Today’s first meeting of Carney’s Advisory Committee on Canada-U.S. Economic Relations is largely ceremonial as a news event. The committee has no negotiating authority and its membership, a cross-partisan roster of former politicians and sector executives, signals political legitimacy as much as analytical firepower. What the meeting does mark is the beginning of the ten-week sprint to July 1, the date on which Canada, the United States, and Mexico are required under CUSMA to convene a formal joint review and decide whether to extend the agreement. That decision is the most consequential single variable in the Canadian economic outlook for 2026.

What the Three Scenarios Actually Look Like

The Bank of Canada’s January 2026 Monetary Policy Report mapped the outcome space with unusual clarity. There are three plausible scenarios, and the distance between them in economic terms is very large.

The first scenario: CUSMA is extended with limited changes. Rules of origin requirements remain largely intact, CUSMA-compliant goods continue to enter the U.S. duty-free, and the sectoral tariffs on steel, aluminum, and autos are addressed in parallel negotiations. Canadian GDP follows the base-case path of 1.1% growth in 2026 and 1.5% in 2027. Export volumes stabilize. Business investment, which has been on hold since tariff uncertainty began in early 2025, begins to recover. This is the scenario the BoC is assuming.

The second scenario: significant renegotiation. Stricter rules of origin, particularly in autos and agriculture, increase effective trade costs for Canadian exporters. CUSMA-compliant goods remain duty-free in principle, but fewer Canadian products qualify under tightened origin requirements. The BoC’s January MPR noted explicitly that this scenario would put Canadian exports on a “lower path” with downstream effects on production, investment, and hiring. This is not a tail risk: U.S. Trade Representative Greer has publicly signalled interest in tightening automotive rules of origin, and dairy market access is a longstanding U.S. demand.

Canada GDP Growth — BoC Scenarios vs. Base Case, 2026-2027
Percent change, annual. Base case per BoC January 2026 MPR. Renegotiation and annual-review scenarios are HDQ estimates based on BoC risk language.
2026 2027 +1.1% +0.3% -0.8% +1.5% +0.7% -0.5% Base case (extension) Renegotiation Annual review mode
Source: Bank of Canada January 2026 MPR (base case); HDQ estimates derived from BoC risk scenario language for renegotiation and annual-review cases.

The third scenario: no extension agreed, CUSMA shifts to annual reviews. Trade lawyer Alexander Hobbs of Cassidy Levy Kent confirmed to Canadian Affairs that the agreement does not expire in July under this outcome. What it does is convert trade certainty from a stable baseline into an annual negotiating hostage, where every twelve months, businesses must plan around the possibility that the terms of their access to the U.S. market could change. John Boscariol of McCarthy Tetrault described this as the more plausible worst case: not sudden withdrawal, but sustained pressure used as ongoing leverage. Under this scenario, business investment, which the BoC is counting on to recover in 2026, does not recover. The GDP path is materially below base case across both years.

Where Negotiations Actually Stand

The U.S. has confirmed a formal bilateral negotiating round with Mexico scheduled for late May. Canada has not yet received a confirmed start date for equivalent formal talks. USTR Greer told the House Ways and Means Committee in mid-April that there are “load-bearing pillars” in CUSMA that are working well, but that a renegotiation is necessary to address U.S. concerns. He described Canada as “behind Mexico” on discussions as recently as mid-March. Separately, U.S. Commerce Secretary Howard Lutnick said last week that CUSMA might be allowed to “lapse,” characterizing it as a “bad deal” for Americans.

Canada’s chief trade negotiator Janice Charette called July 1 a “checkpoint, not a cliff” in a CBC interview last week, a framing that is technically accurate and strategically appropriate, but one that also carries a risk. If the financial markets and business investment community treat July 1 as genuinely low-stakes because the agreement does not technically expire, the uncertainty premium that is already embedded in Canadian business investment decisions may not lift even under a benign outcome. The recovery the BoC is counting on depends not just on what happens at the review, but on what businesses believe will happen in the years that follow it.

The Domestic Growth Picture That CUSMA Complicates

The Canadian economy entered 2026 in a weak position. Q4 2025 GDP contracted 0.6%, driven by an inventory drawdown but with domestic demand that remained resilient above 2% growth. The unemployment rate stood at 6.7% in February, with job losses concentrated in tariff-exposed sectors. The BoC’s base-case projection of 1.1% GDP growth for 2026 is modest even under the assumption of CUSMA extension. It is the floor of a range of outcomes, not a comfortable middle ground. A CUSMA outcome that falls below the base case does not move the economy from modest growth to zero growth: it moves it from modest growth to contraction, and the BoC has limited room to respond given the energy-driven inflation constraint it is navigating simultaneously.