 Dr. Sherry Cooper shares economic insights on USMCA withdrawal, CUSMA, tariffs, and the potential impact on Canada’s economy. Can the US unilaterally exit from the Canada, US, Mexico Agreement?
Yes. Under the treaty text, any of the three parties, including the United States, may withdraw from the agreement on its own by providing written notice and waiting six months. The more complicated question iswhether the U.S. president can do that under domestic U.S. law without Congress, which is unresolved and would likely be litigated.
What the treaty allows
Article 34.6 of the USMCA (CUSMA) states that a party “may withdraw from this Agreement by providing written notice of withdrawal to the other Parties,” and that the withdrawal takes effect six months after that notice.
The provision also specifies that if one country withdraws, the agreement remains in force among the remaining parties, so a U.S. exit would not automatically terminate Canada–Mexico preferences with each other.
Domestic U.S. law constraints
In international law terms, there is a broad consensus that the United States could validly withdraw from USMCA by following Article 34.6’s notice-and-wait procedure.
In U.S. constitutional law, however, scholars and Congressional research note that it is unclear whether the president alone can terminate a congressional–executive trade agreement like USMCA; any attempt to do so unilaterally would likely trigger a major court battle over separation of powers.
Practical implications
Policy analyses stress that a unilateral U.S. withdrawal remains legally possible under the treaty but would generate significant trade and investment uncertainty in North America, especially given integrated supply chains and the 2026 review dynamic.
Recencommentary on Trump’s second term suggests that even announcing an intent to withdraw could be used as a bargaining tactic in the 2026 review, amplifying leverage but also elevating risk premia for Canadian and Mexican exposure to the U.S. market.
What are the likely trade consequences if the US withdraws from USMCA?
If the United States withdrew from the USMCA and allowed the agreement to lapse, North American trade would essentially revert to WTO most-favoured-nation (MFN) terms, with higher tariffs, greater regulatory friction, and significant disruption to integrated supply chains.
Tariffs and market access
Duty-free treatment on most Canada–US and US–Mexico trade would disappear, and trade would fall back to bound MFN rates; for Canada, modelling around a “no NAFTA/CUSMA” scenario highlights double-digit U.S. tariffs on trucks, apparel and footwear, and the loss of preferential access in key agricultural products.
USMCA disciplines on non-tariff barriers (customs facilitation, regulatory cooperation, digital trade, services, investment protection) would cease to apply vis-à-vis the United States, increasing administrative costs and uncertainty for cross-border commerce.
Supply chains and sectoral impacts
Highly integrated sectors such as autos, auto parts, machinery, energy, and agri-food would face the most significant adjustment costs, because production networks currently optimized for zero tariffs and common rules of origin would need to be restructured or repriced.
Analyses of a termination-type scenario emphasize that immediate disruption would likely reduce regional productivity and competitiveness, with knock-on effects on employment and investment in manufacturing-heavy regions in all three countries.
Macroeconomic and strategic effects
Canadian government modelling for a “U.S. withdraws from NAFTA” counterfactual (used as a proxy for losing USMCA preferences) shows a hit to Canadian GDP and preserved gains of roughly 0.25% of GDP from maintaining CUSMA, suggesting a similar order of magnitude loss if the U.S. actually exited.
Policy institutes warn that withdrawal would increase risk premia, depress business investment, and mark a broader retreat from regional integration, undermining North America’s collective share of global output and its ability to compete with other large trade blocs.
Likely policy responses
Canada and Mexico would almost certainly retaliate against any new unilateral U.S. tariffs (as they did against Section 232 measures), targeting politically sensitive U.S. exports; this would intensify the negative impact on U.S. exporters while adding to uncertainty.
In parallel, Canada and Mexico would likely seek to deepen their own bilateral arrangement and accelerate diversification to the EU and Indo-Pacific markets. However, most analyses underscore that replacing the scale of U.S. demand is practically impossible in the medium term.
The latest trial balloon: Some would argue the Canadian media is realizing the USMCA will be dissolved in favor of two independently negotiated bilateral trade agreements; one with Canada and one with Mexico. This is the latest missive from the US trade negotiators. This issue is very much up in the air, damaging Canadian consumer and business confidence.
The US Chamber of Commerce adamantly supports CUSMA, as Canada is the number one market for the exports of 32 American states.
All three countries must indicate by July 1 of next year whether they want to extend the agreement, renegotiate its terms or let it expire.
Bottom Line
CUSMA offers Canada crucial protection from much of the tariffs, making the vast bulk of Canadian exports exempt.
Despite the trade deal, the U.S. is still hitting Canadian exports of steel and aluminum with tariffs of 50 per cent, and some automotive exports and kitchen cabinets with tariffs of 25 cent.
Talks were ongoing about reducing the steel and aluminum tariffs but Trump called them off in October, triggered by an anti-tariff television ad campaign by the Ontario government. |
