The Decibel - A new era of trade uncertainty for Canada, the U.S., and Mexico

Episode Date: June 30, 2026

With July 1 approaching – the formal review date for the United States-Mexico-Canada Agreement – it has become clear that there will be no 16-year extension of the trade treaty. The USMCA governs trade between the three countries, and Canada receives carveouts for U.S. tariffs on USMCA-compliant goods. Mark Rendell is The Globe’s economics reporter, and joins the show to talk about how Canada got into a position of entering trade limbo, and what this new reality could look like going forward. Questions? Comments? Ideas? Email us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The formal review deadline for the USMCA is July 1st, and one thing has become abundantly clear. There will be no 16-year extension of the Continental Trade Treaty, at least not immediately. That means we're entering another period of uncertainty. The USMCA is the pact that governs trade between Mexico, Canada, and the U.S. And it's because of that agreement that Canada has been spared from the worst of Trump's tariffs. Mark Rendell is the Globe's economics reporter. He's been reporting extensively on the trade talks and the lack thereof. He joins us today to talk about how we got here and what happens as Canada enters a new phase of trade limbo.

I'm Michael Stein, sitting in for Cheryl Sutherland, and this is the decibel from the Globe and Mail. Hi, Mark. Thanks for joining us. Thanks for having me here. Okay, so we're staring down this July 1st. deadline. And just very briefly here, can you remind us why this date is significant? Like, what were the options on the table here? So July 1 is this date that we've all been looking towards for many, many months. In fact, many years. July 1 is the six-year review date for the North American trade agreement, which you call USMCA, Kuzma, T-MEC, whatever acronym you want.

So when the agreement came into force in 2020 and replaced NAFTA before it, it had this new mechanism in, which meant after six years, the three countries would sit down and they would say, what's worked, what hasn't worked, what do we want to change? Do we want to extend the agreement? So that is what's happening on Wednesday, July 1st. Essentially what happens with this six-year review is the three countries can decide if they want to just stamp the agreement and extend it for another 16 years. That's the option that Mexico wanted. It's the option that Ottawa wanted as well. Washington said, wait, wait, wait, not so fast. We want to make a bunch of changes to the agreement.

So essentially what is going to happen on July 1st is a whole lot of nothing. Technically, there's going to be a Zoom call or maybe a Teams call. I'm not sure exactly what, but some sort of video call between Dominic LeBlanc, who's our minister responsible for Canada, U.S. trade, Marcelo O'Braud and Mexico's economy minister and Jameson Greer, who's the top trade guy in the U.S. So they're going to sit on a video call and they're going to say essentially what they're going to do next. So it's not a cliff. Canadian trade negotiators

keep saying this over and over again, and they're right. It's not a cliff. The agreement isn't going to suddenly disappear on July 1 or July 2 if it doesn't get extended. But it does mean we're going to shift into basically a new phase. So instead of an extension for 16 years, we move into this period of annual reviews that technically goes for 10 years. And then if you haven't made a deal over those 10 years, the deal will disappear. But it's a very long exit ramp. There's lots of opportunities to strike a deal between now and 2036. And negotiations aren't even actually formally ending. They're basically expected to kind of continue through the summer. So while technically we're in this annual review period, or we will be in this annual review period, don't expect

negotiations to stop and don't expect everybody to kind of sit on their hands until next July. Talks are ongoing. Okay. So it sounds like we're moving into this period of annual review. And just to lay it out in really practical terms here, as you say, it doesn't mean that the USMCA goes away. It doesn't mean that everything that it governs disappears on July 2nd. The agreement still stays in place. Yeah. The countries do have the opportunity to withdraw. I mean, I'm not ruling out the possibility that that Donald Trump could post on truth social at, you know, 355 a.m. on July 1st that he's going to, you know, threatens to withdraw. But that's also always an option.

Like any point in time since the agreement came into force in 2020, the countries have had the ability to say we want to pull out with six months notice. So there's nothing about the July 1 date that makes that withdrawal more or less likely. Really what we're kind of doing is it's essentially a status quo. The agreement remains in place. Now what does that practically mean? So the agreement is essentially giant rulebook. It defines how goods go back and forth across the border. It defines how much of a given product needs to come from one of the three countries in order to get preferential tariff access.

