Canadian businesses brace for difficult CUSMA negotiations

Eighty-eight percent of Canadian business leaders said the greatest risk to their company would be losing their current protections on the Canada-US-Mexico Agreement (CUSMA), according to a KPMG report. The Big Four accountancy polled 501 Canadian companies between September 11 and October 2 in advance of the November federal budget.

Trade talks with Canada are currently halted, after US president Donald Trump reacted negatively to an Ontario-funded advertisement depicting president Ronald Reagan as being anti-tariff. Trump also pledged to raise tariffs on Canadian goods an additional 10%.

Meanwhile, the US senate on Wednesday approved a Democratic resolution to block Trump’s tariffs on Canada. Congressional and judicial challenges have so far failed to rein in Trump’s aggressive tariff policies.

Canadian businesses are trepidatious about the prospects for a positive new trade deal, according to KPMG’s survey. Eighty-four percent expect to pay some amount of US tariffs even if their goods qualify under a new continental trade agreement, while 82% think that US tariffs on Canada are here to stay.

"Although exemptions for CUSMA-compliant goods are providing an escape hatch from many US tariffs, the framework and rules may change under a new trade deal in the future," said Joy Nott, partner, trade and customs, KPMG Canada. "Historically, a North American free trade zone has allowed all three countries to act against global supply chain threats and work together in a highly competitive world trading environment.”

“However, we could see a situation in which a bilateral agreement with the US replaces CUSMA in 2026 and alters the playing field," Nott added.

Eighty percent of respondents said they would support a bilateral agreement with US instead of a trilateral one with the US and Mexico. Even with a bilateral agreement with the US, Canada would still have a free trade agreement with Mexico under the Comprehensive and Passive Agreement for Trans-Pacific Partnership.

Eighty percent of businesses said Canada’s retaliatory tariffs have hurt their businesses and 82% said the loss of the $800 de minimis exemption of duty-free shipments to the US has hurt their profits.

Approximately three-quarters of respondents said trade uncertainty has led to a pause in new investments and that they can’t afford the added costs of exploring new markets.

While 88% think the US tariffs are having an effect, the impact has been more moderate than expected.

“The full effect of US tariffs is only beginning to make its way through the economy now. In the initial phase, affected businesses chose to absorb the tariffs, whereas going forward we are expecting to see more businesses pass on the tariff costs through to end consumers," said Lachlan Wolfers, national leader, KPMG Law.

Many Canadian businesses have taken short-term measure to mitigate disruption, including moving product to the US in advance of new tariff measures. However, many have yet to implement longer-term measures such as establishing new trade corridors or shifting production to the US.