Canadian officials still seem to believe that a trade agreement is a sacred text. They think once a deal like the Canada-United States-Mexico Agreement (CUSMA) is signed, the rules protect them from sudden economic shocks.
They are wrong.
United States Trade Representative Jamieson Greer laid this out clearly during a talk at the Council on Foreign Relations. Washington has already kicked off official trade negotiations with Mexico. Negotiations with Canada? They haven't even started.
Greer made it clear that Ottawa is still struggling to accept a harsh reality. Donald Trump's tariffs aren't a temporary negotiation tactic. They are structural, and they are here to stay. Canada keeps expecting a return to normal free-trade rules. But the old normal died a long time ago.
The CUSMA Shield Is Evaporating
For the past year, Ottawa relied on the CUSMA framework to defend itself against aggressive American protectionism. When the Trump administration unleashed sweeping tariff threats early in 2025, Canadian trade ministers pointed straight to the legal text of the agreement. They argued that CUSMA compliance meant automatic exemptions from broad U.S. import taxes.
That legalistic strategy achieved some temporary wins. After intense pushback, the White House did exempt CUSMA-compliant goods from the worst of the universal tariff orders last summer. Over 85% of bilateral trade managed to stay tariff-free.
But relying on those legal exemptions is a dangerous game. The U.S. Supreme Court struck down Trump's use of the International Emergency Economic Powers Act (IEEPA) for widespread tariffs earlier this year. You might think that stopped the administration. It didn't. It just forced them to change weapons.
Washington is now pivoting to other trade tools. They are deploying Section 232 investigations, Section 301 actions, and targeted sub-federal restrictions. These tools take longer to implement, but they bypass the court rulings. The U.S. trade office is fundamentally skeptical of multilateral pacts. If a panel rules against the U.S.—like the recent high-profile decision on automotive rules of origin—the White House simply ignores it.
A Tale of Two Neighbors
Why has Mexico already sat down at the negotiating table while Canada remains stuck in the waiting room? The answer comes down to political leverage and speed.
Mexican President Claudia Sheinbaum understood the assignment immediately. When faced with tariff threats, she didn't just send lawyers to Washington. She deployed 10,000 National Guard troops to Mexico's southern border, cracked down on fentanyl labs, and extradited high-profile cartel figures like Rafael Caro Quintero to the U.S.
Sheinbaum gave Trump immediate, tangible political wins on immigration and security. Because of that pragmatism, Mexico secured a direct line to the administration and began its official trade reviews early.
Canada took a completely different path. Prime Minister Mark Carney has vocally criticized American trade policies, calling the tariff pressures a "rupture" during his speech at Davos. Instead of offering swift compromises, Ottawa retaliated with its own 25% counter-tariffs on U.S. steel, aluminum, and automobiles.
Greer noted this friction openly. He pointed out to Congress that only two nations economically retaliated against the United States over the past year: China and Canada.
By pushing back so hard, Ottawa put itself in a completely different category than Mexico. Washington views Canada not as a cooperative neighbor working through shared problems, but as an economic adversary standing in the way of American industrial policy.
The Friction Points Holding Up Talks
The delay in starting official negotiations isn't just about bad optics. A long list of deep economic irritants keeps pushing Canada to the back of the line.
- The Sovereign Cloud Initiative: Ottawa wants to reduce its reliance on American technology giants by building its own domestic data infrastructure. The U.S. trade office views this as direct protectionism designed to lock out American tech companies.
- The Digital Services Tax: Canada tried to tax global digital giants. Trump demanded the tax be dropped entirely. While Canada backed down on some aspects under immense pressure, the dispute left a bitter taste in Washington.
- The Auto Sector Stalemate: Canada's remaining 25% counter-tariffs on U.S. auto parts and vehicles are still active. Ottawa says they will stay until the U.S. provides explicit exemptions for Canadian steel and aluminum. Washington refuses to blink first.
The mandatory joint review of CUSMA arrives this summer. The original 2020 deal included a clause requiring all three nations to formally review the agreement in 2026. If everyone agrees, the pact gets extended until 2042.
But the White House has already floated the idea of breaking the trilateral deal apart entirely. They want to split it into two separate, bilateral agreements: one U.S.-Mexico deal and one U.S.-Canada deal. If that happens, 30 years of integrated North American free trade will fracture. Canada will lose the collective bargaining power it enjoys when aligned with Mexico.
How Canadian Businesses Must Adapt
Waiting for Ottawa to sign a perfect treaty won't save Canadian companies. The corporate supply chain strategy of the last two decades is obsolete. If your business relies on seamless cross-border shipping, you need to change how you operate right now.
First, stop budgeting for zero-tariff scenarios. Assume that a baseline tariff of 10% to 25% could hit your U.S. exports at any moment via Section 232 or 301 actions. Stress-test your margins under these assumptions. If a 15% tariff wipes out your entire profit margin, your business model is unsafe.
Second, diversify your target markets immediately. The U.S. will always be Canada's largest trading partner, but total dependence is a liability. Look hard at expanding trade ties within the European Union via CETA, or leveraging the CPTPP for Asian markets.
Third, consider near-market manufacturing adjustments. If you produce heavy industrial components, steel, or automotive parts, look into setting up finishing facilities inside the United States. Shifting the final stage of assembly across the border can help you qualify as a domestic U.S. product, shielding you from import duties.
Ottawa needs to drop the legal righteousness and adopt Mexico's transactional mindset. Until the Canadian government realizes that trade in 2026 is driven by political leverage rather than treaty text, Canadian businesses will continue to pay the price.
