Uncertainty surrounding renegotiation
Canada-United States-Mexico Agreement
(CUSMA) represents the biggest risk one can face in this case.
in 2026, says ex
Deputy Governor Paul Beaudry, adding that trade instability could undermine the still fragile economic recovery.
“It is very difficult to predict what the US administration wants and what it is willing to do,” he said.
Canada has so far avoided high tariffs imposed on other U.S. trading partners, but Beaudry said that could change.
“We're in a relatively good situation and we want to stay there, but that's not guaranteed,” he said.
Mandatory review of CUSMA will intensify next year as
continues its push to transform global trade and move key industries to the United States rather than Canada and Mexico, among other countries.
The US held a public consultation on CUSMA in September, and the Trump administration is expected to submit a report to Congress early next year detailing the changes it wants. However, a formal review will begin in July.
,
federal minister responsible for trade between Canada and the United States,
He is expected to visit Washington in January to begin talks with his American counterparts.
Beaudry said some industries are facing challenges, but trade between Canada and the U.S. continues relatively smoothly.
“I see some of these sectors, especially automotive, where it would be very difficult to turn things around,” he said. “At the same time, there is now a lot of trade between Canada and the U.S. at very low tariffs.”
Products such as grains, legumes and dairy products, although subject to certain quotas, are generally subject to low tariffs compared to other international markets, while energy and equipment exports cross borders with minimal barriers.
Beaudry said he is also noticing that U.S. Republicans are struggling in the polls due to rising prices, suggesting that imposing additional tariffs is politically unpopular right now, giving Canadians some cause for optimism.
“The good scenario is that we get a revision of CUSMA that allows us to stay in the same place we are now… still quite a lot of open trade with the US,” he said.
But it is difficult to predict whether Trump will negotiate in good faith, Beaudry said, despite
Russia's efforts to maintain personal ties with the US President.
“I actually see it as a strength,” he said. “Anyone who succeeds in Washington seems to have to create good personal relationships, and I think that's what Carney is trying to do.”
On monetary policy, Beaudry said inflation has broadly returned to the Bank of Canada's two per cent target, but underlying pressures remain. He noted the risk that U.S. policy could complicate Canada's path if the U.S. Federal Reserve becomes more tolerant of higher inflation.
“If they were to go for something like three per cent inflation,” he said, it would create “an additional challenge” to meeting Canada's inflation target.
Beaudry doesn't expect interest rates to rise in 2026, predicting rates will likely remain stable or fall if economic conditions worsen or CUSMA negotiations fail.
“I don't see much likelihood of rate increases throughout the year,” he said.
Beaudry also warned of growing financial market risks associated with the rapid expansion of investments in artificial intelligence. He said AI will remain transformative, but questioned whether the current
estimates are stable.
“It's unclear whether the companies that have invested heavily in this … will be able to reap the full benefits,” he said, noting parallels with the years leading up to the 2008 financial crisis.
Beaudry also said Canada must do more to adopt and commercialize new technologies to remain competitive while helping workers move between sectors.
“Technology adoption is really important,” he said, calling for more risk-taking to drive innovation and productivity growth.
Achieving all of these goals will cost money, and Beaudry said Canada continues to struggle to attract investment amid all the tariff and trade uncertainty. Ottawa is trying to make the country more attractive to investors.
This year's budget includes a $1.7 billion, 13-year strategy to attract top international talent, including senior scientists, as well as a new “super productivity deduction” to accelerate capital expenditure write-offs and expand research and development tax credits.
Beaudry is optimistic about potential improvements in 2026, but says meaningful changes will take time.
“This won’t happen overnight,” he said.
• Email: [email protected]
