Ottawa-In the upcoming CUSMA trade negotiations, it is vital for Canada and Mexico to work together to keep the U.S. isolating itself in a Fortress USA position, says a report from the C. D. Howe Institute.

That recommendation was reached during a discussion by the Institute’s Trade Crises Working Group on the forthcoming renegotiation of CUSMA.

The group called for exercising caution, suspension of retaliatory action and maintaining a constructive tone ahead of substantive talks on the broader Canada-US relationship and CUSMA renegotiations specifically.

The group also emphasized the importance of continued high-level engagement with Mexico and preserving the trilateral structure of CUSMA to maintain the current and future competitiveness of North American industry.

Canada must continue emphasizing to U.S. stakeholders the multiple ways open trade and investment between the two countries benefits U.S. industry, contrary to the White House narrative.

With the CUSMA renegotiation still slated to begin July 1, 2026, Canada should not rush to make specific trade concessions ahead of time. It should soon propose an overarching framework for a new partnership between Canada and the U.S. that interlocks trade, security and defence.

The U.S. narrative presents all three as being interrelated, which means it is very unlikely Canada will achieve trade peace without offering a compelling vision about them.

A serious Canadian proposal on defence and security needs to be met by a positive response by the U.S. to removing the 25 percent tariff imposed on Canadian products before Canada can consider trade concessions in response to U.S. complaints. Otherwise, Canada would give up something in exchange for nothing.

The recent UK-US trade deal provides a cautionary tale in this respect, although it also offers useful ideas for facilitating more open trade in steel, aluminum, and agriculture. Canada certainly has to look hard at trade and investment irritants identified by, or complaints made, by the U.S.

Canada should only deal with U.S. complaints about supply-managed products or about the digital services tax if Washington can make an objective case.

“There will be a continued balancing act for Canada between maintaining market access to any Fortress North America – remaining inside the tent – and facing the consequences of retaliatory Chinese actions against Canadian products, notably agricultural products.”

One way to push the U.S. into accepting freer flows within North America would be to seek a revival of standards harmonization or mutual recognition efforts, begun a decade or so ago but since abandoned.

“This approach could greatly facilitate trade within North America to the benefit of the U.S. and other North American businesses, especially in the autos and agricultural sectors, while helping square the circle with respect to China.”

There is a growing sense of trade fatigue and strategic confusion in some sectors, which is affecting the U.S. and other trading partners as well as Canada. “It is unclear that Canada and Mexico can maintain a unique tariff-free status under a revamped CUSMA, let alone what will emerge from likely tighter rules of origin required for products to benefit from such status, which could end up making North American production less competitive in any event.”

The Institute said uncertainty is becoming more damaging to long-term economic prospects than tariffs themselves, “as lack of clarity stalls investment and planning in Canada, Mexico, and the US, risking an even worse economic outcome than that generated by new tariffs alone.

“Canada needs to propose a strong framework for an agreement which can discourage the U.S. from weaponizing this uncertainty against its partners – and ultimately against itself.”

This news item prepared for National Newswatch