On 1 July 2026 the United States declined to extend CUSMA for a further 16 years, pushing the agreement into annual joint reviews until its 2036 expiry. The pact remains fully in force, and its origin rules still shield most Canadian exports, but Washington is using the review to demand tighter auto content rules (82% North American, half of it American), greater access to Canada’s supply-managed dairy market and an end to provincial liquor bans. Canada has already given up its digital services tax and most counter-tariffs; talks with the US have been frozen since 22 August 2026, and the next formal checkpoint is 1 July 2027.
The 2026 CUSMA joint review was designed as a routine check-in, but it has become the mechanism through which the United States keeps Canada in a state of permanent negotiation. The Canada-United States-Mexico Agreement, known in Canada as CUSMA and in the US as USMCA, took effect on 1 July 2020 with a novel sunset clause: a mandatory review after six years, at which the three parties could either confirm a fresh 16-year term or slide into yearly reviews until the deal lapses in 2036. The first review has now happened, and the United States chose the second path. This article explains how the mechanism works, what each side is asking for, how exposed Canadian exporters are, and the scenarios business planners are using. It is part of the Canada Company Stories hub.
Did CUSMA expire on 1 July 2026?
No. The agreement stays in force until at least 1 July 2036 with all tariff preferences, rules of origin and dispute settlement intact. What changed is that the parties must now meet every year, and a 16-year extension can be confirmed at any time if all three heads of government agree.
What does the US want?
USTR Jamieson Greer has told Congress the US will not “rubber stamp” the deal. Reported demands include raising auto regional content from 75% to 82% with a 50% US-content floor, more prescriptive dairy quota allocation, an end to provincial bans on US liquor, and tighter rules on Chinese inputs and economic security.
How exposed is Canada?
About 89% of Canadian exports to the US currently enter under CUSMA preferences. Scotiabank’s severe withdrawal scenario (35% tariffs) would cut GDP by 1.9% and lift unemployment to 7.1%. Ontario sends 81% of its goods exports to the US and would bear the brunt.
How does the CUSMA joint review mechanism actually work?
Article 34.7 of CUSMA requires the Free Trade Commission, made up of the three trade ministers, to meet on the sixth anniversary of entry into force and decide whether to extend the agreement’s term. If all three confirm in writing that they wish to continue, the term resets to 16 years from that date and the next review is six years later. If any party declines, the agreement does not end; instead the Commission must conduct a joint review every year for the remainder of the original 16-year term, which ends on 1 July 2036.
The mechanism was a US demand in the 2018 negotiations, a compromise between the Trump administration’s original wish for a hard five-year sunset and the Canadian and Mexican insistence on predictability. Its practical effect is to give whichever party is least satisfied a recurring lever. An extension can be confirmed at any point, so a renewal in July 2027 would push expiry to 2043 and the next review to 2033. Separately, Article 34.6 allows any party to withdraw on six months’ written notice at any time, a power that exists independently of the review.
Canada prepared extensively. Global Affairs Canada ran public consultations in 2024 (137 submissions) and again in 2025, when 5,143 submissions arrived, 4,670 of them from individuals, alongside sectoral roundtables on oil and gas, steel, aluminium, softwood lumber, agriculture and autos. On 21 April 2026 the Prime Minister created an Advisory Committee on Canada-US Economic Relations chaired by Dominic LeBlanc, and Janice Charette, a former Clerk of the Privy Council, was appointed Chief Trade Negotiator to the United States. Canada’s chief negotiator described 1 July as “a checkpoint, rather than a cliff”.
What happened at the 1 July 2026 review?
At a virtual meeting of the Free Trade Commission on 1 July 2026, US Trade Representative Jamieson Greer told Mexico’s Economy Secretary Marcelo Ebrard and Canada’s Dominic LeBlanc that the United States did not agree to renew the agreement in its current form. Canada and Mexico each confirmed support for a 16-year extension. Because unanimity was lacking, the annual review cycle began.
The outcome was not a surprise. Greer had told Congress in December 2025 that the US would not simply approve the deal and listed rules of origin, offshoring, tariffs, export controls and critical mineral production among its priorities. On 2 June 2026 Canada had sent a formal letter to Washington and Mexico City recommending a 16-year renewal and proposing parallel talks on sectoral tariffs. Greer’s response was that the US had “significant” differences with Ottawa, including Canada’s retaliatory tariffs on US vehicles and metals, and that Canada might have to accept some tariffs to engage at all.
