Posthaste: Why risks are rising for Canada that U.S. tariffs are here to stay — or worse
The odds of the United States dropping tariffs against Canada look slim as the deadline to start reviewing the Canada-U.S.-Mexico Agreement (CUSMA) nears, says Oxford Economics Ltd.
Oxford pegs the chances that U.S. President Donald Trump ‘s administration eliminates all tariffs, returning duties to pre-2025 levels of essentially zero per cent, at five per cent.
In this “least-likely” scenario, according to Oxford, the U.S. would drop targeted tariffs on Canadian steel , aluminum and automotive parts, while Canada would remove any retaliatory levies still in place.
“It just does not seem very likely that the Trump administration is going to basically rubber stamp a deal to extend CUSMA and then also dial back all tariffs,” Michael Davenport, a senior economist at Oxford Economics, said.
“We do think, and we’ve held this view for some time, that there will be more protectionist U.S. trade policy within North America post-CUSMA renegotiation than there was before the second Trump administration.”
In Oxford’s baseline scenario, with odds of it happening at 50 per cent, CUSMA would be renegotiated in the third quarter and most U.S. tariffs would be eliminated, though 10 per cent duties on steel, aluminum and dairy products would persist.
That would drop the effective tariff rates on Canadian exports to the U.S. to one per cent from a projected 6.3 per cent at the end of 2025. Oxford also assumed Canada would remove any counter tariffs under this scenario, but keep retaliatory duties on U.S. steel and aluminum products.
The current effective tariff rate on Canadian exports to the U.S. is estimated at less than five per cent, with approximately 86 per cent of exports CUSMA-compliant as of September 2025, up from 38 per cent in 2024.
But the odds of even this baseline scenario happening are dropping, Oxford said, adding that “the risks to our forecast are skewed sharply to the downside.” Instead, Davenport said we’re more likely to see something like the worst-case or status-quo scenario.
Oxford put the odds of the status quo at 35 per cent.
In that scenario, one or more of the trio of partners don’t indicate a wish to extend CUSMA “in its current form,” resulting in mandatory, annual reviews and potentially drawn-out negotiations.
“The CUSMA survives, but current U.S. tariffs remain in place permanently for Canada and Mexico, with Canadian retaliatory tariffs also remaining. Elevated trade policy uncertainty persists,” Oxford said.
A fourth scenario, in which one or more of the parties back out of CUSMA altogether and U.S. tariff rates rise “noticeably” for Canada and Mexico, was put at a 10 per cent probability.
Risks appear to be rising based on recent statements regarding the CUSMA review made in mid-December by U.S. Trade Representative (USTR) Jamieson Greer to the U.S. Senate Finance Committee.
“USTR’s view is that whatever CUSMA’s value is to the United States and even North America, the shortcomings are such that a rubber stamp of the agreement is not in the national interest,” he said. “USTR will keep the president’s options open, negotiating firmly to resolve the issues identified, but only recommending renewal if resolution can be achieved.”
This week, Trump labelled “ irrelevant ” the trade pact he negotiated.
CUSMA is scheduled to be reviewed by the three countries starting on July 1. If no agreement is reached, that would trigger mandatory annual CUSMA reviews until 2036, after which the deal expires.
“No matter the outcome of the CUSMA review, it’ll be a crucial fork in the road that could permanently restructure North American trade and materially alter economic prospects, particularly for Mexico and Canada, for years to come,” Oxford said.
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The Canadian financial sector’s record results in 2025 despite United States President Donald Trump‘s tariffs and geopolitical shocks may have surprised many economists and analysts, but not Peter Miller, head of Equity Capital Markets at Bank of Montreal.
“Despite all the headlines, most Canadian companies were/are still able to export to the U.S. with zero or minor tariffs due to exemptions set by the U.S.,” he said, referring to how the Canada-U.S.-Mexico Agreement (CUSMA) helped shield this country from the worst of Trump’s tariffs. — Naimul Karim, Financial Post
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Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, Canadian Press and Bloomberg.
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