So all that kind of stuff stays in place. Unfortunately, the other thing that stays in place is all of these other tariffs that have been put on Canadian goods and Mexican goods as well. You know, over the last year and a half, Donald Trump has had this kind of odd relationship with USMCA because he has put broad-based tariffs on a whole bunch of countries. And then he's come around and said, okay, but we're going to offer a carve-out for. Mexican and Canadian goods that comply with all of these complicated rules of origin in the agreement. And those can continue to trade tariff free. But he's also gone and slapped a bunch of tariffs on specific sectors, steel, aluminum, automobiles, wood products. Those haven't had this USMCA carve out.

And those tariffs were all actually put in place in direct contravention of the USMCA. You know, when we negotiated this deal in 2018, there was all these side letters that basically said, thou shalt not, you know, arbitrarily throw a tariff on automobiles or if you do, there's got to be a certain quota. When the deal was negotiated, as part of that negotiation, steel and aluminum tariffs were reduced for Canada and Mexico. So Trump has come back and, you know, put them all back into place. So it's a strange kind of thing. It's like, how do we think about what USMCA is? Like, yes, it has given Canada and Mexico this shield.

It's provided this carve out. But it is also, you know, at the same time, not. protected us from these sectoral tariffs. And that's like if you really want to know like what Canada and Mexico want above anything else, it is relief on these sectoral tariffs as well as a kind of continuation of this US MCA carve out. Yeah. Well, we'll get back to some of, you know, what Canada wants, what the U.S. wants and everything that is coming down the pike with tariffs. But I want to come back to this idea of being in this phase of annual reviews because it sounds a little bit nebulous, you know, that we are going into this period where

is it that every year on July 1st they have this Zoom call? Like what do we know about what this period of annual reviews is going to look like? I think the answer is it's probably going to look like limbo. Like we don't really know the answer to those questions. I spent a lot of time talking to, you know, trade officials, trade lawyers, businesses, business groups, and they will all give you a totally different answer. Some optimistic people think you could have some deal or set of deals in the coming month. Some people will tell you there is a good political.

argument for the United States, for the Trump administration to strike a deal with Mexico and Canada before the U.S. midterm elections because it would be nice to have a thing to wave around and say, I've reset, you know, North American trade, aren't I great, me, President Trump. You know, there's also arguments that that's going to get kicked way past the midterms, that the U.S. has a lot of things it's dealing with right now. It has this kind of flimsy, ceasefire peace agreement with Iran. It has complex domestic political issues going. going on in the lead up to the midterm elections. It's not totally clear that getting a deal with Canada and Mexico is a priority for anybody in

Washington. So does it get done in the next couple months? Maybe. You know, you talk to some people, including some Canadian trade officials who will tell you, we think we're in limbo until potentially the end of the Trump administration. Like any agreement that you do sign in the interim is, you know, it's subject to revision,

as we were just saying. Yeah. We signed a deal in 2018 that hasn't been fully respected. So you come back and you sign another agreement. Is that going to be respected? So it's not entirely clear how this plays out. Some things are becoming more clear. One of them is that we're likely talking about essentially separate bilateral deals with Mexico and the U.S., Canada and the U.S.

That has been the priority or the way the U.S. has approached negotiations. They have been discussing quite extensively with Mexico for the last couple of months, but really over the past year or so. Trade talks have been much more engaged on that side. The Canadian side, trade talks would be much slower to get started. They are not even formally started yet. Like Canada's trade team is, you know, they have gone to Washington. They have met with Jameson Greer, the top trade guy and his team. But the formal kind of negotiating rounds about the USMCA and changes to the USMCA have not even started.

They have started with Mexicans. So the assumption is, and you're hearing this from our guys. you're hearing this from the Mexican team and you're hearing this from the Americans, is they all expect essentially probably two bilateral agreements that will kind of exist alongside the USMCA that might address some of the issues that the U.S. has just with Mexico and some of the issues separately the U.S. just has with Canada. There's legal reasons you might see a bilateral deal as opposed to a full trilateral re-upping up the agreement.

Trump doesn't want to go back to Congress necessarily and take a whole renegotiated treaty back. and have to deal with all the wrangling in Congress. He would much rather do a set of basically side letters to the agreement that say, you know, Canada and Mexico agree to change X, Y, and Z on their rules of origin, and they agree to give us X, Y, and Z concessions, and we'll do that all in a separate side agreement. There's even the possibility that that could happen at different times. You could see Mexico and the United States strike one of these bilateral deals first and then turn around to Canada and say, take it or leave it.

