As fireworks light up the skies for Canada Day, it is looking less likely that the country will also celebrate the renewal of the Canada-United States-Mexico Agreement (CUSMA). July 1 was intended as the deadline for the three nations to decide whether to extend the agreement, initiate annual reviews, or withdraw entirely.
Canada's Cautious Approach
The deal holds significant value, and Ottawa is keen to secure as much duty-free trade with Washington as possible. Yet, while negotiation rounds have taken place between the U.S. and Mexico, and the first formal meetings for those two are set to begin, no such announcement has been made for Washington and Ottawa. There have been no high-level, publicly documented formal meetings between the American and Canadian sides since last October.
Still, all three have reasons to engage in dialogue. "The idea of truly walking away from North American alignment and integration," said Arun Venkataraman, international trade partner at law firm Covington & Burling, "is neither realistic nor productive and in fact has serious adverse consequences for all of the economies."
Trade Minister Dominic LeBlanc met with U.S. Trade Representative Jamieson Greer last month, and Treasury Secretary Scott Bessent met with Minister of Finance and National Revenue François-Philippe Champagne last Friday, but no major announcements of progress resulted from either. Canada recently appointed a new chief trade negotiator, Janice Charette, who has stayed relatively out of the headlines, apart from recent comments about wanting to see mutuality in negotiations and not expecting a resolution by July 1.
Experts Not Concerned by Lack of Progress
Like Charette, most trade and legal experts are not concerned by the apparent lack of progress. "If we don't reach a consensus on July 1," said Diego Marroquín Bitar, fellow at the Washington-based Center for Strategic & International Studies, "that doesn't mean the agreement will end. It can still go on for 10 more years."
Alfredo Carrillo Obregon, policy analyst at the Cato Institute, said he is not worried by the lack of talks — at least not yet. "If we continue to see rhetoric like (Lutnick's)," he said, "then that would definitely be a cause of concern. If we continue to see that come May, then we can start asking questions about where this is heading."
He was referring to some inflammatory comments about the talks and Canada's apparent lower-profile, waiting-game strategy. Last Friday, Commerce Secretary Howard Lutnick said Trump thinks CUSMA is a "bad deal" that needs to be "reimagined correctly." Lutnick was asked whether Canada was right in thinking it had a strategic advantage in waiting and watching as U.S. domestic challenges, such as the war in Iran and midterm elections, mount. He scoffed, calling it the "worst strategy I've ever heard. They suck."
Trade Watchers Disagree with Lutnick
Trade watchers in Washington, however, see things differently. Playing the long game with the U.S., said Marc Short, chairman of the board for Advancing American Freedom, is the "right strategy." "It may not ultimately be successful, but I think it's the right strategy for right now."
Inu Manak, senior fellow for international trade at the Council on Foreign Relations, agrees and says that making concessions and acquiescing to the White House has not boded well for other nations. Keeping the Canadian trade negotiators out of the headlines could also be aimed at avoiding incendiary language that could derail the process. "Keeping a low profile might be good simply because it means you're not getting into inflammatory rhetoric that could impact the way these processes are handled," said Carrillo Obregon.
They may also be waiting on the U.S. midterm elections this November, which could see Democrats, who oppose Trump's trade agenda, take control of the House. Manak weighed the pros and cons, noting that it is in Trump's best interest to rush any law-changing asks to CUSMA — ones requiring Congressional approval — before the election, but for him to stall non-legislative ones.
Risks of Waiting
But Venkataraman warned against this. "I would not encourage any party to wait for the midterms or to, in any way, think that the fundamental dynamic or core objectives of the United States will change with the midterms, even though Congress will potentially have a different composition," he explained. He expects those objectives to force debate on tightening the rules of origin — on autos and other sectors — and economic security alignment against non-market economies like China, as well as digital services taxes, and dairy supply management.
Exacting concessions will be tricky. "The purpose of a North American platform," he said, "is to ensure that the three countries are all benefiting from this partnership, and that the gains are not at the expense of any of the other North American partners."
Two-Tiered Approach Raises Concerns
Some experts expressed concern over the two-tiered approach the U.S. is taking with Mexico and Canada. "I think it creates a risk of a bilateral negotiation as opposed to a trilateral one," said Short. Any major bilateral deals requiring changes in U.S. law, however, would also require congressional approval, Venkataraman said.
Even if some bilateral agreements are forged, in addition to USMCA, most of the trade watchers believe negotiations will continue beyond July 1. "I honestly don't think there's any incentive for the Trump administration to make a full deal and not change it," said Manak. "So I think there's a good chance we could see annual reviews occur for the remainder of the Trump administration."
Venkataraman said the White House may push for big changes in various areas that will require sustained negotiations anyway. Some believe it is already too late for any consensus to be reached by July 1. "Even if (Canada) joins tomorrow," said Marroquín, "we wouldn't have enough time to discuss everything that needs to be discussed on trade."
Potential for Withdrawal Threats
On a positive note, a similar Mexico-first pacing occurred the first time around, and the three sides still forged CUSMA. This time, however, Trump will likely threaten to withdraw as a point of leverage – and he may do so repeatedly. CUSMA has a six-month gap between a country giving notice to withdraw and it actually taking effect, so Trump could bring talks to the brink and back down, and then repeat. "The president could withdraw, change his mind, and do it all over again," said Manak. "So I think what we're likely to see is potentially a lot of threats to withdraw, but that might be pretty much as far as he goes."