The structure of the talks is the most revealing feature. Washington chose to negotiate bilaterally with Mexico first: round one in Mexico City (28-30 May 2026) covered auto rules of origin, steel and aluminium and economic security; round two in Washington (16-17 June) added industrial rules of origin, agriculture, labour and environment; round three in Mexico City (21-23 July) exposed deep differences over auto content. Canada was not invited to any of them. Carney described the process as “bifurcated”. After the August 2026 collapse of separate Canada-US talks, no Canada-US negotiating round has been scheduled, while Ebrard said on 16 October that a fourth US-Mexico round “has to be before the end of the year”.
Why are auto rules of origin the central battleground?
Autos dominate because they are the largest single category of CUSMA-governed trade and because the United States wants to use origin rules to pull assembly and parts production south of the Canadian border. Under the current treaty text, passenger vehicles and light trucks need 75% North American content by the net-cost method, 70% of a producer’s steel and aluminium purchases must be North American, and a labour value content rule requires a share of production at wages of at least US$16 an hour. There is no country-specific requirement: Canadian, Mexican and US content all count equally.
Reuters reported on 29 May 2026 that the US is seeking to raise regional content to 82%, with half of the total, 50% of vehicle value, required to be American. No provision for counting Canadian content was reported. Mexico opposes the US-content floor strongly, and Greer told the Senate Finance Committee on 22 July that tighter auto rules would probably slip into 2027 even if interim arrangements are reached by the end of 2026. The ICPA’s review tracker found, as of 18 October 2026, no official proposal, Federal Register notice or negotiating text implementing any change: the 75% rule still governs.
A 50% US-content floor would be a direct threat to Canadian assembly. Canada exports about 27% of its goods to the US in the form of autos and parts, and the integrated Ontario-Michigan supply chain is built on parts crossing the border multiple times. Companies like Magna International would face a choice between relocating capacity and losing preferential access. The Canadian auto industry’s experience under the 2025 tariffs shows how quickly investment decisions respond to such signals.
Two older disputes colour the talks. In December 2022 a CUSMA Chapter 31 panel ruled for Canada and Mexico on the “roll-up” method for calculating core-parts content, a decision USTR rejected and that has never been implemented. And the Section 232 auto tariff of 25% on non-US content, imposed in April 2025, sits entirely outside the agreement, which is why Canada keeps insisting that sectoral tariffs be put on the table alongside the review.
Why is dairy supply management so difficult for Canada to concede?
Dairy is politically untouchable in Canada in a way few other sectors are. Supply management sets production quotas, controls prices and restricts imports through tariff-rate quotas (TRQs) with over-quota tariffs that can exceed 200%. Under CUSMA Canada granted US producers access to about 3.6% of its dairy market, but the two countries have fought ever since over how Canada allocates the TRQs. A first dispute panel found Canada’s reservation of quota shares for processors inconsistent with the agreement; a second panel, on 10 November 2023, largely rejected further US claims. No new Chapter 31 case has been filed since.
In June 2025 Parliament passed Bill C-202, a Bloc Québécois private member’s bill that legally bars Canadian negotiators from increasing TRQs or lowering over-quota tariffs in any future trade agreement. Carney said on 7 August 2026 that Canada remained loyal to supply management, and Dairy Farmers of Canada urged him to make no further concessions. The US dairy lobby, the National Milk Producers Federation and the US Dairy Export Council, backed the July 2026 Section 338 proclamations and is reportedly seeking prescriptive allocation language, minimum quota shares for distributors and retailers, and tougher fill-rate rules.
The result is a hardening on both sides. Since 22 August 2026 a 50% Section 338 duty has applied to roughly 52 Canadian dairy tariff lines regardless of CUSMA origin, and since 29 September whey and other products under HTSUS heading 0404 have been barred from entry altogether. Canada’s 8 September counter-tariffs put 50% on US milk, cream and whey and 25% on cheese. US-Canada agricultural trade was worth about US$67.5 billion in 2025, so the dairy fight is small in dollar terms but large in symbolic weight. Readers interested in the retail end of the dairy chain can see our profile of Loblaw and the Weston grocery empire.
What did Canada already give up before the review started?
