Canada Left Itself More Vulnerable by Not Opening Formal CUSMA Talks, Trade Analyst Says

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Canada’s decision to spend months discussing trade irritants with Washington without moving into the kind of formal CUSMA negotiations already underway between the United States and Mexico is becoming harder to dismiss as a procedural detail. Trade analysts and former negotiators have warned that separate bilateral tracks can shape the eventual North American bargain before all three countries are negotiating at the same stage.

That concern has become more urgent since Washington declined to extend CUSMA at its July 1 review. The agreement remains legally in force, but it now faces annual reviews unless the three governments eventually agree on an extension. Meanwhile, another U.S. tariff deadline is approaching on August 19. For Canada, the issue is no longer simply whether talks are happening. It is whether entering the formal bargaining process later has reduced Ottawa’s ability to influence what the final rules look like.

Canada Entered the Negotiating Process on a Different Track

Canada has hardly been absent from Washington. Trade Minister Dominic LeBlanc, chief trade negotiator Janice Charette and other senior officials have held repeated meetings and calls with U.S. Trade Representative Jamieson Greer. But those contacts developed differently from the U.S.-Mexico process. By mid-July, Greer said Mexico was moving into a third round of formal bilateral negotiations, while the United States still had not started formal negotiations with Canada despite regular communication between the two governments.

That distinction matters because negotiating momentum can become leverage. Reuters reported that one Mexican official estimated the U.S.-Mexico process was roughly six months ahead of Canada’s less formal discussions. Former senior Mexican negotiator Juan Carlos Baker warned that keeping two bilateral processes aligned within a trilateral framework would be difficult. Canada can still reject proposals it considers damaging, but being outside an advanced negotiating track creates another challenge: ideas worked out between Washington and Mexico may begin looking less like proposals and more like the starting template Canada is expected to answer.

July 1 Did Not Kill CUSMA, but It Changed the Clock

Washington’s July 1 decision not to extend CUSMA did not terminate the trade agreement. Under its review mechanism, the pact remains in force through 2036 unless a country takes separate steps to withdraw. What changed is the level of certainty. Because the three governments did not jointly agree to a new 16-year extension, the agreement now moves into annual reviews until they reach an extension agreement or the existing term eventually runs out.

That may sound procedural, but businesses often make investment decisions over much longer horizons. An automaker considering a billion-dollar assembly investment or a manufacturer installing equipment expected to operate for 15 years cares about the rules that will govern trade years from now, not merely next quarter. The Bank of Canada warned before the review that repeated annual reviews could prolong uncertainty, while more restrictive rules of origin or reduced tariff preferences could increase trade costs. The danger for Canada is therefore less an overnight collapse than a slow accumulation of hesitation around hiring, production and capital spending.

Canada’s U.S. Dependence Makes Negotiating Delays More Consequential

Canada enters that uncertainty with enormous exposure to the American market. Statistics Canada reported that 71.7% of Canadian merchandise exports went to the United States in 2025, even after that share declined from 75.9% in 2024. The federal government says Canada and the United States exchanged nearly C$3.5 billion in goods and services every day in 2025. Those figures help explain why even technical changes to continental trade rules can ripple through communities far removed from negotiating rooms in Washington.

The relationship is also built around production systems rather than simple finished-goods exports. Ottawa notes that a vehicle assembled in the United States can have components that cross the Canada-U.S. border several times before completion. Aerospace, steel, aluminum, agriculture and advanced manufacturing operate through similarly integrated networks. Investment is intertwined as well: the federal government put U.S. direct investment in Canada at roughly C$817 billion in 2025 and Canadian direct investment in the United States at about C$1.3 trillion. When rules become uncertain, companies on both sides must price that uncertainty into real-world decisions.

Autos Show Why Being Early to the Table Can Matter

Few sectors demonstrate Canada’s exposure better than automobiles. Statistics Canada calculated that 94.1% of Canadian domestic exports of motor vehicles and parts went to the United States in 2024, the highest U.S. export concentration among major product categories it examined. CUSMA already requires passenger vehicles and light trucks to meet a 75% regional-value-content threshold, alongside separate requirements for core parts, steel, aluminum and high-wage production.

Washington is now considering a different kind of test. Reuters reported that a U.S. proposal presented during the review process would require roughly half of the value of North American vehicles to come specifically from the United States. That is significantly different from a rule rewarding North American content collectively. Mexico has been formally negotiating automobile provisions with Washington, and recent reporting indicates both Mexico and Canada are pressing alternative approaches. If an automotive compromise begins taking recognizable shape in the U.S.-Mexico channel first, Canadian assembly plants and suppliers could find themselves responding to a framework they had less opportunity to shape at its earliest stage.

