Fred, I believe that Mr. Carney is doing everything he can for Canada to spread its trade wings, but this can be a long and slow process. We are going to feel some pain in the meantime. Aside from that, what do you make of today's news that the US wants some type of up front fealty payment in order to continue negotiating CUSMA? This just reeks of Howard Nutlick, one of the grossest shoelickers I've ever seen.
While the U.S. is the largest economy in the partnership, the "end" of CUSMA (or a failure to extend it) would trigger significant domestic shocks. Because the North American supply chain is so deeply integrated—especially in the 2026 economic climate—the U.S. is far from immune to the fallout.
Here is how the U.S. is affected across three main pillars:
1. Consumer Inflation & "Price Shock"
The U.S. relies heavily on Canada and Mexico for essential inputs. Without CUSMA’s duty-free protections, U.S. consumers would face immediate price hikes:
Energy: The U.S. is the largest buyer of Canadian oil and gas. Removing trade certainties could lead to higher costs for refiners in the Midwest and Gulf Coast, which translates directly to higher prices at the pump.
Grocery Store Prices: Mexico is a primary source of fresh produce (tomatoes, avocados, berries) for the U.S. during winter months. New tariffs or border friction would spike food inflation for the average American household.
Daily Goods: From Canadian lumber (used in U.S. homebuilding) to Mexican-made electronics, the cost of living in the U.S. would likely see a persistent upward "creep."
2. Supply Chain Disruption (The "Auto" Factor)
The North American auto industry is the most integrated sector in the world. A single car part might cross the border seven times before the vehicle is finished.
Production Stoppages: If CUSMA ends, the "Rules of Origin" that allow parts to move duty-free disappear. U.S. manufacturers (like GM or Ford) would have to either pay massive tariffs on parts or scramble to find domestic suppliers that may not exist at scale.
The "Rust Belt" Impact: States like Michigan, Ohio, and Indiana are dependent on these cross-border flows. A breakdown in CUSMA could lead to factory shutdowns or "re-shoring" efforts that are incredibly expensive and slow, causing temporary job losses in the heartland.
3. State-Level Economic Hits
Many U.S. states have Canada or Mexico as their #1 trading partner. For them, the end of CUSMA is a local crisis:
Texas: As of 2026, Texas remains a massive hub for trade with both neighbors. A disruption would hit its $38+ billion export market to Canada and its even larger manufacturing ties with Mexico.
California & The Midwest: California relies on Mexican labor and agriculture, while the Midwest is tethered to Canadian steel, aluminum, and machinery.
4. Loss of "Soft Power" and Security
CUSMA isn’t just about money; it’s about regional standards.
Intellectual Property: The U.S. uses CUSMA to enforce strict IP and digital trade rules. Without the agreement, U.S. tech and pharma companies lose their "home court advantage" in North America.
Labor & Environment: The U.S. loses its primary legal leverage to force Mexico to improve labor standards (which prevents "outsourcing" by keeping wages more competitive) and environmental protections.
The Bottom Line
Current 2026 projections from institutions like Scotiabank and the Bank of Canada suggest that while Canada might face a formal recession if the deal fails, the U.S. would see a marked drop in GDP growth and a spike in domestic inflation. For the U.S., it isn't a question of if they are affected, but how many billions in increased costs they are willing to absorb to maintain the status quo.
I am, as always, impressed with your eye on things. But I am confused. Isn’t this just a review of CUSMA or can the US, ie Trump, just tear up the papers and flush everything?
I agree the Mark Carney saw all this coming and that’s why he has been so busy. He plays the long game.
I think we are in for some tough times in the next while until we can sort out supply chain issues so that these deals work for us.
As for the US trying to shake Canada down for a seat at the negotiating table is just ludicrous. As far as I know we don’t take very kindly to that kind of thing and I am sure our PM had a long belly laugh when he was told. Carry, great work!!
I would argue that this is line with the call for Canadians to buy Canadian food stuffs . But as we know we are dealing with No Fills and other monopolies. I can't speak for other urban centres but in Toronto we can get creative and shop in smaller markets that sell international products
I buy from Polish, Philippines and Korean markets. I visit Kensington market. Also, when the war in Iran started, Toronto's food banks could not get rice from the region - so it bought it form Guyana, my mother's home country.
So yes, we should buy Canadian, but it will nor be a problem to expand from our end
I don't buy American if at all possible. Note, grocery stores need to get on board. Last summer I found the best romaine lettuce from farms in Quebec, had never seem them on the shelves before, I will buy from any other country. I hope we can spend time figuring out how to grow produce in the winter
Fred, I believe that Mr. Carney is doing everything he can for Canada to spread its trade wings, but this can be a long and slow process. We are going to feel some pain in the meantime. Aside from that, what do you make of today's news that the US wants some type of up front fealty payment in order to continue negotiating CUSMA? This just reeks of Howard Nutlick, one of the grossest shoelickers I've ever seen.
Frank... you’ve got it right…
this isn’t a flip-a-switch fix.
Diversifying trade is like rewiring a house while you’re still living in it.
Lights flicker before things stabilize.
As for the “up front fealty” idea… if that framing is accurate, it tells you where the mindset is.
That’s not negotiation... that’s leverage testing.
And it cuts both ways.
Push too hard and you don’t just get concessions…
you accelerate exactly what we’re seeing now... countries looking for other doors.
Short term? Yeah, there’s going to be some pain.
Long term? Canada having more options is the only real insurance policy we’ve got.
I love the picture showing us diversifying our products across the globe! Great writeup Fred.
Thanks Patsy… glad the image landed.
That’s really the story in one shot... not cutting ties, just building more lanes.
Quiet moves like that don’t make headlines… but they change outcomes 👍
Made me feel like taking off somewhere too haha, but, not while the snow keeps falling!!!
