A recent report has highlighted the potential consequences of the Canada-U.S.-Mexico Agreement (CUSMA) falling apart amid ongoing trade talks to avoid new U.S. tariffs. The analysis, conducted by Oxford Economics for the Canadian American Business Council, explored three scenarios: maintaining current tariffs, CUSMA collapsing, and successful CUSMA renegotiation.
If CUSMA were to dissolve, the report projects significant job losses – 214,000 in the U.S. and 102,000 in Canada. Conversely, successful renegotiation could lead to job gains of 137,000 in the U.S. and 98,000 in Canada. The CEO of the Canadian American Business Council, Beth Burke, emphasized the critical importance of the trade relationship between the two countries for economic prosperity.
In addition to job impacts, the report forecasts substantial GDP losses in both nations in a breakdown situation, estimating a $1.04 trillion USD hit for the U.S. and $271 billion CAD for Canada by 2035. Inflation rates would likely rise, and real disposable income growth would be hindered, particularly in Canada. Conversely, successful negotiation would result in increased disposable income, lower inflation, and significant GDP gains for both countries.
The report suggests that in a worst-case scenario, manufacturing sectors in the U.S., such as auto, wood products, and metal, would suffer most, affecting states like Iowa, Michigan, Kentucky, and Alabama. Similarly, Quebec and Ontario in Canada would bear the brunt of manufacturing losses if CUSMA collapses.
As the deadline approaches for potential 50% tariffs on certain Canadian exports, trade officials are actively seeking a deal to avert the tariffs. Trade Minister Dominic LeBlanc and U.S. Trade Representative Jamieson Greer are working towards presenting a trade deal to President Trump before the tariff deadline. Concessions from both sides may be necessary to reach an agreement.
If no deal is reached, the report indicates that central Canadian manufacturers, especially in sectors like cement, concrete, paper products, wood, computers, electronics, plastics, and rubber, would face significant impacts. Provinces like Ontario, New Brunswick, and Quebec are expected to be hit hardest due to their reliance on these sectors, while others like Saskatchewan, Alberta, and Newfoundland and Labrador may fare better.