Canadian businesses expect to pay for U.S. market access: KPMG

More than four in five respondents (84%) said they expected to pay some amount of U.S. tariffs even if their goods qualify under a future trade agreement. While respondents said securing a trade deal was vital to Canada’s economy, 82% believe that U.S. tariffs are here to stay.

“Although exemptions for CUSMA-compliant goods are providing an escape hatch from many U.S. tariffs, the framework and rules may change under a new trade deal in the future,” Joy Nott, partner in the trade and customs practice at KPMG, said in a release. “We could see a situation in which a bilateral agreement with the U.S. replaces CUSMA in 2026 and alters the playing field.”

CUSMA, which entered force in 2020 during U.S. President Donald Trump’s first term, will be up for review on July 1, 2026. At that time, each country must confirm whether it wants to extend CUSMA for another 16 years, to 2042.

If any of the three countries doesn’t support an extension, CUSMA remains in force, but annual reviews occur until the agreement’s scheduled end date in 2036. If no extension is agreed to by 2036, CUSMA will be terminated.

Separately, any nation may withdraw from CUSMA by providing six months’ notice, but the agreement would remain in force between the remaining two nations.

If CUSMA collapses, 80% of those surveyed said they would support a bilateral agreement with the U.S., rather than a trilateral one that involves Mexico.

If that were to happen, Canada would still have a free-trade agreement with Mexico under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, although under different terms, KPMG noted.

Further, the vast majority of surveyed business leaders (93%) identified unpredictable U.S. policies and the higher cost of accessing the U.S. market as some of the most pressing issues facing the Canadian economy.

In response to trade disruption, 60% of surveyed business owners and executive-level decision makers said they had already verified whether their goods were covered by CUSMA, half assessed the impact of tariffs on business revenue and 52% have explored non-U.S. markets.

Tariff costs have been trickling down, too. About 82% of respondents said their businesses have already passed costs down to customers or planned to do so in the next six months and 79% have already reduced or planned to reduce labour costs in the next six months.

“The full effect of U.S. tariffs is only beginning to make its way through the economy now,” said Lachlan Wolfers, national leader at KPMG Law, in the release. “In the initial phase, affected businesses chose to absorb the tariffs, whereas going forward we are expecting to see more businesses pass on the tariff costs through to end consumers.”