The bilateral relationship between Canada and the United States faced significant challenges throughout 2025, setting the stage for a potentially dramatic 2026. The coming year is marked by three major events: an impending U.S. Supreme Court decision regarding former President Donald Trump's tariffs, the scheduled review and renegotiation of the Canada-U.S.-Mexico Agreement (CUSMA), and the U.S. midterm elections in November.
Key Bilateral Issues on the 2026 Agenda
To gain perspective on the year ahead, the National Post recently interviewed Christopher Sands, the director of the Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies in Washington, D.C. A leading authority on Canada-U.S. relations, Sands provided insights into the critical issues that will define the cross-border dynamic.
The interview, edited for clarity, delves into how Canada can navigate a complex landscape shaped by trade disputes and political uncertainty. The central question revolves around how the 2026 CUSMA review will unfold against the backdrop of Trump's trade war, which includes tariffs on Canadian automobiles, steel, and other goods not covered by the existing agreement.
The CUSMA Review: Opportunity Amidst Tension
Sands notes that the core idea of the CUSMA review is sound. Unlike its predecessor, the North American Free Trade Agreement (NAFTA), CUSMA includes a built-in mechanism for periodic review and updates. The process, mandated by Congress in the U.S., involved soliciting input from the private sector, including Canadian companies and trade associations.
The business community's overwhelming feedback was not aligned with President Trump's aggressive trade stance. Instead, businesses emphasized the vast economic opportunity presented by the agreement and advocated for stability, largely wishing for the deal to remain unchanged.
However, Sands points out that Canada will need to address specific concerns raised by the U.S. Trade Representative (USTR). The primary obstacles identified include Canada's dairy import restrictions, the Online News Act, and the Online Streaming Act. Additionally, the issue of provincial procurement remains a significant point of contention.
The Sticking Point of Provincial Procurement
The procurement issue has deep roots. During the original NAFTA negotiations, the U.S. proposed including all procurement, even at the state level. Approximately 38 U.S. states agreed to allow Canadian and Mexican firms to bid on their contracts.
In the 1990s, Canadian provinces declined to reciprocate. The situation resurfaced after the 2008 financial crisis during the Obama administration's Recovery Act. When Canadian companies sought to bid on U.S. infrastructure projects, a solution was proposed: the U.S. encouraged Canadian provinces to join Article II of the WTO Government Procurement Agreement, a voluntary protocol those same 38 states had already signed.
Quebec led the way in agreeing, but not all provinces followed suit. This history leaves provincial procurement as a key area for potential negotiation and concession in the 2026 CUSMA talks, which are formally expected to begin on July 1, 2026.
As 2026 begins, the outcome of the U.S. Supreme Court's decision on the legality of Trump's tariffs will set a crucial precedent, directly influencing the atmosphere and leverage points for the subsequent CUSMA renegotiation. Canada's strategy will hinge on carefully calibrated concessions, particularly in dairy and digital policy, while seeking to preserve the core stability that North American businesses value.
