The end of USMCA would have a surprisingly small impact on the Canadian economy

Let’s start with what everyone knows: The end of the United States-Mexico-Canada Agreement, if it comes to that, would be bad for the Canadian economy. You know it, I know it, Ottawa knows it.

Art of the Deal Donnie is counting on us being so fearful that we’ll offer up all sorts of concessions in an attempt to mollify him, because without access to the U.S. market, our economy would surely collapse.

But how much economic pain would Canada actually suffer if U.S. President Donald Trump’s tariff walls went higher, and the USMCA disappeared?

The damage would be real. It would also be far less than you might expect.

That’s the conclusion of many studies and modelling exercises done by economists over the past couple of years. It’s also the finding of a study released last week by the Canadian American Business Council.

In the event of what the study calls “USMCA Breakdown,” it estimates that Canada’s economic growth rate would be reduced by one percentage point in 2027, and the country would lose 102,000 jobs.

A sudden loss of 102,000 jobs would be a blow. But how serious of a blow? Are we talking flesh wound or Armageddon?

There were 22,669,400 workers in the labour force in July, according to Statistics Canada, and 21,214,800 had jobs. The unemployment rate was 6.4 per cent.

The disappearance of 102,000 jobs would raise the jobless rate to 6.9 per cent.

To put that in perspective, Canada’s unemployment rate was at that level just four months ago, in April. It was also at or above 6.9 per cent for most of 2025.

Higher Canadian economic growth is obviously better than lower, and lower unemployment is better than higher. If Mr. Trump were to agree to respect the USMCA, that would of course be better for Canada than him escalating his trade war.

However, Canada does not have to accept any deal, no matter how awful. We don’t have to agree to a partial scrapping of free trade out of fear that, unless we cry uncle, the U.S. will ditch free trade entirely.

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We don’t have to agree to let the Americans punch us in the face. Nor do we have to agree to keep our hands down, and not punch back.

Prime Minister Mark Carney does not have to be willing to pay any price and bear any burden to preserve the remaining shards of free trade. Nor should Canada be afraid to retaliate.

The PM has said that Canada is negotiating from a position of strength. The CABC study underlines that. The end of free trade will not be the end of us. Not remotely.

Mr. Trump’s existing tariffs have whittled away at free trade and harmed the Canadian economy – and the U.S. economy. His proposed 50-per-cent tariff on 5 per cent of Canada’s exports to the U.S., which he has threatened to impose on Aug. 19, would add to the burden. There is nothing positive here.

The CABC study concludes that, in the event of a breakdown of the USMCA – it models U.S. average tariffs on Canada rising from the current 6.5 per cent to 10.9 per cent, and Canadian retaliatory tariffs rising from 1.9 per cent to 5.9 per cent – Canada’s economy would take a hit.

It’s just that the hit wouldn’t be all that big.

The CABC study estimates that, even with high and long-lasting tariffs and counter-tariffs, Canada’s economy would only be about 1.6-per-cent smaller in 2035 than if the USMCA were renewed and respected, and tariffs fell to near zero.

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Free trade with the U.S. has benefited Canada, but the scale of the benefit – and the size of the loss in the event of its disappearance – is limited.

The main aim of the CABC study appears to be to remind U.S. politicians that free trade with Canada makes the American economy stronger, and that its loss would make the U.S. economy – especially manufacturing – weaker.

Mr. Trump’s endless carping about not wanting to buy Canadian-made cars, steel and other manufactured goods, reveals a dream of severing integrated North American supply chains, and forcing Canadian industry to relocate to the U.S.

However, as the CABC study notes: “Tariffs ultimately do not grow the American manufacturing sector . . . Given the highly integrated and complementary nature of U.S.-Canada trade, tariffs between the two countries prove highly disruptive. Costs for manufacturers on both sides of the border increase and render North American manufacturing industries less competitive . . . higher tariffs cause the U.S. manufacturing sector to shrink and the U.S. trade balance to deteriorate, accomplishing the opposite of what U.S. policy-makers intended.”

That’s why one of Canada’s best allies in this fight are U.S. businesses, particularly in integrated sectors like automotive. They understand that de-integrating continental supply chains simply raises costs and shrinks markets for American manufacturers.

We don’t have to accept a bad deal out of fear of being force-fed something worse. If Mr. Trump wants to impose new tariffs, he can and he will.

If he does, we’ll have to live with it. But we need be in no hurry to sign a piece of paper that says we agree to it.