The Canada-United States-Mexico Agreement (CUSMA), often called USMCA in the United States, is a free trade agreement among the United States, Mexico, and Canada, It came into effect on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). CUSMA governs the terms of North American trade today and now those terms are up for review.
As the 2026 CUSMA review deadline approaches, businesses across Canada—and particularly in Alberta—face a critical moment. They must maintain stable access to the U.S. market while also expanding into new ones. This playbook outlines the scale of Canada’s trade exposure, focusing on Alberta’s role and how to navigate what comes next.
At its core, CUSMA is designed to facilitate free trade across North America by reducing or eliminating barriers between Canada, the United States, and Mexico. Most goods move across borders without tariffs, provided they meet “rules of origin” requirements that prove the majority of their content was produced within the three countries. In practice, this ensures that the benefits of the agreement stay within North America rather than extending to goods manufactured elsewhere.
Beyond this core framework, the agreement introduces targeted provisions for key industries. In the automotive sector, stricter labour rules require that about half of a vehicle be produced by workers earning at least $16 USD per hour, reinforcing fair manufacturing wages. In agriculture, Canada maintains its supply management system while allowing increased access for U.S. dairy products within defined limits. CUSMA also prevents the application of new tariffs on digital goods and services such as software, e-books, and streaming platforms, reflecting the growing importance of cross-border digital activity.
The agreement also establishes updated “ground rules” to ensure fair competition and accountability. Enhanced labour provisions allow for countries in CUSMA to block shipments from factories that are found to be violating worker rights. Environmental protections address issues such as illegal wildlife trade and protection of the oceans.
For consumers and small businesses, CUSMA raised the thresholds for low-value imports from the United States, with goods valued up to $40 eligible to enter Canada tax-free and up to $150 in goods exempt from duties, reducing costs and friction for cross-border e-commerce.
Beyond this core framework, the agreement introduces targeted provisions for key industries. In the automotive sector, stricter labour rules require that about half of a vehicle be produced by workers earning at least $16 USD per hour, reinforcing fair manufacturing wages. In agriculture, Canada maintains its supply management system while allowing increased access for U.S. dairy products within defined limits. CUSMA also prevents the application of new tariffs on digital goods and services such as software, e-books, and streaming platforms, reflecting the growing importance of cross-border digital activity.
The agreement also establishes updated “ground rules” to ensure fair competition and accountability. Enhanced labour provisions allow for countries in CUSMA to block shipments from factories that are found to be violating worker rights. Environmental protections address issues such as illegal wildlife trade and protection of the oceans.
For consumers and small businesses, CUSMA raised the thresholds for low-value imports from the United States, with goods valued up to $40 eligible to enter Canada tax-free and up to $150 in goods exempt from duties, reducing costs and friction for cross-border e-commerce.
Canada’s trade relationship with the United States is not just important; it is foundational. Almost 72%1 of Canadian goods exports go south of the border, making the U.S. by far Canada’s largest and most critical trading partner. This level of dependence is also asymmetrical: Canada relies far more on access to the U.S. market than the U.S. relies on Canada.
In practical terms, this means Canada’s economic performance is closely tied to U.S. demand and policy direction. The relationship is often described as being in an elevator with an elephant: when it moves, others feel it immediately. Periods of strong U.S. growth tend to lift Canada, while policy shifts or economic slowdowns can quickly ripple north.
Alberta plays an outsized role in this relationship. In 2025, the province accounted for 29%2 of Canada’s merchandise exports to the United States—more than double its share of the national population. Its export profile is heavily concentrated in energy, with oil and natural gas forming the backbone of its trade with the U.S.
That concentration is reflected in overall trade flows: 86% of Alberta’s international merchandise exports went to the U.S., and 82% of those exports came from the energy sector.3 This makes Alberta a key contributor to Canada’s overall trade balance, but also exposes it to sector-specific risks.
Across the country, the sectors most exposed to U.S. demand include energy, agriculture, and manufacturing tied to integrated North American supply chains—making them particularly sensitive to trade disruptions or policy changes.