With the help of Gemini AI:
While the U.S. is the largest economy in the partnership, the "end" of CUSMA (or a failure to extend it) would trigger significant domestic shocks. Because the North American supply chain is so deeply integrated—especially in the 2026 economic climate—the U.S. is far from immune to the fallout.
Here is how the U.S. is affected across three main pillars:
1. Consumer Inflation & "Price Shock"
The U.S. relies heavily on Canada and Mexico for essential inputs. Without CUSMA’s duty-free protections, U.S. consumers would face immediate price hikes:
Energy: The U.S. is the largest buyer of Canadian oil and gas. Removing trade certainties could lead to higher costs for refiners in the Midwest and Gulf Coast, which translates directly to higher prices at the pump.
Grocery Store Prices: Mexico is a primary source of fresh produce (tomatoes, avocados, berries) for the U.S. during winter months. New tariffs or border friction would spike food inflation for the average American household.
Daily Goods: From Canadian lumber (used in U.S. homebuilding) to Mexican-made electronics, the cost of living in the U.S. would likely see a persistent upward "creep."
2. Supply Chain Disruption (The "Auto" Factor)
The North American auto industry is the most integrated sector in the world. A single car part might cross the border seven times before the vehicle is finished.
Production Stoppages: If CUSMA ends, the "Rules of Origin" that allow parts to move duty-free disappear. U.S. manufacturers (like GM or Ford) would have to either pay massive tariffs on parts or scramble to find domestic suppliers that may not exist at scale.
The "Rust Belt" Impact: States like Michigan, Ohio, and Indiana are dependent on these cross-border flows. A breakdown in CUSMA could lead to factory shutdowns or "re-shoring" efforts that are incredibly expensive and slow, causing temporary job losses in the heartland.
3. State-Level Economic Hits
Many U.S. states have Canada or Mexico as their #1 trading partner. For them, the end of CUSMA is a local crisis:
Texas: As of 2026, Texas remains a massive hub for trade with both neighbors. A disruption would hit its $38+ billion export market to Canada and its even larger manufacturing ties with Mexico.
California & The Midwest: California relies on Mexican labor and agriculture, while the Midwest is tethered to Canadian steel, aluminum, and machinery.
4. Loss of "Soft Power" and Security
CUSMA isn’t just about money; it’s about regional standards.
Intellectual Property: The U.S. uses CUSMA to enforce strict IP and digital trade rules. Without the agreement, U.S. tech and pharma companies lose their "home court advantage" in North America.
Labor & Environment: The U.S. loses its primary legal leverage to force Mexico to improve labor standards (which prevents "outsourcing" by keeping wages more competitive) and environmental protections.
The Bottom Line
Current 2026 projections from institutions like Scotiabank and the Bank of Canada suggest that while Canada might face a formal recession if the deal fails, the U.S. would see a marked drop in GDP growth and a spike in domestic inflation. For the U.S., it isn't a question of if they are affected, but how many billions in increased costs they are willing to absorb to maintain the status quo.
Jim... you’re not wrong.
That’s the part a lot of people miss… this isn’t a one-sided hit.
The supply chains are so tightly woven that if one thread gets pulled, the whole thing starts to strain... on both sides of the border.
Difference is, Canada knows it’s exposed and is actively diversifying.
The U.S.? Still acting like it holds all the cards.
We’ll see how that plays out.
Hi Fred,
I am, as always, impressed with your eye on things. But I am confused. Isn’t this just a review of CUSMA or can the US, ie Trump, just tear up the papers and flush everything?
I agree the Mark Carney saw all this coming and that’s why he has been so busy. He plays the long game.
I think we are in for some tough times in the next while until we can sort out supply chain issues so that these deals work for us.
As for the US trying to shake Canada down for a seat at the negotiating table is just ludicrous. As far as I know we don’t take very kindly to that kind of thing and I am sure our PM had a long belly laugh when he was told. Carry, great work!!
Shelagh... great questions.
CUSMA does have a built-in review… but it’s not bulletproof.
In normal times, it’s a structured renegotiation.
What’s different right now is the tone coming out of Washington...
they’re signaling they’re willing to push harder, faster, and test the limits of the agreement.
Technically, they can’t just rip it up overnight without consequences…
but they can make things messy enough (tariffs, disputes, pressure tactics) that it starts to feel like the deal isn’t holding.
That’s the real risk.
And I agree with you on Carney...
this looks very much like a long-game move.
Build options now so we’re not negotiating from a corner later.
Short term, yeah… some bumps ahead.
Long term, having more doors open is what keeps us steady 👍
I would argue that this is line with the call for Canadians to buy Canadian food stuffs . But as we know we are dealing with No Fills and other monopolies. I can't speak for other urban centres but in Toronto we can get creative and shop in smaller markets that sell international products
I buy from Polish, Philippines and Korean markets. I visit Kensington market. Also, when the war in Iran started, Toronto's food banks could not get rice from the region - so it bought it form Guyana, my mother's home country.
So yes, we should buy Canadian, but it will nor be a problem to expand from our end
Kristine... that’s a great real-world take.
“Buy Canadian” is part of it… but what you’re describing is the bigger shift... buying smarter and wider.
People on the ground are already doing what governments are trying to do at scale… diversify.
And you’re right about the monopolies... that’s the friction point.
But the workaround is exactly what you said… smaller markets, local networks, international sourcing when needed.
That’s how resilience actually shows up... not in slogans, but in choices.
I don't buy American if at all possible. Note, grocery stores need to get on board. Last summer I found the best romaine lettuce from farms in Quebec, had never seem them on the shelves before, I will buy from any other country. I hope we can spend time figuring out how to grow produce in the winter