No Canada-U.S. Tariff Deal Before Midterms, Former Chief Negotiator Warns

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The calendar may now be as important as the negotiating table in Canada’s tariff fight with Washington. Steve Verheul, the former chief negotiator who steered Canada through the first Trump-era NAFTA talks, says a meaningful tariff agreement is unlikely before the U.S. midterm elections on November 3, 2026. He believes discussions are more likely to stretch into next year, even as the formal CUSMA review begins July 1.

That warning lands at an uncomfortable moment. Canadian steel, aluminum and automotive exports remain exposed to steep U.S. duties, while Washington increasingly describes tariffs as a permanent tool rather than a temporary bargaining tactic. CUSMA still protects most cross-border commerce, but businesses must now plan around two competing realities: the continental trade pact remains in force, yet the tariff relief many expected from it may not arrive soon.

Verheul’s Warning Carries Unusual Weight

Verheul’s forecast carries unusual weight because he has already negotiated with the same U.S. president under similarly tense conditions. He led Canada’s side during the replacement of NAFTA with CUSMA in Donald Trump’s first term, when threats of withdrawal, auto tariffs and last-minute deadlines repeatedly shaped the talks. That experience makes his warning more than routine political commentary.

Speaking at an event for Bank of Montreal clients, Verheul said he had not seen anything close to a good deal for Canada placed on the table. He acknowledged that Washington might seek a headline-friendly agreement before the midterms, but judged a 2027 outcome more likely. His concern is not simply that talks are moving slowly. It is that the two countries appear to be negotiating toward different destinations: Ottawa wants relief from sectoral tariffs and protection for existing market access, while senior U.S. officials argue that tariffs should remain part of a revised North American trading system.

The Midterms Could Make Compromise More Difficult

The U.S. congressional elections are scheduled for November 3, placing the most politically sensitive phase of the trade talks inside a national campaign. That can create a brief opening for Canada if the White House wants to announce a victory for American workers. It can also make compromise harder, especially when tariffs are being presented as proof that factories and investment are being pulled back into the United States.

For Ottawa, the risk is that any pre-election agreement would be designed primarily for an American campaign audience. A deal marketed as a win in Michigan, Pennsylvania or Ohio could require concessions on automotive content, dairy access, procurement or Canadian counter-tariffs. Verheul’s warning reflects that contradiction. Washington may want an announcement before voting day, but Canada needs terms durable enough to survive after the campaign ends. A rushed arrangement could lower one tariff while accepting rules that gradually move production, supplier contracts or future investment south of the border.

July 1 Is a Review Date, Not an Expiry Cliff

July 1 is important, but it is not the day CUSMA suddenly disappears. The agreement entered into force in 2020 with a 16-year term. Its six-year review allows Canada, the United States and Mexico to assess how it is operating and decide whether to extend it for another 16 years. If all three agree, the pact’s horizon would move to 2042.

If they do not agree, CUSMA remains in effect and annual reviews continue until an extension is approved or the agreement reaches its current 2036 expiry date. That structure avoids an immediate trade cliff, but it creates a different danger: years of recurring uncertainty. A manufacturer considering a new Ontario plant may still have tariff preferences today, yet hesitate if the rules could be reopened every year. The review therefore matters less as a single deadline than as the beginning of a prolonged test of confidence in the North American market.

Washington Is Treating Tariffs as a Long-Term Strategy

Washington’s public position suggests the dispute is no longer about a short burst of pressure followed by a return to normal. U.S. Trade Representative Jamieson Greer has said the United States intends to retain tariffs on Canada and Mexico, arguing that duties will remain necessary while large trade deficits persist. He has also said the revised pact should contain stronger rules of origin that increase U.S. content in automobiles and industrial goods.

The tariff structure reinforces that message. U.S. duties on steel and aluminum reached 50 per cent, while Canadian-made automobiles have faced a 25 per cent tariff on their non-U.S. content. The White House has also expanded or adjusted duties on metal derivatives and industrial equipment. These measures are meant to change where companies invest, not merely collect revenue. For Canada, that raises the negotiating bar. Ottawa is not asking Washington to remove a temporary irritant; it is challenging an industrial strategy the administration increasingly treats as central to economic and national security policy.

The Pain Is Concentrated in Industrial Canada

The national economic totals can make the tariff fight look smaller than it feels in the communities directly exposed. The Bank of Canada estimates that industries facing sectoral U.S. tariffs account for roughly one per cent of Canadian output and employment, but about 15 per cent of exports. The impact is therefore concentrated in places where a mill, assembly plant or supplier network anchors the local economy.

Automotive data show how quickly that pressure can appear. Statistics Canada reported that exports of passenger cars and light trucks plunged 24.7 per cent in the second quarter of 2025 as U.S. tariffs slowed trade. In January 2026, motor-vehicle and parts exports fell to $5.4 billion, their lowest level since September 2021, although extended production stoppages also contributed. For workers and suppliers, declines of that size can translate into fewer shifts, delayed tooling orders and difficult decisions about whether future contracts should be served from Ontario, Quebec, Mexico or the United States.