The August 19 Tariff Threat Has Made the Timing More Serious

The negotiating imbalance became more tangible when President Donald Trump invoked Section 338 of the Tariff Act of 1930 to threaten additional 50% duties on a range of Canadian products beginning August 19. The U.S. Trade Representative’s office said the measure would cover nearly US$20 billion of imports from Canada. Reuters calculated that this represents about 5.2% of the roughly US$383 billion in goods the United States imported from Canada in 2025.

The unusually important feature is that targeted products would not receive the CUSMA exemption that has shielded many Canadian shipments during previous tariff rounds. That puts the immediate bilateral dispute directly alongside the longer-term review of the continental agreement. Ottawa has consequently accelerated engagement. By August 13, LeBlanc had met Greer repeatedly in Washington, while Charette and other senior officials remained involved. A Canadian government source told Reuters both sides wanted progress before August 19. The activity demonstrates that Canada is negotiating intensely now, but it also highlights how much work has been compressed into a short period under tariff pressure.

Ottawa Had Reasons for Avoiding a Rush Into Formal Negotiations

There was a strategic case behind Canada’s approach. Months before the July review, Canadian officials repeatedly emphasized that July 1 was not an expiration date. Charette described it as a checkpoint rather than an economic cliff and stressed that her mandate was to protect CUSMA’s fundamentals while seeking relief from separate American tariffs on steel, aluminum, vehicles and other sectors. Canada’s ambassador to Washington, Mark Wiseman, similarly argued in June that immediate tariff relief mattered more than becoming consumed by the mechanics of formal renewal.

That position had logic. Starting negotiations early does not guarantee a favourable agreement, particularly when the other side is demanding structural concessions. Holding back can preserve bargaining flexibility and prevent urgency from becoming desperation. Ottawa has also maintained that it wants acceptable terms rather than simply the fastest possible settlement. The vulnerability argument, therefore, is not that Canada should have accepted U.S. demands months ago. It is narrower: Canada may have benefited from having its own detailed proposals formally tested at the same time Washington and Mexico were already negotiating theirs.

Mexico’s Head Start Could Influence the North American Template

Mexico’s negotiations illustrate what Canada potentially surrendered by arriving later to the formal stage. The U.S. and Mexico opened their third bilateral negotiating round on July 21, with discussions covering steel and aluminum, automobiles, economic security, agriculture, labour and electronic payments. USTR said the talks built on several months of work and pointed to Mexican action in areas including customs, intellectual property, telecommunications and export controls.

That does not mean Mexico has secured everything it wants. Washington remains concerned about its trade deficit with Mexico, which Greer said reached US$197 billion in 2025, and major disputes remain over automobiles and rules of origin. Yet formal bargaining allows both sides to test packages and identify trade-offs. Reuters noted the broader risk that an agreement reached on one bilateral track could become a blueprint that the third country must either accept, challenge or attempt to reopen. For Canada, preserving CUSMA’s trilateral character may therefore require more than repeatedly stating support for trilateralism; it requires ensuring Canadian priorities are embedded while the architecture is still being designed.

The Long-Term Risk Is Investment Uncertainty, Not Just the Next Tariff

The most damaging outcome for Canada would not necessarily be a dramatic CUSMA collapse. A decade of unresolved reviews, shifting exemptions and recurring tariff threats could impose costs without formally ending the agreement. The Bank of Canada has warned that an unfavourable review outcome could weaken exporters’ competitiveness, reduce production and investment and eventually leave Canadian GDP on a lower path. RBC Economics has estimated that, without CUSMA protections, the average effective U.S. tariff rate facing Canadian exports could rise materially, with auto parts, machinery, plastics, aluminum and wood among the exposed categories.

Canada still has considerable leverage. American factories, consumers and investors depend on Canadian energy, materials, parts and capital, and CUSMA continues to provide a functioning legal foundation for continental commerce. Formal talks also remain possible at any point, and negotiations underway in Washington could still produce tariff relief or a path toward renewal. But the months-long difference between the Canadian and Mexican tracks has created a legitimate strategic question: when the largest trading partner is rewriting the rules, delaying formal bargaining can preserve flexibility—but it can also mean arriving after some of the negotiating terrain has already been mapped.

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