Canada’s push to diversify trade is not new, but it has taken on greater urgency as U.S. policy becomes less predictable. The goal is not to replace the U.S. as Canada’s primary trading partner, but to reduce the risks of relying so heavily on a single market. This level of dependence limits Canada’s economic sovereignty, leaving it more exposed to policy shifts south of the border. Expanding trade relationships, even incrementally, gives Canadian businesses and policymakers more flexibility to respond to external shocks.
Recent trade data suggests early movement in that direction. The share of Canadian exports going to the U.S. declined from 75.9% in 2024 to 71.7% in 20254, reflecting both faster growth in trade with non-U.S. markets and a decline in U.S.-bound exports. Non-U.S. exports increased by 16% over the period5, while exports to the U.S. fell by 5.4%6, largely due to lower energy prices.
While this shift is modest, it highlights a broader trend: diversification is happening at the margins, not through a fundamental realignment.
In practice, diversification serves two purposes:
It acts as a form of risk management by providing alternative markets if access to the U.S. becomes more restricted or if U.S. demand weakens.
It opens new avenues for growth. Trade agreements in Europe and the Indo-Pacific offer access to faster-growing economies and rising global demand for energy, agriculture, and services. However, trade volumes with these partners remain significantly smaller than with the U.S., underscoring both the opportunity and the practical challenges of diversification.
For Alberta, diversification is shaped by sector realities. While there are opportunities to expand into markets like Asia, growth will depend in part on building the infrastructure needed to reach those markets.
As of April 2026, Prime Minister Mark Carney has signed or advanced several key agreements and strategic partnerships under Canada’s Trade Diversification Strategy.
Goal: This agreement aims to more than double two-way trade to $70 billion by 2030. The deal prioritizes "critical and emerging technologies," artificial intelligence, and energy security.
Goal: This strategic, non-tariff agreement between Canada, India, and Australia is designed to secure supply chains for critical minerals and semiconductors. The partnership creates a "resilient corridor" that bypasses the volatility of U.S. and Chinese trade tensions.
Goal: Partnerships with Japan and Australia advance clean energy (including LNG and hydrogen). They also strengthen manufacturing ties with Japan and deepen cooperation with Australia on maritime security and critical mineral exports.
Goal: Carney’s government moved to eliminate federal barriers to interprovincial trade, arguing that "trading with ourselves" is the fastest way to grow Canada’s GDP. This effort could lead to a 7% GDP increase, without relying on foreign markets.
While trade diversification is gaining momentum, Canada’s economic relationship with the U.S. will continue to be anchored by the Canada-United States-Mexico Agreement (CUSMA). The agreement provides the foundation for tariff-free trade across most goods, while shielding Canada from higher U.S. tariffs applied to other countries.
Built into that framework is a formal joint review every six years. The review’s original purpose was to keep the agreement up to date, but the 2026 review has become a potential flashpoint amid ongoing tariff tensions. That protection will be tested during the review and could change quickly. Even modest disruptions to U.S. trade can have outsized effects on Canada’s GDP, given the scale and concentration of exports.
Stability and continued access
The agreement is renewed largely as-is, with no blanket tariffs and continued tariff-free access to the U.S. market. While unlikely, this scenario would provide the highest level of certainty and support continued investment and cross-border trade.
Core agreement holds with targeted changes
The most likely outcome is a renewal of CUSMA with meaningful but contained changes. The U.S. has signaled interest in revisiting areas such as supply management, digital services, and dispute mechanisms, potentially through bilateral negotiations rather than a trilateral approach. While the core of the agreement is expected to remain intact, including continued exemption from broad U.S. tariffs, there is a possibility of more frequent or ongoing reviews, which would extend uncertainty beyond 2026.
Targeted friction and prolonged uncertainty
Negotiations drag on or result in partial agreements, creating ongoing uncertainty for businesses and consumers. Targeted tariffs or retaliatory measures emerge in specific sectors—such as agriculture or manufacturing—disrupting trade flows, increasing costs, and complicating supply chains.
