triggering it is straightforward. Article 34.6 of CUSMA allows any party to withdraw from the agreement by giving six months’ written notice to the other two. The agreement remains in force between the remaining two parties, meaning U.S. withdrawal would leave Canada and Mexico bound to CUSMA bilaterally.

The consequence of withdrawal is the loss of CUSMA’s tariff preferences between the withdrawing country and the others. For Canada, this would mean the loss of the CUSMA-compliant carveout that currently exempts roughly 89% of Canadian exports from U.S. tariffs. Existing Section 232 tariffs would continue independently.

 In theory, upon withdrawal from CUSMA trade would default to World Trade Organization most-favoured-nation (MFN) rates unless replaced by a new bilateral arrangement. In practice, however, the current U.S. tariff regime already operates outside WTO rules, and there is no guarantee MFN rates would serve as a ceiling.

The 1989 Canada-U.S. Free Trade Agreement (CUSFTA) complicates the picture further. It was suspended, rather than terminated, when NAFTA took effect, and the two governments have never agreed on what that means today. Canada’s Statement on Implementation of CUSMA holds that CUSFTA remains suspended only as long as a successor agreement is in force, implying it could revive if CUSMA ends. The perspective from the United States, represented in analysis from the Congressional Research Service, is that revival would not be automatic and would require a U.S. presidential proclamation. John Weekes, Canada’s former chief NAFTA negotiator, has noted that reviving CUSFTA would require goodwill between the two countries, which may be hard to come by after a unilateral withdrawal.

President Trump has used the threat of withdrawal as leverage before. He threatened to trigger NAFTA’s Article 2205 withdrawal in 2018 during renegotiation, though actual withdrawal never occurred. The 2026 dynamic could mirror this; withdrawal notice as a negotiating tool rather than endpoint. U.S. automakers and other stakeholders have been lobbying against full withdrawal.

Several forecasters have modelled what withdrawal would cost. Scotiabank Economics published a detailed scenario in March 2026, running two failure-to-ratify cases through its U.S.-Canada macro model. Under a "disruptive but contained" scenario in which CUSMA ends and the U.S. imposes a 10% tariff on currently exempted goods, real GDP falls by 0.6% within a year of negotiation collapse and unemployment rises to 6.5%. Under a more severe scenario with 35% U.S. tariffs, GDP falls 1.9% relative to baseline, unemployment reaches 7.1% and export volumes drop roughly 4% within a year. Ontario’s 2026 Budget includes a downside case that assumes U.S. withdrawal from CUSMA and 12% tariffs: provincial real GDP growth slows from 1.0% to 0.3% in 2026, recovering to 0.6% in 2027. The Financial Accountability Office of Ontario, modelling a comparable scenario with U.S. tariffs on CUSMA-compliant goods, projected Ontario’s five-year-average GDP growth would fall to 1.2%, and unemployment would average 8.4%.

What the July 1 CUSMA review will and won’t resolve

CUSMA’s mandatory joint review that formally begins on July 1 is unlikely to produce a single clean answer on the future of Canada/U.S. trade.  Even an extension with amendments will likely come without resolution on Section 232 tariffs, and the three scenarios outlined here are not as clean as they appear on paper; each contains many possible variations.

For Ontario CPAs and the businesses they advise, July 1 won’t end the uncertainty, but it will help set the guardrails around it. Professor Janice Gross Stein, Founding Director of the Munk School of Global Affairs and Public Policy, recently shared a way of thinking about the current moment: tell yourself two or three plausible stories about how things could go, then track the indicators to see which way events are trending. "When you're advising CEOs or clients," she warned, "the biggest trap, in this world, is false certainty."

Instead of planning for a specific scenario, build forecasts, risk assessments, and contingency plans that can flex as the picture clarifies. As Stein put it, now is the time to “grow your tolerance for uncertainty.”