Canada and the United States are approaching a crucial trade deadline as new economic modelling warns that a breakdown of the Canada-U.S.-Mexico Agreement, or CUSMA, could leave the two countries with about 316,000 fewer jobs and cause major long-term economic losses.
The analysis, prepared by Oxford Economics for the Canadian American Business Council, estimates the United States could have 214,000 fewer jobs and Canada 102,000 fewer jobs under a CUSMA breakdown compared with its status-quo scenario.
The warning comes as Canadian and U.S. negotiators work toward an agreement before August 19, when additional U.S. tariffs of 50% are scheduled to hit a range of Canadian products.
CUSMA breakdown could carry a $1 trillion cost
The employment figures are projections, not announced layoffs. Oxford Economics compared three possible outcomes: current tariff conditions continuing, CUSMA breaking down, and a successful renegotiation that improves the trading relationship.
The worst-case scenario extends far beyond jobs. The analysis estimates a CUSMA breakdown could leave cumulative U.S. GDP about US$1.04 trillion lower by 2035 compared with the status quo. Canada’s cumulative economic loss is estimated at roughly C$271 billion.
The Canadian American Business Council’s economic analysis also points to weaker exports, higher inflation and slower growth in household income if trade barriers increase substantially.
A successful negotiation presents a very different picture. Compared with the status quo, the modelling estimates an improved agreement could support around 137,000 additional U.S. jobs and 98,000 additional Canadian jobs.
August 19 tariff deadline raises immediate pressure
The CUSMA breakdown scenario should not be confused with the tariffs scheduled for August 19. They are separate developments, although both are part of the broader deterioration in Canada-U.S. trade relations.
The threatened 50% duties cover specified Canadian products. The products affected represent only part of Canada’s overall exports to the United States, but individual businesses that rely heavily on American customers could face a much larger impact.
The latest confrontation follows months of uncertainty over Washington’s trade strategy. Earlier developments around Trump’s global tariff policy and its impact on international trade have already forced businesses to reassess costs, sourcing and investment decisions.
Trade Minister Dominic LeBlanc and U.S. Trade Representative Jamieson Greer have continued discussions as the deadline approaches. The U.S. administration has raised grievances involving Canadian dairy policies, automobiles and restrictions affecting American alcoholic beverages.
Prime Minister Mark Carney has said discussions include strategic sectors, suggesting negotiations extend beyond the individual products immediately threatened with higher tariffs.
Ontario and Quebec face greater manufacturing exposure
Manufacturing is one of the clearest areas of risk if trade relations deteriorate further. Ontario and Quebec are particularly exposed because their economies include major automobile, metals, machinery, chemical, electronics, wood and paper operations connected to U.S. customers and suppliers.
Separate Oxford Economics analysis of the immediate tariff escalation identified cement and concrete manufacturers among those facing significant pressure, followed by paper products. Wood, computers and electronics, plastics and rubber manufacturing are also among the vulnerable industries.
Ontario, New Brunswick and Quebec could therefore experience greater pressure from the new tariffs, while Saskatchewan, Alberta and Newfoundland and Labrador are relatively less exposed because of differences in their industrial mix.
U.S. factories could also feel the impact
A trade breakdown would not affect Canada alone. American manufacturing depends heavily on Canadian materials and components.
The report identifies U.S. automobile, wood product and metal product manufacturing among the industries vulnerable in the breakdown scenario, with manufacturing centres including Michigan, Iowa, Kentucky and Alabama facing potential pressure.
North American auto production illustrates the problem. Components can cross the border multiple times before a finished vehicle reaches a buyer. Tariffs on Canadian inputs can therefore become additional costs for American manufacturers rather than simply penalties paid by Canadian exporters.
Questions surrounding that relationship intensified after Trump questioned USMCA and the role of Canadian-built vehicles, adding uncertainty for an automotive industry built around deeply integrated North American supply chains.
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Households could feel the effects through prices and income
The economic modelling suggests consumers could eventually experience the dispute through both prices and incomes.
Under the breakdown scenario, inflation in 2027 is projected at about 2.4% in the United States and 2.6% in Canada, compared with approximately 2.1% and 2.2%, respectively, under the status quo.
Higher tariffs do not automatically translate into an equivalent increase in retail prices. Importers can absorb part of the cost, reduce margins or change suppliers. But when companies cannot avoid higher input costs, some of the increase can reach consumers.
The analysis also estimates that average household income over the period examined could be around US$4,809 lower in the United States and C$5,987 lower in Canada under the breakdown scenario compared with the status quo.
Trade talks enter a decisive stretch
CUSMA replaced NAFTA and has governed preferential trade among Canada, the United States and Mexico since 2020. Its future is therefore much larger than the immediate tariff dispute.
The first key date is August 19. Negotiators could reach an agreement before then, the tariff measures could change, or the scheduled duties could take effect. Until an official decision is announced, businesses exposed to the new tariffs have little certainty over which outcome will prevail.
Even a breakthrough on the immediate tariff dispute would not necessarily settle the longer-term CUSMA debate. Manufacturers and investors will continue watching whether the agreement remains largely intact or undergoes substantial changes that alter cross-border costs and market access.
The 316,000-job and US$1.04 trillion figures represent a severe economic scenario rather than a predetermined outcome. They nevertheless illustrate the scale of economic activity tied to the Canada-U.S. trading relationship and why the current negotiations matter to factories, workers, businesses and households on both sides of the border.
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