You know, you could also get to a situation where nothing's done. And next July, we're having another Zoom call between these three people. We'll see what happens. But I think limbo is kind of the way to think about it. OK, so on this idea of bilateral deals, so these would be agreements that would exist alongside the existing USMCA. That seems to be how people are describing it. Jameson Greer has used this term that there are load-bearing pillars of the USMCA that the US doesn't want to change, but they want bilateral protocols alongside it.

Dominic LeBlanc has used very similar language. What exactly falls into those kind of separate deals is not totally clear. It's really complicated because we're dealing with a bunch of different sets of tariffs, right? So we're dealing with, on the Canadian and Mexican side, they want those section 232. Those are the sectoral tariffs, steel aluminum autos. They want those to be reduced. There was a hope initially that you could get some relief on those before you. you even got into the USMCA negotiations, and we could enter this review period with kind of a,

not a totally clean slate, but a semi-clean slate. That didn't happen. Those talks broke down. Basically, negotiations went on freeze for about five months. They slowly started to kick up in the spring. But what it means is we're now at a situation where we're having to deal with these two, three-two sectoral tariffs at the same time as we're dealing with issues around the USMCA. So if you think about kind of three buckets where you could potentially have.

have negotiations. You have the sectoral tariffs. You have the questions about the things that the US wants from Canada and Mexico. So they have this big long list. It's called the National Trade Estimates. It has all of these things that it doesn't like about what Canada does and what Mexico does. So that's things like dairy quotas allocation. They don't like our new bi-Canadian policy. They really don't like that provincial liquor stores have taken booze off the shelf. So, you know, you have those kind of bilateral discussions, the sectoral discussions. And then the third bucket, which is the really important kind of structural issues behind the deal is what are the rules of trade in the agreement itself, which define basically how much of a given supply chain needs to be North American only,

how much products can come from outside, can come from China, all of that come in. And that's where you get in discussions about rules of origin. So that's like in the old NAFTA agreement, 62% of a car had to come from within North America to trade tariff-free. under the USMCA, they bumped that up to 75%. All the auto companies screamed bloody murder and got really angry about it, and it took them a while to adjust their supply chains, but eventually they did. Now the US administration seems to be saying,

75% is not enough. We want 82%. And they also seem to be suggesting that they want 50% of every vehicle to be made of US-only auto parts. That's something that may not be too big of a lift for Canada. A lot of our cars are kind of 50% U.S. parts anyway. you're going to see those kind of debates happening across a range of industry. So it's not just autos.

The U.S. has said it wants to redefine rules of origin across a range of critical sectors. So we could be talking, you know, semiconductors, drones, advanced manufacturing, pharmaceuticals. So again, at a high level you've got to be thinking, what does Canada want? What does the U.S. want? Canada wants relief from the sectoral tariffs. It wants the U.S. MCA carbouts to remain in place. The U.S. wants to tweak all these rules. It wants to get a whole bunch of concessions out of Canada.

And if you can find a path forward on both those sides, then you might get one of these bilateral deals. And if it turns out that Mexico, Canada, and the U.S. can all triangulate and kind of come together such that those structural rules about how you define North American trade kind of line up, then maybe at that point you could get an extension of the deal for 16 years. but man, I'm not holding my breath for it. We'll be right back. So, Mark, we know that extending the USMCA has been a priority for Canada, but it sounds like talks haven't even gotten off the ground yet. So if this has been such a priority for Canada,

why haven't they managed to get anywhere close to a deal? So it's not like we haven't been talking with the Americans over the past year or so. There's been multiple attempts to try to get some sort of trade agreement. Last summer, there was talk of a comprehensive deal. That kind of collapsed. In the fall, there was talk about a potential deal on steel and aluminum tariffs, and that kind of collapsed after Doug Ford put out his Ronald Reagan ad,

and President Trump threw a hisy fit and got very angry about it. Then there was this five-month period where there was very little talk between the countries. We changed our trade team. Our ambassador, Kirsten Hillman, left. A new ambassador, Mark Wiseman, came into place. Janice Sharette, who's our new chief trade negotiator, came into place. So we kind of got a new trade team in place, started talking. But that didn't happen until, you know, April, March, April kind of period.

The U.S. has also been very busy. I mean, Donald Trump's team at U.S.T.R, the U.S. trade representative, you know, they spent last year basically building a global tariff regime that hit dozens and dozens and dozens of countries. Then in January, the U.S. Supreme Court struck all those tariffs down. And they've spent the past, you know, five, six months trying to rebuild this tariff structure. So U.S.T.R. has been very busy. They've been trying to cut deals with countries all around the world. Canada isn't necessarily a top priority for them and they've been able to punt. Mexico City has had more luck moving these trade talks forward than Canada has.