Canada entered the review having surrendered three bargaining chips in exchange for very little. The first was the Digital Services Tax, a 3% levy on Canadian-source revenue of large online platforms, retroactive to 1 January 2022 and projected by the Parliamentary Budget Officer to raise about C$7.2 billion between 2023 and 2027. On 27 June 2025 Trump suspended all trade talks over the tax; on 29 June Ottawa rescinded it and cancelled the 30 June payment deadline. Talks resumed on 30 June. No US tariff was reduced in return.
The second was retaliation. On 22 August 2025 Carney announced that Canada would drop counter-tariffs on about C$44.2 billion of US goods to match the CUSMA exemption, keeping only the duties on US steel, aluminium and autos. He said Trump had told him this would reset negotiations and explicitly linked the move to preparing for the 2026 review. Commerce Secretary Howard Lutnick’s reaction was that the president would “absolutely” renegotiate CUSMA, which was not the outcome Ottawa had sought.
The third was the Ontario advertising campaign. After Trump cancelled talks on 23 October 2025 over an Ontario advertisement using Ronald Reagan’s voice, the province withdrew it. By the time Canada sent its 2 June 2026 renewal letter, it had few remaining concessions to trade except the ones Washington wanted most: dairy, lumber and provincial liquor policy. That is why the August 2026 talks, in which the US reportedly offered to lower metals and auto tariffs in exchange for opening dairy and lumber, ended in failure. For the full story of the tariffs themselves, see our account of the 2025 Canada-US trade war.
How exposed are Canadian exporters under each scenario?
Roughly 89% of Canadian exports to the US currently enter under CUSMA preferences, which is why every scenario analysis starts from the value of that access. CPA Ontario’s framework, widely used by provincial planners, sets out three paths.
The base case is extension with amendments: the US extracts changes on autos, dairy allocation and economic security and confirms a 16-year term at some point before 2036. Forecasts under this case put Canadian real GDP growth for 2026 between 1.0% (Ontario’s budget) and 1.5% (Scotiabank), with the federal government at 1.1%. The second scenario is annual-review limbo, in which nothing is agreed and the pact drifts. It is the least quantified but is the current reality.
The third scenario is withdrawal. Scotiabank’s “contained” case, with 10% tariffs on goods currently exempt, cuts GDP by 0.6% and raises unemployment to 6.5%. Its “severe” case, with 35% tariffs, cuts GDP by 1.9% and takes unemployment to 7.1%. Ontario’s own downside case, with 12% tariffs, slows provincial growth to 0.3% in 2026 and 0.6% in 2027, and the Financial Accountability Office of Ontario projects unemployment averaging 8.4% over five years. Whether the 1989 Canada-US Free Trade Agreement would automatically revive after a CUSMA withdrawal is legally uncertain and might require a US presidential proclamation.
| Scenario | Assumed US tariff on now-exempt goods | GDP effect | Unemployment | Source |
|---|---|---|---|---|
| Extension with amendments | 0% (sectoral 232 tariffs remain) | 2026 growth 1.0-1.5% | ~6.8% | Ontario, Scotiabank, Finance Canada |
| Annual review limbo | 0% but uncertain | Investment drag, unquantified | n/a | CPA Ontario |
| Withdrawal, contained | 10% | -0.6% | 6.5% | Scotiabank |
| Withdrawal, Ontario downside | 12% | Ontario growth 0.3% (2026), 0.6% (2027) | 8.4% five-year avg (FAO) | Ontario Budget, FAO |
| Withdrawal, severe | 35% | -1.9% | 7.1% | Scotiabank |
What is Mexico’s position, and does it help Canada?
Mexico wants a 16-year extension and has said so at every opportunity, which keeps a trilateral outcome alive even as Washington negotiates bilaterally. Economy Secretary Marcelo Ebrard confirmed Mexico’s support at the 1 July meeting and said nothing indicated any party intended to withdraw. His line that Mexico is “in no rush, but we also don’t want any uncertainties” captures the shared Canadian-Mexican interest in a quick, limited settlement.
But Mexico is also a competitor for the same investment. Mexican industry’s priorities, better enforcement, durable mechanisms and “productive integration”, align with Canada’s on resisting the US-content floor, yet a deal in which Mexico accepts tougher auto rules in exchange for relief from Section 232 duties would leave Canada isolated. A Wall Street Journal report in October 2026 said a US-Mexico tariff deal had stalled over objections from Commerce Secretary Lutnick, which Ebrard disputed. Mexico has also moved on its own account: a decree exempting tariff code 9803.00.01 from a 10% duty for five years benefits only 11 light-vehicle makers.
