Jeff Rubin is the author of A Map of the New Normal, a finalist for the National Business Book Award.
This essay is part of the Prosperity’s Path series. In a time of geopolitical instability and a shifting world order, the challenges facing Canada's economy have only gotten more visible, numerous and intense. This series examines the path forward.
The funny thing about the USMCA is, depending on which country you’re in, it’s called by a different name. More importantly, it’s also seen as a very different type of agreement.
In America, it’s called the U.S.-Mexico-Canada Agreement, acknowledging the fact that the treaty, unlike its predecessor the North American Free Trade Agreement, was originally between the United States and Mexico, with Canada joining months later. In Canada, of course, it’s called the Canada, United States and Mexico Agreement (CUSMA).
More importantly, the deal is universally referred to by the federal government and Canadian media as a free trade agreement. In the U.S., it is never referred to as such for the simple reason that it is not a free trade agreement but a managed trade agreement with fairly stringent domestic content rules needed to qualify for duty-free access across North American borders.
U.S. President Donald Trump speaks about the Canada-U.S.-Mexico Agreement, known as USMCA in the U.S., during a visit to the Derco Aerospace plant in Milwaukee in July, 2019. Mr. Trump appears to have no intention of renewing the agreement when it comes up for review in July.MANDEL NGAN/AFP/Getty Images
Signed in July, 2020, the pact is up for renewal this summer. If you listen to what Prime Minister Mark Carney tells Canadians, it will be renegotiated with the U.S. and extended for another six years. In reality, the agreement is a dead man walking. President Donald Trump appears to have no intention of renewing, and any new bilateral deal that replaces it will include American tariffs on Canadian exports.
This is why, far from eschewing tariffs, as the Carney government has repeatedly done, Ottawa needs to reciprocate with Canadian tariffs on U.S. exports.
Without a renewal, instead of 85 per cent of Canadian exports entering the American market duty-free as they do now, zero per cent would enjoy tariff-free access. That would pose a challenge the likes of which the Canadian economy has not faced since the McKinley tariff of 1890. (Incidentally, Mr. Trump is a big fan of McKinley. One of his first executive orders was to rename Mt. Denali, America’s highest peak, back to its original name Mt. McKinley, after then-president Barack Obama had changed it.)
If you want to see what an export-dependent Canadian economy will soon look like without the USMCA, check out what is already happening in the steel and aluminum industries. Roughly half of all steel produced in Canada is exported to the American market along with nearly 90 per cent of all aluminum produced. That ended when Mr. Trump imposed a whopping 50-per-cent tariff on steel and aluminum imports. Layoffs are already mounting among the 23,000 workers employed in the steel industry and 10,000 in the aluminum industry. But those job losses could soon pale next to what is at stake in Canada’s most important manufacturing industry: the automotive sector.
No industry will be more affected by the loss of tariff-free access to the American market than the vehicle and parts industry, which, next to the oil and gas sector, is Canada’s leading exporter. In 2024, more than 90 per cent of Canadian-made vehicles were exported to the U.S., a majority of which enjoyed tariff-free access. Soon, that will no longer be the case.
The auto sector has a long and storied history dating back more than a century ago when Canadian carriage-maker Sam McLaughlin founded McLaughlin Motors, which morphed into auto giant General Motors of Canada. The Canadian success story reached its zenith in 2004, when Ontario surpassed Michigan to become the single largest vehicle-producing jurisdiction in North America. Since then, it’s been all downhill as investment, production and jobs migrated to low-wage NAFTA partner Mexico.
The General Motors BrightDrop CAMI EV assembly plant in Ingersoll, Ont. ceased operations in 2025 as U.S. tariffs on imported cars, metals and other goods dealt a blow to Canadian manufacturing.Mark Spowart/The Canadian Press
Whatever the ultimate course of negotiations, auto firms aren’t waiting around to find out the USMCA’s fate.
They are closing or downsizing their Canadian plants and moving production to the U.S. where not only will they be exempt from American tariffs but their U.S. plants will be shielded from import competition. Plant closures in Brampton and Ingersoll and shift reductions in Oshawa are only the tip of the iceberg.
More tariffs from Washington would leave the Carney government with only one viable response. As distasteful as tariffs may be to Mr. Carney, if Ottawa hopes to preserve any semblance of its once mighty auto industry, which still directly employs 125,000 workers and hundreds of thousands more indirectly through sprawling supply chains, the federal government will have to impose reciprocal tariffs on American vehicles. That means back to the future for Canada’s now mortally threatened auto industry. For all intents and purposes, it means going back to the industry structure that preceded the historic 1965 Auto Pact between Canada and the U.S.
Former Prime Minister Lester B. Pearson and former U.S. President Lyndon Johnson sign the historic Auto Pact, which integrated the Canadian and U.S. auto industries for the first time, on Jan. 16, 1965.Library and Archives Canada/Supplied
Prior to the Auto Pact, which guaranteed that American car companies would produce as many vehicles in Canada as they sold in the Canadian market, there was very little cross-border trade, even though the same companies operated on both sides of the border. Canadian car plants, which operated much shorter production runs owing to the limited size of the Canadian market, were almost a third less productive than their American counterparts. That disadvantage translated into significantly higher vehicle prices in Canada and limited model selection.
Imposing tariffs again would not be the best outcome for Canada. But we now live in a world where we have to settle for second-best. Tariffs would keep auto production in Canada and save high-paying manufacturing jobs that would otherwise disappear. That is all that we can do.
When the USMCA is no more, Ottawa should apply a matching 25-per-cent tariff on all American vehicle imports. General Motors, Ford and Stellantis would then have to start doing what they did before NAFTA if they wanted to maintain Canadian sales. They would have to start producing their vehicles here. It’s time to level that playing field.
Mr. Trump may well be right in asserting that the U.S. doesn’t need to import any cars from Canada. But if tariffs can attract new investment and jobs to America’s now heavily protected auto industry, why couldn’t they do the same for Canada’s auto industry as well?
Ultimately, this is the same story for every industry. Free trade no longer exists. In the words of Mr. Carney: “We actively take on the world as it is, not wait around for a world we wish to be.”