RBC found that nearly 20 per cent of the value of manufactured goods the U.S. imports from Canada began as U.S. exports earlier in the production chain. (Photo: Getty Images)
Canadian exporters have largely avoided the harshest of U.S. tariffs thanks to the North American free trade pact. RBC economists say this trade deal is far too important for American industry to dismantle.
The Canada-U.S.-Mexico Agreement (CUSMA) has acted as a safeguard against tariff chaos. Even amid unpredictable U.S. trade policies, cross-border goods have continued to flow smoothly. RBC’s Nathan Janzen and Claire Fan highlight that the continent’s supply chains are so intertwined that removing CUSMA would ultimately hurt U.S. manufacturers.
“The fact that the CUSMA backstop has broadly held through repeated tariff announcements shows all parties see value in the agreement,” the economists note.
Trade Ties Are Deep
RBC research shows nearly 20% of the value of manufactured goods imported from Canada began as U.S. exports earlier in the production chain. Essentially, taxing Canadian imports is the same as taxing U.S. manufacturers. This would increase costs throughout the North American manufacturing sector.
Current U.S. tariffs on imports are set to hit 15%, the highest level since the 1930s. If CUSMA exemptions vanish, tariffs could rise above 20%. The brunt of this increase would fall on U.S. manufacturers, as imports from Canada and Mexico focus heavily on industrial goods rather than consumer products.
Why CUSMA Matters to the U.S.
The stakes are high. Manufacturing employment in the U.S. already fell by 100,000 in July compared to last year. Jobless rates are rising in industrial-heavy states like Michigan, Ohio, and Iowa. Meanwhile, Canada remains the top export market for 32 U.S. states, showing how deeply U.S. industry depends on open trade.
CUSMA replaced NAFTA in 2018 and came into effect in 2020. Unlike NAFTA, it has a built-in expiry in 2036, with a joint review scheduled for 2026. This review could extend the deal to 2042. Early extension would provide stability, avoiding abrupt trade disruptions. RBC points out that the U.S. and Canada working to preserve the agreement is a positive sign.
The Other Side of the Story
Not everyone shares RBC’s optimism. The C.D. Howe Institute warns that trade uncertainty is already affecting Canadian businesses. Companies are delaying or reconsidering investments because they don’t know what will happen post-2026.
“Trade uncertainty creates a dilemma — if tariffs are temporary, restructuring is risky; if permanent, it’s slow and costly,” the group explained.
BMO highlighted issues likely to dominate the 2026 review: disputes over Canada’s dairy quotas, auto content rules, and U.S. “national security” tariffs. New U.S. tariff investigations on products from copper and lumber to semiconductors and pharmaceuticals are adding more complexity.
Integration Over Disruption
For now, RBC’s conclusion is clear: the economics of North American integration outweigh the politics of disruption. Canada’s exporters remain protected because tariffs on their goods would also raise costs for U.S. manufacturers.
CUSMA’s 2026 review will be the ultimate test of whether these trade ties hold firm. Until then, the interconnected nature of the continent’s supply chains ensures that dismantling the agreement is a risk neither side can afford.