Canadian industry’s wish list, as submitted to the review, is broader than autos: continued tariff-free access, a check on unilateral trade actions, restoration of the US$800 de minimis exemption that ended on 29 August 2025, uniform customs and origin procedures, aligned rules on cross-border data flows and AI governance, and practical origin changes that protect integrated supply chains. The railways that carry most of this trade, profiled in our piece on CN and CPKC, have as much at stake as the manufacturers.
What happens between now and the July 2027 review?
The next twelve months follow a fixed calendar even though the Canada-US channel is frozen. USTR published its notice for the 2027 review on 5 October 2026, with written comments and hearing requests due by 11:59 p.m. on 12 January 2027 under dockets USTR-2026-0595 and 0596. The US International Trade Commission is running Investigation 332-608 on the agreement’s operation, with post-hearing briefs due 21 October and written submissions 2 November 2026. The Department of Labor proposed on 16 October a three-year extension of the labour value content recordkeeping rules, with comments due 15 December.
On the Canadian side, LeBlanc has said Canada wants substantive discussion of sectoral tariffs on steel, aluminium, autos and lumber before it re-engages on treaty text. Greer’s position on 8 October was that the US is “holding fast” and will talk when Canada wants an agreement. The Section 338 duties, the 29 September import bans and Canada’s 8 September counter-tariffs all remain in place. Trump’s threat to raise auto and steel tariffs to 50% on 1 January 2027 is the next hard deadline.
Three signals would indicate movement: a scheduled Canada-US negotiating round, a US-Mexico interim agreement that leaves room for Canadian content, or a Canadian offer on provincial liquor policy, the lowest-cost concession Ottawa has left. Carney asked premiers in 2025 to consider putting US alcohol back on shelves, and the provinces that control liquor retail are the ones that can deliver it.
What can founders and investors learn from the CUSMA review?
The central lesson is that a trade agreement is only as stable as its weakest sunset clause, and investors should price the review calendar into every North American asset. Three further lessons follow.
First, pre-emptive concessions buy time but not goodwill. Canada’s withdrawal of the Digital Services Tax and most counter-tariffs in 2025 restarted talks twice without reducing a single US tariff. Businesses lobbying Ottawa for further unilateral moves should expect similar returns.
Second, origin is the asset. The 89% preference share is the reason Canada’s economy grew in 2025 despite the trade war. Any firm that can raise its North American content, document it and, where possible, shift value-added into the United States itself is hedging against the 82%/50% proposal. The firms best placed are those with plants on both sides of the border, which is why Shopify and other software exporters, whose products face no origin test, have been largely insulated.
Third, diversification is a complement, not a substitute. The push to diversify exports to Europe and Asia has moved the US share of Canadian exports to a record low, but the shift has been driven by gold and is marginal for autos, dairy and lumber. CUSMA will remain the most important commercial document in Canada for the foreseeable future, which is precisely why the United States is in no hurry to renew it.
Frequently Asked Questions
Can the US withdraw from CUSMA without warning?
Article 34.6 allows any party to withdraw on six months’ written notice at any time. That right exists regardless of the joint review. No notice has been given, and Mexico’s Ebrard has said nothing indicates any party plans to exit, but the option is a standing lever in negotiations.
Do the Section 232 and Section 338 tariffs fall under the review?
No. They are unilateral US measures under domestic statutes and sit outside the agreement, which is why they apply even to CUSMA-compliant goods. Canada’s position is that they must be addressed in parallel with any treaty changes; the US has so far treated them as leverage rather than as items for negotiation.
Could Canada legally offer more dairy access?
Bill C-202, passed in June 2025, prohibits Canadian negotiators from increasing dairy tariff-rate quotas or reducing over-quota tariffs in trade talks. Parliament could amend or repeal it, but doing so would be politically costly, particularly in Quebec. Changes to how existing quotas are allocated are not covered by the law and are the more likely area of compromise.
What is the difference between CUSMA, USMCA and T-MEC?
They are the same agreement. Canada calls it CUSMA (Canada-United States-Mexico Agreement), the United States calls it USMCA and Mexico calls it T-MEC (Tratado entre México, Estados Unidos y Canadá). It replaced NAFTA on 1 July 2020.
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