The fate of one of the world’s largest trade agreements is looking dicey.
Driving the news: President Trump has been privately discussing the idea of quitting the Canada-United States-Mexico Agreement (CUSMA) altogether, according to Bloomberg. The trade pact, which Trump negotiated in his first term, is currently under review ahead of a July 1 extension deadline.
Trump has completely reversed his position on CUSMA. When he signed it, he called it the most important trade deal ever. Fast forward to a couple of months ago, he said the pact was “irrelevant.”
Zoom in: The CUSMA review has a few possible outcomes. The deal could be renewed (which would keep it in place for the next 16 years), the U.S. could withdraw completely, or they could decide to punt the issue, which would keep negotiations open and trigger a review every year.
It’s a legal grey area whether a President can unilaterally withdraw from a free trade deal without approval from Congress, but if Trump does do so, the decision will likely end up with the Supreme Court.
Since there is a six-month buffer after a country withdraws, any new tariffs affecting Canada-U.S. trade would not be immediate, and a new bilateral deal could still be reached.
Why it matters: With a US$1 trillion trade relationship on the line, keeping some version of CUSMA intact is crucial for Ottawa. The pact has spared Canada from the worst of Trump’s tariffs, with around 85% of Canadian exports currently entering the U.S. tariff-free.
Our take: The most likely scenario is that Trump uses the threat of withdrawal to cut a new or restructured deal that favours U.S. interests more than the current pact. Withdrawing from CUSMA would worsen cost-of-living pressure in the U.S., and with the U.S. midterms in November, Trump likely wants to declare a major economic victory. What better way than a shiny new deal with two of America’s largest trading partners?—LA