U.S. Expected to Reject CUSMA Extension Wednesday, Starting 10-Year Countdown

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The most consequential trade decision of the year may initially look like a procedural formality. The Trump administration is expected to decline a 16-year extension of the Canada–United States–Mexico Agreement when the three countries hold their first mandatory review on Wednesday, July 1.

That would not terminate CUSMA, close the border or immediately impose tariffs on every shipment. Instead, it would start a 10-year countdown toward the agreement’s scheduled expiry in 2036 and require annual reviews until the three governments reach a deal. For Canadian businesses, the danger is less about an overnight rupture than a prolonged period in which investment, hiring and production decisions are made without knowing what North American trade rules will eventually look like.

Wednesday Starts a Clock, Not an Immediate Exit

CUSMA entered into force on July 1, 2020, replacing the North American Free Trade Agreement that had governed continental commerce since 1994. Its unusual “review and term extension” clause requires Canada, the United States and Mexico to examine the pact after six years. If all three governments confirm that they want an extension, CUSMA receives another 16-year term, pushing its horizon from 2036 to 2042.

An American refusal on Wednesday would leave the existing agreement operating for another decade. Qualifying goods could continue receiving preferential tariff treatment, while customs, labour, environmental and dispute-settlement provisions would remain available. The countries would then conduct another review every year until the agreement is extended or expires on July 1, 2036. This mechanism is separate from CUSMA’s withdrawal clause, which allows any country to leave with six months’ written notice. No such notice is expected as part of Wednesday’s meeting.

Washington Wants Concessions Before Offering Certainty

The anticipated U.S. decision reflects a negotiating strategy rather than the conclusion of the negotiations. President Donald Trump has publicly questioned whether the United States needs CUSMA and has said he is not looking to renew it in its current form. His administration appears to believe that withholding an extension gives Washington greater leverage over Canada and Mexico during discussions involving manufacturing, agriculture and economic security.

That leverage is already visible in the negotiating schedule. U.S. Trade Representative Jamieson Greer has held bilateral discussions with Mexico, with another round planned for the week of July 20. Formal negotiations with Canada have developed more slowly, despite recent meetings between Greer and Canadian Trade Minister Dominic LeBlanc. Wednesday could therefore pass without Washington publishing a complete list of conditions for an extension. The annual-review process would allow the United States to keep adding pressure while leaving the agreement technically intact.

Canada and Mexico Want a Longer Runway

Canada and Mexico have both indicated that they support extending CUSMA for another 16 years. Mexico’s economy minister, Marcelo Ebrard, has emphasized that the agreement will remain active even without an immediate extension, but said Mexico wants the longer term because it would provide stability. Canada has similarly communicated its preference for an extension through 2042.

The difference is important for companies planning factories, supply contracts or transportation networks. A new assembly plant can take years to design and construct, while machinery may remain in service for decades. A guaranteed 16-year trading framework is therefore far more valuable than a deal that must survive another politically charged review every summer. Wednesday is not necessarily Canada and Mexico’s final chance. CUSMA allows the countries to approve a 16-year extension later, provided all three governments submit written confirmation through their heads of government.

The Auto Industry Is at the Centre of the Fight

Automotive rules are emerging as one of Washington’s most aggressive demands. CUSMA currently requires passenger vehicles and light trucks to contain 75 per cent North American regional value to qualify under the agreement, up from 62.5 per cent under NAFTA. The pact also contains requirements for North American steel, aluminum, core components and labour performed by workers earning at least US$16 an hour.

The Trump administration is reportedly seeking an additional rule requiring 50 per cent of a vehicle’s content to be specifically American. That would represent a major departure from the pact’s continental approach, which treats qualifying Canadian, Mexican and U.S. production as part of one regional platform. Canada is particularly exposed: 93.4 per cent of its passenger-car and light-truck exports went to the United States in 2024. Statistics Canada has also estimated that more than two-thirds of Canadian automotive manufacturing jobs depend on American demand. Even uncertainty about future rules can influence where companies assign new models and investment.

Dairy Is Only One of Washington’s Complaints

Canada’s supply-managed dairy, poultry and egg industries remain perennial sources of tension. The United States argues that Canadian production quotas and tariff-rate quotas prevent American farmers from obtaining the market access promised under CUSMA. Imports above Canada’s quota limits can face tariffs of 245 per cent on cheese and 298 per cent on butter, according to the U.S. Trade Representative’s 2026 trade-barriers report.

