Canada’s biggest trade risk is no longer a distant thought experiment. Deloitte Canada has modelled what could happen if the United States formally withdrew from CUSMA and preferential North American trade rules disappeared. Its downside scenario points to a 1.6% reduction in Canadian real GDP by 2036 relative to its July 1, 2026 baseline, equal to $402 billion in cumulative lost output over the decade. Employment, meanwhile, would average 163,000 fewer jobs a year.
Those figures need an important distinction: Deloitte is not forecasting a $402-billion loss every year. The GDP figure is cumulative over ten years, while the employment figure is an annual average shortfall. Even with that clarification, the model describes a major economic shock concentrated in manufacturing, energy and other industries built around deeply integrated U.S. supply chains.
The $402-Billion Figure Measures a Decade of Lost Growth
Deloitte’s headline number is dramatic, but its meaning is more precise than it first appears. The firm estimates that Canadian real GDP would be 1.6% lower by 2036 than under its status-quo baseline if the United States formally left CUSMA and preferential tariff treatment disappeared. Added across the decade, the gap between the withdrawal scenario and the baseline amounts to $402 billion in lost real GDP, expressed in constant 2017 dollars.
That is economic activity Canada would fail to generate compared with the baseline, not a one-time cheque leaving the country. Deloitte also expects the damage to be front-loaded because exporters would abruptly lose a competitive advantage built into their business models. For a manufacturer that prices contracts, hires workers and finances machinery based on tariff-free U.S. access, even a modest tariff can change whether a production line, expansion or customer relationship still makes economic sense over time nationally overall.
The 163,000 Jobs Measure Shows How the Shock Reaches Households
The employment estimate may be the number households feel most directly. Deloitte projects that Canada would average 163,000 fewer jobs each year over the decade in its CUSMA-withdrawal scenario. It also expects weaker average wages, softer domestic consumption and reduced household purchasing power as companies respond to lower demand, thinner margins and less investment.
The figure does not mean the same 163,000 people would necessarily lose jobs every year. It describes the modeled employment gap relative to the baseline, averaged over the period. The effects could spread beyond export plants. A large factory supports trucking, maintenance, warehousing, engineering and local services, so a slowdown can ripple through communities. Statistics Canada has documented how deeply U.S. demand is tied to Canadian production: in 2024, $644 billion of the $922 billion in exports originating from Canadian production went to the United States. That scale helps explain why trade shocks become labour-market shocks.
Canada Is Still Heavily Dependent on the U.S. Market
Canada has made progress diversifying trade, but the United States still dominates its export map. Statistics Canada reported that 71.7% of Canadian merchandise exports went to the U.S. in 2025, down from 75.9% in 2024. Exports to non-U.S. countries rose 17.2% in 2025, yet the American market remained overwhelmingly larger than any alternative destination.
That dependence is not simply about selling finished products across a border. North American factories often operate as shared production systems. Statistics Canada found that Canadian manufacturers shipped $324 billion of goods to the United States in 2024, and more than one-quarter of those shipments’ value reflected imported U.S. content. A Canadian-made component may contain American inputs before returning south inside another product. CUSMA reduces friction across these loops. Removing preferential treatment would therefore affect exporters and companies whose purchasing, logistics and production schedules were designed around repeated cross-border movement across North America every day commercially.
Not Renewing CUSMA Is Different From Actually Leaving It
The current CUSMA dispute should not be confused with formal U.S. withdrawal. At the July 1, 2026 joint review, the Trump administration declined to extend the agreement for another 16-year term. U.S. officials said the pact remained in effect, while Canada has likewise emphasized that CUSMA continues to operate. Because all three parties did not confirm an extension, the agreement now moves into annual joint reviews until the countries later agree to extend it.
Formal withdrawal is a separate legal step. Article 34.6 allows any party to leave by giving written notice to the other two countries, with withdrawal taking effect six months later. Deloitte uses that kind of permanent legal exit, or an equivalent breakdown in preferential treatment, as its downside scenario. That makes the $402-billion estimate a stress test of what a genuine rupture could do, not an estimate of losses already triggered by the July review decision itself.
Canada’s Auto Industry Takes the Hardest Hit
No major sector looks more exposed in Deloitte’s model than motor vehicles and parts. By 2036, real GDP in the sector would be 28% below the July 1 baseline under the CUSMA-withdrawal scenario. That is far larger than the economy-wide 1.6% gap and helps explain why auto trade is a sensitive part of the Canada-U.S. relationship.
