Despite Mark Carney’s “tough on Trump” election win, Canada risks isolation without renewed U.S. trade deal

However the reality is stark: Canada cannot afford to remain the only G7 nation without a strong trade deal with its southern neighbour

Melissa Thomas, Director observes:

Canadian Prime Minister, Mark Carney was elected on a ‘tough on Trump’ stance. However, tariffs have battered the Canadian economy, and valuable agreements that have sheltered the countries exporters and importers are on the line. Canada can’t economically afford to remain the only G7 country without a trade deal with America in 2025.

At the heart of the challenge lies CUSMA (the Canada–US–Mexico trade agreement, also known as USMCA). Melissa notes:

The meetings in Washington are likely table dressing for future negotiations, particularly to ensure CUSMA (the Canada/US/Mexico Free Trade Agreement) is renewed. It allows certain goods from Canada to come to the US duty free if they are compliant, which has offered some shelter from tariffs for key Canadian imports and exports. The agreement was signed, ratified and came into effect between the three nations in July 2020 and is up for its first review six years after entry-into-force so in July 2026.

In recent days, media coverage in both the United States and Canada highlighted that although Carney’s White House visit drew praise from President Trump, no binding deal was struck. Trump lauded Carney as a “world-class leader” and pledged to “treat Canada fairly,” yet he stopped short of committing to detailed tariff relief or a renewal of CUSMA. The two leaders publicly agreed to accelerate talks ahead of the scheduled 2026 review.

Trump may choose to renegotiate bilaterally rather than renew the trilateral pact. The meeting between Donald Trump and Mark Carney could give an insight into how those future CUSMA negotiations will pan out. However, Donald Trump may look to not renew the tri-lateral agreement and use it as endless leverage between Canada and Mexico as they continue trade talks.

The possibility of Canada and Mexico pursuing a bilateral agreement is not off the table. But Melissa points out:

This in itself offers an opportunity for Canada and Mexico to look to bypass the US and create their own bilateral trade agreement, but can they afford to alienate Mr Trump and the US in doing so? Mark Carney’s office has claimed this meeting between the two leaders to be a ‘preparation for the first joint review’ of CUSMA that is scheduled to be next year.

The urgency is underscored by the damage tariffs have already dealt to Canada’s economy. Previous tariffs imposed on cars, steel and aluminium have hit the Canadian economy hard with domestic Canadian unemployment topping a nine year high at 7.1%, and a half percentage point higher than at the start of the year.

A recent poll by Abacus Data of 1,500 Canadian adults supports the push for urgency: Canadians are increasingly worried about the cost of living and the overarching state of their economy. They are looking for the Canadian government to start focusing more on what they can do to show tangible improvements to the daily lives of the Canadian people and move away from the rhetoric of Anti-Trump and the focus on him and his immediate team.

Melissa says:

Since Mark Carney has come to office, he has ended the move to impose a Digital Services tax, a tax that Donald Trump was against, he has dropped most of the initial retaliatory tariffs that were imposed on US goods, increased spending and physical presence on the US/Canada border and has withdrawn the 20-year legal dispute over American duties on Canadian softwood lumber.

Yet the returns on those gestures have been slim. However, the US has offered very little in return. The lumber issue which arose in 2016 and has since dragged on, is due to US claims that the Canadian stumpage fees (largely levied by the government as most of the land is publicly owned) are lower than market value, essentially putting Canadian lumber in an unfair advantageous position over US lumber, which is subject to higher stumpage fees given the US timber is more likely to be on privately owned land so the stumpage fees are subject to usual, competitive market conditions.

Tariff escalation looms. Donald Trump recently announcing that he’s increasing a 10% tariff (due to come in on October 14th 2025) on imported timber and lumber and a 25% duty on kitchen cabinets, bathroom vanities and upholstered furniture, making Canadian produced goods less attractive for US households as they may be looking at some renovations and remodelling over the US Thanksgiving period. On 1 January 2026, the duties are expected to increase to 30% for upholstered wooden products and 50 % for kitchen cabinets and bathroom vanities imported from countries that fail to reach an agreement with the US.

The exposure is serious: Canada is the biggest softwood lumber supplier to the US, where Canadian exporters are already facing a combination of anti-dumping and anti-subsidy tariffs of around 35%.

Recent trade data show the effects mounting. In August 2025, Canada’s merchandise trade deficit ballooned, driven by a drop in exports, especially to the U.S. Analysts warn Canada needs a clear framework to drive early renewal of CUSMA, and not settle for ad hoc relief.

What it means for entrepreneurs, investors, businesses and HNWIs with interests in Canada

For entrepreneurs and businesses already operating in or planning to expand into Canada, the situation demands rigorous scenario planning. Without clarity on U.S. tariff policy, supply chains involving Canada–U.S. trade are exposed to abrupt shifts and cost shocks. Firms in sectors vulnerable to U.S. action such as lumber, furniture, autos or metals must evaluate sourcing alternatives, hedging strategies or inventory buffers.

Investors and high net worth individuals with Canadian exposure should monitor developments closely. The window for renegotiating CUSMA opens both risks and opportunity: winners may gain preferential early access to relief or carveouts; laggards may be penalised by elevated duties or exclusion. Real estate, infrastructure or timber investments could be particularly sensitive to trade rulings or duty changes.

From a strategic perspective, Canadian and Mexican parties may exploit this moment to propose differentiated trade pacts or bypass U.S. choke points but geopolitical reality suggests that outright severing ties with the U.S. would be perilous. Though Canada’s deep integration with the U.S. economy gives it leverage, it is a leverage that must be wielded carefully.

For Britain and Europe, the dynamics are worth watching too. Canada and the UK have recently launched a joint Economic and Trade Working Group to deepen bilateral ties. As trade realignments shift across the Atlantic, UK-Canada commerce could gain new strategic importance with spillover effects for European investors and businesses already engaged in Canadian markets.

This is a moment for disciplined risk assessment, proactive structuring and nimble responsiveness. Those who wait passively may find themselves subject to sudden tariff or regulatory shocks.

Would you like to know more?

If your business or investments are encountering challenges related to Canadian trade contact please speak to your usual Blick Rothenberg contact or Melissa Thomas using the form below.