Washington’s list extends well beyond dairy. U.S. officials have criticized Canada’s Buy Canadian procurement policy, provincial restrictions on American suppliers, alcohol-distribution rules, pharmaceutical pricing, seed regulations and policies affecting online streaming and news platforms. Canada, meanwhile, considers many of these measures legitimate domestic policy choices rather than treaty violations. Prime Minister Mark Carney’s government has said supply management will not be placed on the negotiating table. That creates a difficult dynamic in which Washington is seeking politically sensitive concessions while Ottawa must show that Canadian institutions cannot be traded away simply to obtain an extension.

Annual Reviews Could Become an Investment Drag

Businesses typically prefer predictable rules even when those rules are imperfect. A decade of annual CUSMA reviews would create recurring opportunities for tariff threats, new demands and speculation about withdrawal. A manufacturer considering an expansion in Ontario could struggle to estimate whether its products will retain duty-free U.S. access throughout the life of the investment. An American supplier would face similar uncertainty when deciding whether to serve Canadian and Mexican customers from one regional facility.

The Bank of Canada has repeatedly found that trade uncertainty causes businesses to postpone expansion, prioritize maintenance and hold back hiring. Its late-2025 business survey showed subdued sentiment, weak sales growth and cautious investment plans as trade tensions continued. The International Monetary Fund has also warned that prolonged uncertainty could further weaken Canadian investment and confidence. CUSMA may remain legally operational after Wednesday, but its economic value could gradually erode if companies begin organizing supply chains around the possibility that it will not survive.

Canada’s Exposure Is Measured in Jobs, Not Just Trade Totals

The scale of the relationship makes uncertainty especially consequential for Canada. U.S. government figures show that bilateral goods trade reached approximately US$719.5 billion in 2025, while services trade added another US$150.2 billion. Canada was the second-largest market for American goods exports, demonstrating that the relationship is not simply a one-way dependence on U.S. customers.

Canada nevertheless has more at risk relative to the size of its economy. Statistics Canada estimated that U.S. demand supported roughly $113 billion in Canadian manufacturing value added and approximately 694,000 manufacturing jobs in 2024. Earlier research found that more than 2.6 million Canadian jobs across the economy depended on demand for exports to the United States. These figures help explain why a technical trade review quickly becomes a kitchen-table issue. Factory shifts, trucking routes, farm income and municipal tax bases can all be affected when cross-border orders weaken.

Energy Ties Make a Clean Break Difficult

The political relationship may be strained, but the continent’s physical infrastructure remains deeply connected. Canada supplied the United States with an average of approximately 3.9 million barrels of crude oil per day in 2025. Many U.S. refineries were designed to process the heavier crude produced in Western Canada, while pipelines, electricity lines and natural-gas systems were built around dependable cross-border flows.

Agriculture creates another layer of interdependence. American farm organizations have urged the administration to preserve duty-free regional trade while seeking better access to Canadian dairy and Mexican agricultural markets. Farmers and food processors operate with planting schedules, livestock cycles and perishable products that do not adjust easily to sudden border costs. These practical connections reduce the appeal of a complete rupture. However, they do not guarantee a quick agreement. Washington may calculate that industries dependent on continental trade will pressure Canada and Mexico to accept tougher terms long before the 2036 deadline arrives.

The Next Agreement Could Look Very Different

Several paths remain open after Wednesday. The three countries could negotiate targeted amendments and later approve a 16-year extension. They could continue annual reviews for several years while leaving most current rules untouched. Canada and the United States might also reach sector-specific arrangements on autos, metals, energy or procurement that operate alongside the trilateral agreement.

A more disruptive possibility would involve one country invoking the six-month withdrawal clause or allowing CUSMA to expire in 2036 without a replacement. Canada and Mexico would still have preferential access to each other through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, but their relationships with the United States would become far less predictable. For now, Wednesday’s expected refusal should be understood as the start of a negotiation under pressure, not the end of continental trade. The immediate border rules may remain familiar. The long-term assumptions behind billions of dollars in investment will not.

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