A stark new analysis suggests Canadian exporters should brace for U.S. tariffs to become a permanent fixture of the trade landscape, with the odds of a full removal sitting at a mere five per cent.
Grim Odds as CUSMA Review Deadline Looms
With the deadline to start reviewing the Canada-U.S.-Mexico Agreement (CUSMA) approaching, the economic forecasting firm Oxford Economics Ltd. has laid out a series of scenarios, and the outlook for Canada is predominantly concerning. The firm pegs the likelihood that the administration of U.S. President Donald Trump eliminates all tariffs, returning duties to the pre-2025 level of essentially zero per cent, at just five per cent.
"It just does not seem very likely that the Trump administration is going to basically rubber stamp a deal to extend CUSMA and then also dial back all tariffs," said Michael Davenport, a senior economist at Oxford Economics. He added that the firm has long held the view that "there will be more protectionist U.S. trade policy within North America post-CUSMA renegotiation than there was before the second Trump administration."
Four Scenarios for Canada's Trade Future
Oxford Economics constructed four potential outcomes, with probabilities attached:
Baseline Scenario (50% probability): CUSMA is renegotiated in the third quarter of 2026, and most U.S. tariffs are eliminated. However, 10 per cent duties on steel, aluminum, and dairy products would persist. This would lower the effective tariff rate on Canadian exports to the U.S. to about one per cent from a projected 6.3 per cent at the end of 2025. Canada would remove most counter-tariffs but keep retaliatory duties on U.S. steel and aluminum.
Status Quo Scenario (35% probability): This is seen as increasingly likely. One or more partners decline to extend CUSMA in its current form, triggering mandatory annual reviews and potentially protracted negotiations. Current U.S. tariffs remain in place permanently, Canadian retaliatory tariffs also stay, and trade policy uncertainty remains elevated.
Worst-Case Scenario (10% probability): One or more parties withdraw from CUSMA entirely, leading to "noticeably" higher U.S. tariff rates for Canada and Mexico.
Best-Case Scenario (5% probability): All tariffs are dropped, returning to pre-2025 levels.
Risks Skewed Sharply to the Downside
The report emphasizes that "the risks to our forecast are skewed sharply to the downside." Davenport noted that the odds of even the baseline scenario are dropping, and the outcomes more closely resembling the status-quo or worse are becoming more probable.
Currently, the effective tariff rate on Canadian exports to the U.S. is estimated at under five per cent. As of September 2025, approximately 86 per cent of Canadian exports were CUSMA-compliant, a significant jump from 38 per cent in 2024. This compliance, however, may not shield Canada from broader protectionist measures.
The analysis concludes that Canadian businesses and policymakers must prepare for a new era of more-protectionist U.S. trade policy, with the high tariffs imposed in recent years likely here to stay, posing a sustained challenge to cross-border commerce and economic planning.