They've been working well together on a range of issues that aren't related to trade on things like drug cartels and illegal migrations. That's helped kind of grease the wheels for the trade talks themselves. Mexico has also taken a number of steps to try to align more with the U.S. vision for keeping, let's call it, Chinese products out of North America. Mexico for a long time has been viewed both in Ottawa and in Washington as kind of the leaky partner, the place in which Chinese investment into its auto industry, Chinese parts coming into North America around basically circumventing U.S. tariffs. Those have been longstanding concerns, but they've taken more proactive steps over the last year to align on U.S. tariffs. A lot of this is just plain catch up with what Ottawa and Washington

already do. but that's been noticed in Washington. They see Mexico as a much more proactive partner in addressing their concerns. Canada seems to kind of be coming around to that. Mark Carney gave a pretty high profile speech in New York a couple weeks back, where he basically quite explicitly changed his tune. It was no longer elbows up, no longer, you know, New World Order perruption with the U.S.

It was, I can't remember the exact quote, but it was something like a strong Canada can make America great again. The real challenging negotiating question right now for Canada, is they see what the Mexicans are doing. They see how much this kind of preemptive attempts to address U.S. concerns has helped Mexico City advance discussions. And they seem to be realizing we can't simply hold back. Everything is ammunition or leverage.

We need to start putting things on the table. But the Trump administration's way of doing business is it's a, okay, here's a concession on the table. Thank you very much. What will you give me next? And so if you're Ottawa, you're trying to figure out how much do you give up, how much do you hold back? those are all things that are going to be in the negotiations well beyond July 1st. Okay. How could Canada's changing relationship with China factor into negotiations here? Yeah, that's a really dicey issue for Ottawa to address.

At the heart of a lot of U.S. trade policy is the question about a kind of big picture geopolitical competition with China. Washington is terrified that China has not only this manufacturing juggernaut that produces much of the world's kind of manufactured goods, but it's also moving up the kind of technology chain. So it's now dominating an electric vehicles. It's competing head-to-head on advanced AI chip production, all that kind of stuff. And it has a chokehold on a lot of critical mineral production. So a lot of the U.S. kind of global trade policy is trying to figure out, okay, how do we compete with China? How do we keep Chinese goods out of North America?

Given that context, Kearney's decision to go to Beijing earlier in the year, cut a deal with Beijing. that basically said, in return for relief on agricultural tariffs, we're going to let in a certain number of Chinese electric vehicles at a low tariff rate. And more provocatively, we're going to invite Chinese investment into the Canadian auto space. That went down like a lead balloon in Washington. It's being received very negatively at the core of all the discussions around rules of origin, which make up like that nitty-gritty of trade discussions. It's all about reducing Chinese goods coming into North America. It's about reducing the Chinese influence and supply chains. And so any move from Ottawa that is tacking closer to China is going to make it more difficult

to land an extension or a bilateral deal or something with Washington. Does it sound like the U.S. even wants to continue this agreement? Like, is this just a kind of soft way out for them? There is very mixed messaging on that. Donald Trump himself, in a single single, sentence will say one thing and then the other. He will say, we don't want this deal anymore. We shouldn't re-sign it. And then he'll say, but maybe I'll go and sign it. And that's like classic Trump. You know, that's the art of the deal. That's we're going to keep everybody on their toes. And that uncertainty gives them leverage. It's challenging, though. I mean, at the end of the day,

US business wants this. You know, the U.S. businesses benefit massively from having an integrated set of supply chains, getting less expensive, you know, inputs into their manufacturing. from Canada and from Mexico, the integrated North American economy makes U.S. industry more competitive. It would be difficult for the U.S. to withdraw outright, especially in the lead up to the midterm elections. It would be a major economic shock. There's lots of reasons that Trump isn't going to want to withdraw outright from the agreement. Doesn't mean you won't threaten to, right? It's all about leverage.

The U.S. has a number of goals they want to see. And I think the other important point to remember is like the U.S. is constantly adjusting tariffs. Later this month on July 24th, the U.S. is bringing in a whole new tariff regime called Section 301 tariffs that is going to replace the tariff regime that was basically struck down by the U.S. Supreme Court in January. So these are these global tariffs that apply to like 60 countries around the world. So far, the Trump administration has said these new 301 tariffs are going to maintain the U.S.MCA carve out. However, it is very easy if you want to ramp up leverage to say, those new Section 301 tariffs, maybe they won't have a USMCA carve out. What does it mean for the Canadian economy to be in this kind of limbo?

