OTTAWA — Canada could suffer a major economic blow if the United States withdraws from the Canada-U.S.-Mexico trade agreement, with hundreds of billions of dollars in economic activity at risk over the next decade, according to a new Deloitte Canada report.
The report, Tariffs: A Rough Road Leads to New Destinations, examines how Canada could fare under dramatically different scenarios for its trading relationship with the United States.
Its conclusion is concerning but not catastrophic: losing CUSMA would cause serious damage to Canada’s economy, particularly manufacturing, but a combination of international trade diversification, stronger domestic industries and the removal of interprovincial trade barriers could offset much of the impact.
The stakes are particularly high because the United States remains Canada’s dominant export market. Approximately 70 per cent of Canadian exports went to the U.S. in 2025, leaving the economy highly exposed to changes in American trade policy.
Deloitte’s worst-case scenario assumes the dissolution of CUSMA, something the report says cannot be dismissed.
Under that scenario, Canada’s real gross domestic product would be 1.6 per cent lower over the next decade, representing approximately $402 billion in lost economic output compared with Deloitte’s baseline scenario, which assumes CUSMA remains intact and uses U.S. tariff levels as of July 1, 2026.
Employment would also suffer substantially.
Deloitte estimates Canada would have an average of approximately 163,000 fewer jobs annually, with the weaker economy also affecting wages, household incomes and consumer spending.
The authors characterize the overall economic consequences as “severe but not cataclysmic” for Canada as a whole, while warning that the impact could be devastating for individual industries.
Manufacturing would face some of the greatest pressure because Canadian factories are deeply integrated into North American supply chains.
The motor vehicle and auto-parts sector could experience a 28 per cent decline in real GDP by 2036 compared with the baseline.
Electronics, machinery and equipment manufacturing could decline approximately 21 per cent, while rubber and plastics manufacturing could fall 20 per cent and chemical manufacturing approximately 13 per cent.
Canada’s energy industry would also face significant consequences.
Without CUSMA protection, Canadian oil and natural gas exports would become exposed to broader U.S. tariff measures assumed in Deloitte’s modelling.
Canadian oil sales to the United States could decline approximately 11 per cent, while natural gas exports could fall by as much as 30 per cent.
Deloitte also examined a more optimistic scenario in which Canada maintains its existing free-trade agreements, including CUSMA, while successfully negotiating additional agreements and expanding trade with other countries.
Under that scenario, Canada’s real GDP could increase approximately 0.6 per cent over the next decade, representing about $141 billion in additional economic output.
Approximately 53,000 additional jobs per year could also be created.
Agriculture could be among the major beneficiaries, particularly if Canada expands its trading relationships with large economies such as China and India. Several manufacturing industries could also benefit from improved access to international markets.
However, Deloitte warns that simply selling more Canadian products outside the United States would not be enough to fully compensate for losing preferential access to America’s enormous market.
The potential $141-billion benefit from greater international diversification remains considerably smaller than the estimated $402-billion economic loss associated with CUSMA collapsing.
That means Canada would need a broader economic strategy.
One of the most significant opportunities identified by Deloitte is reducing barriers to trade between Canada’s own provinces and territories.
Despite operating as one country, differences in provincial regulations, licensing systems, procurement requirements and other rules can make it difficult for businesses to sell products and services across provincial boundaries.
Previous Deloitte research estimated that completely phasing out interprovincial trade barriers over five years could generate approximately $881 billion in additional Canadian economic output by 2040 and create 133,000 jobs.
Report co-author Matthew Stewart acknowledged that eliminating every internal barrier may not be realistic but suggested even achieving roughly half of that potential could produce substantial economic benefits.
Combined with expanded international trade, greater internal economic integration could therefore help Canada absorb much of the damage resulting from a deterioration in its relationship with the United States.
The report also argues Canada needs to develop new industries rather than relying exclusively on finding alternative customers for products it already exports.
Greater economic self-sufficiency, new areas of industrial specialization and investments that allow Canadian companies to compete globally will become increasingly important if the country’s traditional relationship with the United States becomes less predictable.
Deloitte pointed to increased federal defence investment, new export infrastructure and support for critical-mineral processing and refining as examples of policies that could strengthen Canada’s economic resilience.
The analysis comes during another uncertain period in Canada-U.S. relations, with President Donald Trump continuing to criticize Canada’s trade practices and raising questions about the future of the North American trading relationship.
For Canadian governments and businesses, Deloitte’s message is that diversification is important — but diversification alone cannot replace the United States.
The sheer size and proximity of the American economy, combined with decades of integrated supply chains, means losing CUSMA would leave a hole that new overseas trade agreements could only partially fill.
The more effective response, according to the report, would combine continued access to the U.S. market, greater trade with Europe and major Asian economies, removal of Canadian interprovincial barriers, investment in strategic industries and development of new export capacity.
The numbers illustrate the challenge clearly: in Deloitte’s modelling, a collapse of CUSMA could leave Canada $402 billion worse off over a decade, while successful trade diversification could generate approximately $141 billion in additional economic activity.
Canada therefore cannot simply replace the United States with another trading partner.
Instead, the report suggests the country will need to become a more integrated and competitive economy at home while simultaneously expanding its reach abroad.
With the future of North American trade increasingly uncertain, the debate is shifting from whether Canada should diversify its economy to how quickly it can do so — and whether governments, businesses and provinces can make the structural changes necessary before another major trade disruption arrives.