CUSMA Is Still Protecting Most Cross-Border Trade

Despite the confrontation, CUSMA is still doing essential work. The agreement preserves duty-free treatment for the vast majority of qualifying North American trade, and the Bank of Canada says nearly all Canadian exports comply with its rules. That protection helps explain why the broader trade relationship has not collapsed even while steel, aluminum, automobiles and several other products face separate sectoral duties.

This distinction matters for businesses and households. A tariff dispute affecting a highly visible industry can dominate the news without applying to every truck crossing the border. Energy, agricultural goods, machinery, consumer products and intermediate inputs continue moving through deeply integrated supply chains, often under CUSMA preferences. Verheul has pointed to that continued coverage as evidence the pact still benefits the United States. It also gives Canada leverage: Washington may dislike parts of the agreement, but American factories, retailers and farmers rely on predictable access to Canadian materials and customers too.

Canada’s Counter-Tariffs Provide Leverage and Friction

Canada has not entered the talks empty-handed. Ottawa removed most of its broad counter-tariffs in 2025, but retaliatory measures on U.S. steel, aluminum and automobiles remain in force. The automotive response applies a 25 per cent tariff to non-CUSMA-compliant U.S. vehicles and to the non-Canadian and non-Mexican content of qualifying U.S.-made vehicles. Those measures preserve leverage and signal that sectoral tariffs will not be accepted without a cost.

Yet retaliation also complicates the route to a settlement. Greer has described Canada’s remaining duties as a problem for negotiations and contrasted Ottawa’s approach with countries that accepted U.S. tariff rates without responding in kind. Canada therefore faces a difficult balance. Removing counter-tariffs early could lower tension but surrender bargaining power; keeping them may protect political credibility at home while giving Washington another reason to delay. For Canadian firms importing U.S. inputs, the longer the standoff lasts, the more likely temporary relief programs and supply-chain workarounds become part of ordinary business planning.

Uncertainty Can Cause Damage Before Tariffs Change

The most damaging effect of a delayed agreement may arrive before another tariff is imposed. The Bank of Canada has repeatedly found that trade-policy uncertainty is holding back exports and business investment. Its first-quarter 2026 business survey found that most firms expected the CUSMA process to produce higher average tariff rates on Canadian exports to the United States, while some were already seeing suppliers build expected tariff costs into prices.

That uncertainty changes everyday decisions. A manufacturer does not need to close a plant to weaken the economy; it can postpone a new production line, lease equipment instead of buying it or hire fewer apprentices until the rules become clearer. Multiplied across hundreds of companies, those cautious choices reduce productivity and future capacity. Annual CUSMA reviews would intensify the problem because even businesses currently protected by the agreement would have to keep reassessing the durability of that protection. Certainty, in this dispute, has become an economic asset of its own.

Diversification Is Advancing, but Canada Remains Dependent

Canada has begun reducing its exposure to the U.S. market, but the shift remains modest compared with the scale of the relationship. Statistics Canada reported that the U.S. share of Canadian merchandise exports fell from 75.9 per cent in 2024 to 71.7 per cent in 2025. Exports to the United States declined 5.8 per cent, while Canada’s annual merchandise trade surplus with its neighbour narrowed to $81.6 billion.

Those figures show both movement and dependence. Selling more energy, minerals, food and manufactured goods to Europe or Asia can give Canada alternatives, yet geography, infrastructure and decades of integrated production cannot be replaced quickly. Mexico illustrates the challenge: it is a continental partner with enormous potential, but still takes only a small share of Canadian exports. Diversification can strengthen Canada’s bargaining position over time, especially if ports, railways and trade financing improve. It cannot provide immediate relief to a Windsor supplier or Hamilton steel producer whose largest customers remain across the border.

A Future Settlement May Be Narrower Than Canada Wants

A post-midterm agreement may be more achievable, but it may also be narrower than the return to free trade many Canadians expect. The Bank of Canada has outlined outcomes ranging from a straightforward 16-year extension to a major renegotiation, annual reviews or eventual withdrawal. U.S. statements make a complete restoration of the pre-2025 tariff environment appear increasingly unlikely.

The more realistic target may be a package that lowers selected sectoral tariffs, guarantees stronger exemptions for CUSMA-compliant goods and updates rules of origin without dismantling integrated supply chains. Canada would also seek a long extension that removes the threat of yearly reviews. None of those outcomes is assured, and Verheul has questioned whether recent U.S. agreements with other countries will remain durable. His warning therefore points to a longer contest over the meaning of North American free trade. The central question is no longer simply when a deal will be signed, but whether the eventual agreement still leaves Canada as a production partner rather than merely a nearby market.

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