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 period2, while exports to the U.S. fell by 5.4%5, 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:
First, 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. Second, it opens new avenues for growth. Trade agreements in Europe and the Indo-Pacific offer access to 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.
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.
Second, it opens new avenues for growth. Trade agreements in Europe and the Indo-Pacific offer access to rising global demand for energy, agriculture, and services.
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:
Canada-India Comprehensive Economic Partnership Agreement (CEPA)
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.
Trilateral Technology and Innovation Partnership
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.
Indo-Pacific Strategic Memoranda of Understanding (MOUs)
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.
Canadian Free Trade Agreement (CFTA)
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.
Removal of non-tariff trade barrier for flaxseed to the EU
Goal: On May 1, the European Union will end the sampling and testing protocol for Canadian flaxseed exports to the European Union, a non-tariff barrier that has been in place since 2009. This change reduces costs and administrative burden while improving export potential for Canadian flax producers and exporters.
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.
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 a large number of 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.
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. The agreement’s core is expected to hold, preserving tariff exemptions for the Energy and Agriculture sectors. However, the possibility of ongoing reviews threatens to extend market uncertainty past 2026.
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.
Downside scenario
Worst outcome
Most likely outcome
Best 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
Most likely outcome
Best 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 a large number of 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.
Most likely outcome
Best outcome
Downside scenario
Worst 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. The agreement’s core is expected to hold, preserving tariff exemptions for the Energy and Agriculture sectors. However, the possibility of ongoing reviews threatens to extend market uncertainty past 2026.
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% tariff6 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.
As the 2026 CUSMA joint review approaches, Canada is leaning on its most potent asset, crude oil and bitumen (18%7 of Canada's merchandise exports last year), as a strategic bargaining chip in a world redefined by geopolitical volatility. With the three nations deciding whether to renew the deal through 2042 or enter a cycle of annual negotiations through 2036, energy security is Canada’s strongest card that has a strategic role to play, as per Tim Hodgson, Canada’s Minister of Natural Resources.
Energy leverage sections
In a critical shift since the previous negotiations, the energy industry is no longer navigating market fluctuations alone. The war in Iran and political destabilization in Venezuela have tightened global supply, transforming Canada from a regional provider into a global safe-haven solution. The geopolitical risk premium is further highlighted by the United Arab Emirates recently exiting OPEC. This ongoing discord keeps price floors high, making Canadian stability more valuable than ever.
CUSMA provides the essential legal and regulatory framework for the seamless flow of energy and goods across North American borders. The integrated nature of the power grid and pipeline infrastructure, protected by CUSMA's provisions, makes it a cornerstone of regional energy security.
"The 2026 review of CUSMA is going to be a seminal moment for Canada. We can't just rely on the fact that we've had a long-standing relationship. We have to demonstrate every day that we are the partner of choice, especially when it comes to energy and critical minerals. At the same time, we have to look at diversification—not as a replacement for the U.S. market, but as a necessary addition to ensure our own economic resilience."
PATRICK O'ROURKE, Managing Director, Institutional Research, ATB Cormark Capital Markets
Top 3 Concerns for CUSMA Negotiations
For energy businesses, the implications of CUSMA and the current geopolitical environment centre on three key areas.
MODERATE RISK
The threat of U.S. tariffs remains a primary concern. With energy services pricing expected to rise 2%–4% in the coming months, new trade barriers could further compress margins and disrupt integrated supply chains. While currently ranked as a marginal risk, this could escalate quickly if Alberta's surplus draws scrutiny from U.S. protectionists.
IMPROVING
Canada’s ability to get products to market remains a critical bottleneck, but the outlook has improved. A major focal point for ongoing trade negotiations is the "national interest" status of cross-border pipelines. President Trump's recent order authorizing the Alberta-to-Wyoming Bridger Pipeline expansion could increase Canada’s crude exports to the U.S. by more than 12% if successful. Alongside expansions to TMX and the Enbridge Mainline, these projects could alleviate the capacity constraints that 67% of energy leaders are expecting to face by 2029.
TOP DOMESTIC RISK
Federal energy policy was identified by energy leaders in a recent ATB Cormark Energy Sector survey, although views are moderating. The industry is wary of a widening gap between Canadian and U.S. regulations, particularly regarding Carbon Border Taxes. Excessive domestic friction continues to drive capital toward more predictable US regimes, a structural disadvantage Canada must actively work to close.
Alberta is navigating an economic moment that paradoxically complicates Canada's position at the negotiating table.
A recent Business Council of Alberta report highlights that high global oil prices, driven by Middle East instability, could flip Alberta’s projected $9.4 billion deficit into a $6 billion surplus. This gives Canada significant leverage as an energy security partner to the US. However, it also attracts scrutiny from U.S. protectionists who may argue that Canada’s dominant market share in crude imports warrants new tariffs or concessions in other sectors, such as dairy or automobiles.
