By Michael O’Neill

It’s been six years since Trump announced “the fairest, most balanced, and beneficial trade agreement we have ever signed. It was dubbed the United States-Mexico-Canada-Agreement on trade (CUSMA to Canadians). It turns out it wasn’t.

On October 10, 2024, he told a Detroit audience, “Upon taking office, I will formally notify Mexico and Canada of my intention to invoke the 6-year review provisions of the USMCA. I’m going to have a lot of fun… We want a much better deal.” A couple of months ago, he said, “The USMCA was never meant to protect third-party countries who cheat our system.” He was implying China was using Canada as a backdoor into America.

The mandatory six-year review arrives on July 1. At that point, Canada, the United States, and Mexico face three choices:

1. They can agree to extend the agreement for another 16 years, pushing its expiry date from 2036 to 2042 while scheduling the next review for 2032. Not likely
2. One or more members can refuse to extend the pact, triggering a series of annual reviews until the agreement reaches its scheduled expiry in 2036.
3. They can blow it up. Any member nation can withdraw with six months’ notice, opening the door to a much more uncertain trade environment.

SpongeBob Square Pants

Canada’s Minister responsible for Canada-U.S. Trade, Dominic Leblanc, appeared to channel his inner SpongeBob SquarePants after meeting with U.S. Trade Representative Jamieson Greer in Washington yesterday. At the meeting’s conclusion, Leblanc was optimism personified, describing the talks as experiencing a little “turbulence.”

“Turbulence” is one way to put it. “Train wreck” may be more accurate.

The meeting was unlikely to have gotten off to a promising start after Donald Trump set the tone by once again referring to Canada as the “51st state.” Greer offered little encouragement either. Before the talks began, he complained that “We are kind of at the end of our rope in asking Canada to guard against China’s unfair trade. There are only two countries that have retaliated against the United States in the last year: the People’s Republic of China and Canada. So that’s the company they are running in.”

Greer sounds like he wants to dictate terms, not negotiate them. But should anyone bother?

American Agreements are Grand Illusions

Trump does not have a real grasp of the definition of a deal. He has announced over a dozen agreements since 2025 and has broken every one of them. He levied or threatened to levy tariffs willy-nilly for the past sixteen months for reasons as diverse as drug smuggling or because, in the case of Norway, for not awarding him the Nobel Peace Prize.

Today, Trump, via the US Trade Representative, announced tariffs under Section 301 of the Trade Act on 60 countries for “the failure to impose and effectively enforce a prohibition on the importation of goods produced with forced labor.”

Many of these countries thought they had trade agreements with the US.

So why are Canada, Mexico, and soon the European Union wasting their time and energy in drafting comprehensive trade agreements that have the shelf life of a banana?

Walking Tall but Carrying a Wet Noodle

Mr. Leblanc can pretend to be negotiating, but he is betting against a Royal Flush with a pair of twos. Canada slipped into a technical recession in Q1 2026, and the country remains one of the weakest-performing economies in the G10.

Canada needs a deal and Trump knows it. If America walked away from CUSMA, Canada would get hit the hardest as the domestic economy is about 1/10 that of the US. Diversifying trade takes time and money but, in the meantime, economists will be saying depression and Canada in the same breath.

The United States would not emerge unscathed if USMCA were abandoned. American manufacturers have spent decades building highly integrated North American supply chains, particularly in the automotive, aerospace, machinery, and agricultural sectors. Farmers would face the risk of retaliatory tariffs from two of their largest foreign markets, while consumers would likely pay higher prices for vehicles, food, and imported goods. But the depth and breadth of the American economy suggest they will be as resilient to trade turmoil as Iran is to Trump turmoil. If only the Loonie was so lucky.

Canadian Dollar Circling the Drain

The one-two punch of a weakening economy exacerbated by the loss of CUSMA, or even just an annual review, and the risk of steady to higher US interest rates has the Loonie looking into the abyss. The Bank of Canada could be forced to cut rates to provide some economic stimulus while the Federal government struggles to provide economic support due to existing sky-high deficits. The currency is already paying the price with 2-year and 10-year CAD/US spreads widening in favour of the greenback.

The Loonie is calling, and it will soon be saying “welcome to 70 cents.”