Breakdown of the agreement
CUSMA is not renewed, and tariff-free access to the U.S. market is lost. Broad-based tariffs are introduced on Canadian exports, significantly reducing competitiveness and increasing the risk of a broader economic downturn. While unlikely, and not in the U.S.’s economic interest, this scenario would have the most severe impact.
Stability and continued access
The agreement is renewed largely as-is, with no blanket tariffs and continued tariff-free access to the U.S. market. While unlikely, this scenario would provide the highest level of certainty and support continued investment and cross-border trade.
Most likely outcome
Downside scenario
Worst outcome
Best outcome
Core agreement holds with targeted changes
The most likely outcome is a renewal of CUSMA with meaningful but contained changes. The U.S. has signaled interest in revisiting areas such as supply management, digital services, and dispute mechanisms, potentially through bilateral negotiations rather than a trilateral approach. While the core of the agreement is expected to remain intact, including continued exemption from broad U.S. tariffs, there is a possibility of more frequent or ongoing reviews, which would extend uncertainty beyond 2026.
Downside scenario
Worst outcome
Best outcome
Most likely outcome
Targeted friction and prolonged uncertainty
Negotiations drag on or result in partial agreements, creating ongoing uncertainty for businesses and consumers. Targeted tariffs or retaliatory measures emerge in specific sectors—such as agriculture or manufacturing—disrupting trade flows, increasing costs, and complicating supply chains.
Worst outcome
Best outcome
Most likely outcome
Downside scenario
Breakdown of the agreement
CUSMA is not renewed, and tariff-free access to the U.S. market is lost. Broad-based tariffs are introduced on Canadian exports, significantly reducing competitiveness and increasing the risk of a broader economic downturn. While unlikely, and not in the U.S.’s economic interest, this scenario would have the most severe impact.
For Alberta, the impact of any changes will vary by sector. Energy exports—the province’s largest trade driver—are less likely to be negatively affected, given their importance to both Canada and the U.S. More broadly, the most critical issue is whether any new tariffs are applied across the board or remain targeted. A blanket tariff that includes energy would have significant implications, while more targeted measures would likely place greater pressure on sectors such as agriculture and manufacturing.
A failure to renew or replace CUSMA could create a significant economic shock. In a downside scenario where the agreement breaks down entirely, Canada would likely face a recession driven by reduced access to its largest export market.
Without CUSMA, trade between Canada, the United States, and Mexico would likely revert to World Trade Organization (WTO) rules. While trade would not stop, many sectors would lose preferential, duty-free access to the U.S. market, increasing costs and reducing competitiveness for Canadian exporters.
Tariff risk would also rise. The United States has already applied a baseline 10% tariff7 on many imports, but Canadian goods that are CUSMA-compliant are currently exempt. Without CUSMA, that exemption would likely be removed, exposing a broad range of Canadian exports to new tariffs. At the same time, existing Section 232 tariffs—ranging from 25% to 50% on sectors such as steel, aluminum, and automotive manufacturing—would remain in place. These measures would have an immediate impact on cross-border supply chains and pricing. Beyond direct export impacts, tariffs would also disrupt integrated supply chains, raise input costs, and introduce additional currency pressure for Canadian businesses.
Ahead of any formal changes, uncertainty around CUSMA has already had measurable effects. Many Canadian businesses have delayed or scaled back investment decisions, reflecting hesitation to expand without guaranteed access to the U.S. market.
Canadian industries that are highly dependent on CUSMA—particularly automotive manufacturing, agriculture, and energy—would face significant disruption if the agreement is not renegotiated. At the same time, the United States remains heavily reliant on Canadian oil and electricity. While energy trade would likely continue out of mutual necessity, the absence of a stable legal framework could introduce price volatility, logistical challenges, and transit disputes.
| 1 | Government of Canada: Canadian international merchandise trade, December 2025, Published February 2026 |
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