The vulnerability comes from the industry’s structure. Vehicle production is organized around continental supply chains in which engines, electronics, stampings, seats and other components can cross borders before a finished vehicle reaches a dealership. Statistics Canada’s value-added analysis shows that Canadian manufacturing exports to the U.S. contain substantial American inputs, evidence of how intertwined production has become. A tariff can therefore raise costs at more than one stage. For Ontario communities built around assembly and parts plants, Deloitte’s scenario could reshape decisions about where future models, investment and production lines are allocated in Canada.
Machinery, Plastics and Chemicals Would Also Feel Deep Damage
Autos would be hit hardest, but Deloitte’s modeling shows that the manufacturing shock would be much broader. By 2036, real GDP in electronics, machinery and equipment would be 21% below the baseline. Rubber and plastics products would be down 20%, while chemicals would be 13% lower. These industries also supply one another and feed into construction, transportation, energy and consumer manufacturing.
That interconnectedness means a trade barrier can move through a supply chain even when a company does not export directly. A plastics producer may supply an auto-parts maker; a machinery company may sell equipment to a factory whose U.S. orders are falling. Statistics Canada found in 2025 that 55.1% of businesses exporting to the United States expected U.S. tariffs to hurt their operations, while 69.1% expected cost-related obstacles. Deloitte’s scenario extends that pressure to a larger structural break in preferential trade across the economy over time for Canadian businesses.
Oil and Natural Gas Are Not Protected From the Downside
Energy is not spared in Deloitte’s case. The model assumes that after a U.S. withdrawal, previously CUSMA-protected sectors would face most-favoured-nation tariff treatment and that a 10% U.S. global tariff would also apply to sectors including oil and gas. Under those assumptions, Canadian oil exports to the United States would be 11% below the baseline by 2036, while natural-gas exports would be 30% lower.
Some displaced energy could be sold domestically or redirected abroad, but that requires infrastructure, production flexibility and sufficient global demand. Deloitte estimates that, even after adjustment, real GDP would be 0.4% lower for oil and 0.9% lower for natural gas by 2036. The scenario is revealing because energy is one of Canada’s strongest U.S. export categories. It shows that diversification is partly an infrastructure challenge: new buyers matter only when pipelines, terminals, transmission networks or shipping capacity can connect Canadian supply with them efficiently at scale.
Canada Would Adapt, but the Adjustment Would Still Hurt
Deloitte does not assume Canada would absorb the shock without adapting. Its model expects businesses and markets to reallocate sales as U.S. demand falls. By 2036, exports to the United States would be about 21% below the baseline, but total exports to the world would decline by roughly half that amount, about 10.5%. Lower prices for displaced products could encourage domestic purchases and make those goods more attractive elsewhere.
That adjustment is why Deloitte describes the overall impact as severe rather than economy-destroying. But substitution has limits. A company that loses a nearby U.S. customer cannot always replace it with an overseas buyer at the same price, speed or transportation cost. Deloitte notes that successful redirection depends on investment and assumes infrastructure or other supply-chain obstacles do not become major headwinds. Canada adapts, yet still ends the decade materially below the path it would have followed with preferential U.S. access.
New Trade Partners Can Replace Only Part of the Lost Opportunity
Trade diversification helps in Deloitte’s model, but does not fully replace the U.S. market. In its accelerated-diversification scenario, CUSMA stays in place, Canada preserves its existing trade agreements and successfully signs new ones. Under those assumptions, real GDP is $141 billion higher over the decade than the July 1 baseline, while employment averages nearly 53,000 additional jobs a year.
The gains are meaningful where new customers are easier to reach. Deloitte projects crop exports to non-U.S. markets could be $4 billion higher in 2036 and food-manufacturing exports $16 billion higher. Electronics, machinery and equipment would also benefit, with non-U.S. exports rising by $3 billion. Yet the scale remains much smaller than the $402-billion downside from losing preferential U.S. trade. Geography, infrastructure and integrated production networks give the American market advantages that cannot be recreated quickly. Diversification is a hedge against concentration risk, not an instant substitute for North American integration.
Deloitte Sees a Bigger Opportunity Inside Canada
Deloitte’s strongest domestic offset is an integrated Canadian market. Its earlier research found that interprovincial exports represented 18.1% of Canadian GDP in 2023 and had changed little as a share of the economy for more than three decades. Different rules, technical standards, licensing systems and administrative burdens can make it harder for firms and workers to operate across provincial boundaries.
The firm estimates that completely phasing out interprovincial trade barriers over five years could add $881 billion in economic output by 2040, lift GDP by 2.4% and create 133,000 jobs. Deloitte argues that even achieving half of that modeled benefit could nearly offset the GDP loss in its CUSMA-withdrawal scenario. Canada cannot control every decision in Washington, but it has more influence over its own market. A stronger domestic base, combined with new export markets and industries, would give businesses more options if continental trade becomes less predictable over time.