The Small Business Perspective:
While the government is seeing a surplus, the "trickledown" to local small businesses is more measured than in past booms. Although 95% of E&P companies expect production growth this year, the industry is maintaining strict capital discipline. Energy leaders are prioritizing debt repayment and shareholder returns over massive new construction projects.
Prime Minister Mark Carney and Alberta Premier Danielle Smith have agreed on a landmark industrial carbon pricing accord. The new carbon price of $130 per tonne, rising from the current $95 per tonne, would take effect in 2050. The agreement sets the stage for the construction of another oil pipeline to the British Columbia coast, as well as the expansion of crude production.
Energy businesses should prioritize three strategic pillars heading into the July 1st review:
The 2026 review is not just a policy check. This is a defining moment for Canada's role in the global energy security hierarchy. As geopolitical tensions thaw relations between federal and provincial governments, the mandate remains clear: get the barrels to market.
The 2026 CUSMA joint review arrives at a precarious moment for Canadian agriculture as more than 70% of Canada’s food processing sales flow to the U.S.
The beef sector operates as a single integrated North American industry, and in 2025 alone, Canada exported more than $4B worth of beef to the U.S. and the border saw the move of thousands of cattle in both directions8. Grain and oilseed producers depend entirely on tariff-free commodity flows. Any serious disruption to the current framework would echo across the entire value chain.
Cultivating leverage sections
The depth of Canada’s U.S. dependency is structural. For beef, it reflects a supply chain built around integrated processing: Canada’s limited packing plant capacity means Canadian cattle routinely move to northern U.S. facilities, while those same plants rely on Canadian supply to operate efficiently. Losing CUSMA tariff-free access would not merely raise costs; it would shatter the integrated model.
For crop producers, the concern is equally direct. Geopolitical factors have left producers dealing with energy and fertilizer spikes, high borrowing costs and soft commodity prices have already compressed margins. Any tariff on Canadian commodities heading south would be a hard hit an already-strained sector.
Three outcomes are plausible from the review:
Five fundamental points of tension cut across all scenarios:
Bill C-202 formally became law on June 26, 202510, and its swift passage drew a polarized reaction from Canadian farm groups. While some dairy, poultry, and egg farmers welcomed the bill, the Canadian Agri-Food Trade Alliance, Grain Growers of Canada, and other organizations representing export-dependent sectors said they were deeply concerned and disappointed. The Canadian Cattlemen’s Association opposed the bill, noting that free and open trade is instrumental to the beef industry’s success, and that beef is the second-largest single source of farm income in Canada.
However, Canada’s potential trade deal with Mercosur is a major irritant for American producers. The fear is that cheap South American meat will flood the Canadian market, freeing up a massive surplus of Canadian trim to pour into and destabilize the U.S. market.
The federal government’s active pursuit of trade agreements with China, Southeast Asian nations and South America, including Mercosour, may be sound long-term policy, but in the short term could be hardening the American negotiating posture in the short term. Despite diversification ambitions across the beef sector, alternative markets are notoriously fragile. China's ban on Canadian beef imports began in 2021 and were only recently removed in the beginning of 2026, but it is expected to be extremely unpredictable. The EU remains blocked by non-tariff barriers around implant use.
The Agriculture industry risks continues to be a bargaining chip for non-agricultural priorities like automotive and steel. This is the consistent pattern of multilateral trade negotiations, and the sector’s concern is justified.
Canada’s higher regulatory cost burden on agricultural production is a real asymmetry, though border carbon adjustments are not considered an imminent threat in the current review framework.
Alberta carries concentrated exposure with its dominant beef production, major crop acreage, and a growing food processing sector, but also offers a meaningful geographic advantage. Edmonton and Calgary airports have made significant investments in cold-chain logistics to better handle agricultural air freight in the future, facilitating access to Asia-Pacific markets. Edmonton, in particular, has positioned itself as a major hub for perishables, utilizing polar routes to reach Asia faster than many U.S. hubs.
However, geographic opportunity is not market reality. Europe remains largely inaccessible to Canadian beef, as previously mentioned and Southeast Asian markets require sustained investment to develop. Diversification is worth pursuing, with realistic timelines.
The outcome of these negotiations is not within any individual business’s control, but its state of readiness is.
| 1 | Government of Canada: Canadian international merchandise trade, December 2025, Published February 2026 |
| 2 | The Logic: Canada’s merchandise exports outside the U.S. hit a record high, Published January 2026 |
| 3 | ATB Financial: The Twenty-Four, Alberta exports, 2025 |
| 4 | Government of Canada: Canadian international merchandise trade, December 2025, Published February 2026 |
| 5 | Statistics Canada: Table: 12-10-0175-01, 2026 |
| 6 | CFIB: https://www.cfib-fcei.ca/en/site/us-tariffs. Modified April 2026 |
| 7 | Statistics Canada (Table 12-10-0121-01) |
| 8 | FCC. What’s your beef? |
| 9 | https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/ca_e.pdf |
| 10 | Parliament of Canada: C-202 Royal Assent |
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