Oxford Economics: U.S. tariffs on Canada likely to persist after CUSMA review
Oxford Economics says the U.S. is unlikely to drop tariffs on Canadian goods as the CUSMA review nears, and warns risks are skewed toward continued or higher duties.
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By Torontoer Staff
Oxford Economics Ltd. says the odds that the United States will remove tariffs imposed on Canadian goods are low as the scheduled review of the Canada-United States-Mexico Agreement, CUSMA, approaches. The consultancy rates a full rollback of duties as highly unlikely and sees the balance of risk shifting toward sustained or higher trade barriers.
Oxford sets four scenarios for the outcome of the review, and places the most likely outcome well short of a complete return to pre-2025 tariff levels. The baseline maintains some duties, while the status quo or worse outcomes leave tariffs and retaliatory measures in place.
Scenarios and probabilities
- Full rollback (5% probability): The U.S. removes targeted tariffs on steel, aluminium and automotive parts, and Canada lifts any remaining retaliatory levies.
- Baseline (50% probability): Renegotiation in the third quarter leads to most U.S. tariffs being lifted, but 10% duties remain on steel, aluminium and dairy; Canada removes most countermeasures but keeps duties on U.S. steel and aluminium.
- Status quo (35% probability): One or more partners decline to extend CUSMA in its current form, triggering mandatory annual reviews and leaving current U.S. tariffs and Canadian retaliatory duties in place.
- Breakdown or higher tariffs (10% probability): One or more parties exit the agreement and U.S. tariff rates rise noticeably for Canada and Mexico.
It just does not seem very likely that the Trump administration is going to basically rubber stamp a deal to extend CUSMA and then also dial back all tariffs.
Michael Davenport, senior economist, Oxford Economics
Political signals from Washington
Recent testimony and public remarks have hardened the outlook. U.S. Trade Representative Jamieson Greer told the Senate Finance Committee that USTR will only recommend renewal if the issues they identify are resolved, and that a simple rubber stamp is not in the United States' national interest. President Donald Trump has described the trade pact he negotiated as "irrelevant," heightening uncertainty ahead of the July 1 review start date.
USTR will keep the president’s options open, negotiating firmly to resolve the issues identified, but only recommending renewal if resolution can be achieved.
Jamieson Greer, U.S. Trade Representative
What this means for Canadian exporters
Oxford projects that under its baseline scenario effective tariff rates on Canadian exports to the United States would fall to about 1% from a projected 6.3% at the end of 2025. Current estimates put the effective tariff rate below 5%, helped by rules-of-origin compliance and exemptions. As of September 2025, roughly 86% of Canadian exports to the U.S. were CUSMA-compliant, up from 38% in 2024.
If the status quo or a breakdown materialises, higher effective tariffs and sustained retaliatory measures would raise costs for exporters in steel, aluminium, automotive parts and other sectors. That outcome would also prolong trade-policy uncertainty, complicating investment and supply-chain decisions.
Despite all the headlines, most Canadian companies were still able to export to the U.S. with zero or minor tariffs due to exemptions set by the U.S.
Peter Miller, head of Equity Capital Markets, Bank of Montreal
Timeline and economic stakes
CUSMA is scheduled for review starting July 1. If no agreement is reached at that time, mandatory annual reviews will be required until 2036, when the pact would otherwise expire. Oxford warns the review could restructure North American trade and materially alter economic prospects for Canada and Mexico for years to come.
Market participants and policymakers will be watching several triggers closely: negotiations and statements from USTR, decisions on the 10% duties that target key sectors, whether Canada maintains retaliatory levies, and any congressional or presidential moves that limit the administration's negotiating flexibility.
- July 1: formal start of the CUSMA review and signal date for negotiations.
- USTR and White House statements: shape the administration's negotiating posture.
- Sector-specific outcomes: steel, aluminium, automotive parts and dairy are focal points for tariffs and exemptions.
- Potential for annual reviews until 2036 if partners do not extend the agreement.
Oxford says the risks to its forecast are skewed to the downside, meaning outcomes that sustain or increase tariffs are now more probable than a full rollback. For Canadian firms and policymakers, that raises the priority on contingency planning and efforts to secure durable exemptions or market access.
The CUSMA review will be a critical test of how trade policy evolves in North America. The most likely outcomes keep some barriers in place and embed greater uncertainty, with implications for supply chains, investment and sectoral competitiveness.
CUSMAtariffstradeOxford EconomicsCanada-US
