What is CUSMA?

CUSMA replaced the North American Free Trade Agreement (NAFTA), which had governed trilateral trade among Canada, the United States, and Mexico since 1994. The agreement was renegotiated during the first Trump administration and signed in November 2018. After ratification by all three legislatures, it entered into force on July 1, 2020. The core preferential-tariff and rules-of-origin architecture is similar to NAFTA, with significant updates to the auto regional-value-content rules, labour provisions, digital trade chapter, and intellectual property protections.

The most consequential structural change CUSMA introduced was the sunset clause. NAFTA had no fixed expiry. CUSMA expires on July 1, 2036 (sixteen years after its July 1, 2020 entry into force) unless the three governments jointly act to extend it through a six-year review process.

Article 34.7 of CUSMA establishes a six-year joint review conducted by the Free Trade Commission (the three trade ministers or their designees). The three governments must jointly confirm, in writing, that they wish to extend CUSMA for another sixteen-year term. The first such review falls on July 1, 2026.

A joint extension at the 2026 review takes the agreement out to July 1, 2052, with the next six-year review in 2032. If any one of the three governments declines to extend, or fails to provide written confirmation, CUSMA enters an annual-review regime: the three parties meet on an annual basis to attempt agreement, with the original sixteen-year sunset clock continuing to run. If joint extension is not reached by July 1, 2036, the agreement terminates on that date.

The annual-review regime is not the same as immediate termination. Existing trade rules continue to apply. What changes is the certainty horizon investors and supply-chain planners price in. Major capital-allocation decisions in trade-exposed sectors typically operate on horizons longer than ten years. A CUSMA in formal wind-down is a CUSMA with reduced gravitational pull on cross-border capital.

The Bank of Canada's January 2026 Monetary Policy Report identifies the CUSMA review as a downside risk to Canadian GDP growth, but does not publish a specific point estimate of the impact of a failed-extension scenario. The Bank cites the channels through which non-extension would transmit: higher import costs, potential counter-tariffs, supply chain disruptions, and Canadian-dollar weakness pushing up consumer prices while slowing GDP growth. The auto sector concentrated in Ontario, the aerospace cluster in Quebec, and agricultural exports across the prairies absorb the largest direct sector exposure.

The U.S. accounts for roughly 72 percent of Canadian merchandise exports as of 2024. U.S. foreign direct investment in Canada totaled $684 billion CAD at end-2024 on a Statistics Canada immediate-investor basis. The asymmetry of trade and investment exposure is one of the binding constraints on Canadian negotiating posture.