Not good. Having uncertainty, any business person will tell you, is bad for business. It's very bad for long-term planning. If I'm trying to figure out, hey, should I invest in this new, I don't know, production line or this new facility in southern Ontario, I probably want to know, can I actually sell that product to customers in the United States or am I going to be uncompetitive because of the tariff rate? That uncertainty has over the last year really weighed on business investment. It's also very much weighed on the specific sectors that have been hit with these sectoral tariffs.

So, you know, automakers are losing money on the cars they produce in Canada right now. The flip side is it could be a lot worse. like when Trump came into office and started threatening tariffs in early 2025, a lot of Canadian economists had penciled in like a very significant, very bad recession in Canada. The reason we haven't seen that is largely because of this USMCA curveout. Most Canadian goods still go to the U.S. tariff-free. So you could see businesses start to adjust to this uncertainty. I asked Bank of Canada Governor Tiff Mackle about this at the Bank of Canada rate decision press conference a couple weeks back.

And his response was, you know, we are in this extended period of uncertainty, but we are starting in our own business surveys to pick up a sense that Canadian companies are starting to learn to live with that uncertainty a little bit. They're starting to make it basically say we can't sit in our hands forever, hoping we're going to get some sort of trade relief, like maybe we need to move forward with hiring decisions, investment decisions, all that kind of stuff. So the BOC at the very least has, you know, if the status quo is maintained, has an assumption that business investment does slowly pick up over time,

however at a weaker level. There's no doubt that we are going through a major economic adjustment to Canada. So much of our economy is built around integration into the United States. So how this all plays out, I don't know. I mean, it could get a lot worse. The BFCs also said, you know, if tariffs get worse, you could have to cut interest rates to kind of prop the economy up and go forward. So we could be talking about a very significant recession.

If the deal collapses, things get worse. The USMCA carve-out disappears. if we continue in this kind of status quo of no real changes, then, you know, things might keep chugging along, business investment might improve over time. The rubber really hits the road for these specific industries that are getting hammered by tariffs. So the auto industry, poster child of NAFTA, poster child of North American integration, you know, what happens in the coming weeks, months, year around this deal will really determine the shape of Canada's auto industry for decades to come.

And if you want to know, like, what's at the heart of these discussions, it's what's happening to the Canadian auto industry. What is its future? So, yeah, definitely one to watch. Okay. So the economic picture, it's not a particularly optimistic view of being in this kind of state of limbo. But is there any upside to not resigning the USMCA agreement right now and having that get, you know, kicked down the line a little bit? If you think that you can theoretically get a better deal in 2029 when a new president comes into play, then there might be an argument for ragging the puck. You'll hear the Canadian side frequently say, no deal is better than a bad deal. There is, again, a mentality somewhat on the Canadian side that you rag the puck. You hope that economic pressures will build in the U.S. You hope maybe after the midterm elections, he's weakened in Congress, and you hope maybe you get a better deal after that. A lot of people will say that as a very, very bad strategy, partially because it's not clear that a Democratic-controlled Congress after the midterms would make things better for Canada.

It may just make Trump crazier when it comes to his use of executive authority on tariffs. Democrats also are protectionist as well. The other thing is there's a reasonable chance that Washington and Mexico City are going to strike a bilateral deal. And then that completely changes the political calculus in Ottawa, right? All of a sudden, it's similar to what actually happened in 2018. Like, we kind of forget this, but Mexico City and Washington basically came to an agreement and turned around and said to Ottawa, you guys got 15 days, are you in or are you out? And Ottawa ran back to the table and said, we're in, please, dear God, let us back in. But it was.

That was kind of the dynamics. And you could very much see that play out again this time as well. You can just picture the headlines. Mexico City strikes a deal with Washington. Ottawa doesn't. You know, everybody in Ottawa is suddenly running around with their hair on fire. And it really changes the kind of political dynamics in this country if we were left to the sidelines. Well, Mark, always great to talk to you about trade.

Thank you so much for setting us up and coming on the show. It's great to be here. That was Mark Rendell, the Globe's economics reporter. That's it for today. I'm Mikhail Stein. Cheryl Sutherland is the host of the decibel. Rachel Levy McLaughlin edited and mixed this episode. Our producers are Madeline White.

Rachel Levy McLaughlin and me. Our editor is David Crosby. Adrian Chung is our senior producer and Angela Pichenza is our executive editor. Thank you for listening.