March 20, 2026 The Canada-United States-Mexico Agreement (CUSMA) Review

CUSMA 2026 review poses risks for Canadian manufacturers with tariffs and trade uncertainty; proactive insurance and compliance are key.

By Falak Kothari, Manufacturing Industry Leader, Marsh Canada

The rulebook for North American trade is being rewritten. What was once a foundation of stability has become a landscape of complexity and uncertainty — and for Canadian manufacturers, the stakes couldn’t be higher.

Since 2020, the Canada-United States-Mexico Agreement (CUSMA) has underpinned approximately US$2 trillion in annual trade between the three countries. With a joint review scheduled for July 2026, that foundation is under pressure. Manufacturers whose products cross borders multiple times during assembly face exposures that could reshape operations, margins, and competitive position.

As change approaches, manufacturers must take proactive steps to stay ahead. In today’s dynamic landscape, effective insurance and risk management solutions are no longer optional extras — they are essential strategic tools that can strengthen business resilience and drive success.

A pivotal moment: More than just another review

The approaching joint review represents more than administrative housekeeping. CUSMA’s sunset clause requires all three countries to unanimously agree to extend the agreement through to 2042. Failure to reach consensus would trigger a 10-year countdown, culminating in the agreement’s termination in 2036 and introducing a decade of escalating uncertainty across North American trade.

The negotiation unfolds against a backdrop of intensifying geopolitical tensions and structural imbalances — roughly 75% of Canadian exports flow south to the US, while only 30% of American exports head to its neighbours. This leverage gap is likely to shape every conversation, every concession, and every outcome during negotiations.

The discussions will likely address both big picture strategic concerns and technical details. On the strategic front, debates are expected on trade barriers (including concerns about Canada’s financial and dairy sectors), transshipment prevention, and industrial protectionism. However, it’s the technical changes that could prove most disruptive to daily operations:
Policymakers face a choice: pursue a collaborative continental industrial strategy or fragment supply chains through protectionist measures.

• Automotive rules of origin (ROO): The US may seek stricter interpretations of “roll-up” provisions and potential increases to regional value content (RVC) and labor value content (LVC) thresholds, which could make compliance more costly.
• Tighter ROO in other sectors: The baseline 60% RVC requirement may rise across sectors, with sector-specific exceptions becoming more stringent to combat transshipping.
• Expanded labor mechanisms: The rapid response mechanism (RRM) could extend into new sectors, potentially establishing higher minimum wages across North America.

Potential implications for Canadian manufacturers

The trade landscape became significantly more complex in early 2025 with the introduction of targeted US tariffs. While CUSMA theoretically preserves duty-free trade for qualifying goods, its stricter rules of origin had increased compliance costs beyond NAFTA levels. Now, goods that once moved freely face potential tariffs of 25% or higher — turning CUSMA qualification from a competitive advantage into a necessity.

Heightened exposure in key sectors

The fundamental inputs of steel and aluminum, which thread through most manufacturing sectors, face substantial risk. The 50% US tariffs on aluminum and steel, introduced in June 2025 and applied broadly to nearly every country, including Canada and Mexico, do not carry exemptions for CUSMA-qualifying materials or their derivatives.

The convergence of tariffs and CUSMA rules means that a Mexican-made refrigerator that qualified for duty-free status in 2024 could face a 50% tariff on its steel and aluminum components by August 2025. Tariffs have directly increased costs that can ripple through entire supply chains, potentially affecting profit margins and forcing companies to choose between profitability and market share.

The automotive sector, representing up to US$120 billion in annual CUSMA trade, sits squarely in the crosshairs. CUSMA-compliant vehicles assembled in Canada or Mexico pay tariffs only on non-US content, while non-compliant vehicles face the full 25% tariff. The value of CUSMA qualification increased dramatically, potentially incentivizing accelerated compliance investments.

However, the US-content carveout will likely still raise costs for Canadian businesses assembling vehicles for US import. If the 2026 review weakens CUSMA’s foundation, higher tariffs and tighter qualification requirements could undermine margins and make long-term pricing agreements difficult to honor. In this sector, uncertainty itself becomes a cost that can compound with every quarterly planning cycle.

Cascading consequences beyond tariffs

A weakened, unstable CUSMA could risk more than tariff rates. Projections suggest that bilateral trade could contract by 20% to 30%, disrupting the integrated supply chains that underpin North American manufacturing competitiveness.

Furthermore, tighter regulatory requirements around digital trade, labor mobility, and cross-border logistics create friction at every touchpoint. Border wait times expand, paperwork can multiply, and time-sensitive shipments may become unreliable.

Building resilience: Strategic response framework

Hoping for stability is not a winning strategy. Canadian manufacturers must adopt integrated risk management strategies to maintain agility and competitiveness across three critical dimensions:

1. Enhancing compliance and supply chain architecture

• CUSMA qualification: Perform comprehensive compliance reviews and consider onshoring of stamping, casting, and assembly operations in North America to reduce tariff exposure and strengthen CUSMA eligibility.
• Tariff engineering: Explore technical strategies to optimize your tariff exposure, such as adjusting product specifications, shifting assembly locations, or revisiting harmonized system (HS) code classifications.
• Supply chain resilience: Establish risk-sharing agreements with strategic suppliers. Expand sourcing into Asia-Pacific and European markets where appropriate. Build strategic inventory buffers for critical components. Deploy AI-powered platforms, such as Marsh’s Sentrisk, to gain real-time visibility across supplier networks to identify vulnerabilities before they become crises.

2. Financial and pricing strategy

• Pricing response: Implement modest, phased price increases on new product lines while preserving existing distributor relationships. Develop dynamic pricing models that incorporate multiple tariff scenarios, helping you respond quickly as conditions evolve.
• Cost management: Selectively absorb duties to defend critical market share. Negotiate cost-sharing arrangements with suppliers facing similar pressures. Forward-hedge input and logistics costs to reduce exposure to volatile commodity and freight markets.
• Liquidity management: Maintain healthy credit lines and proactively manage treasury functions. Gain access to revolving credit facilities and explore public-private partnership funding to manage increased working capital needs without constraining operational flexibility.

3. Insurance and risk transfer

Insurance is often the cornerstone of resilience strategy. In an environment where a single policy shift can invalidate contracts worth millions, specialized insurance is an essential safety net.

Specialized insurance can help mitigate the risks associated with volatile markets, including:

• Contract repudiation coverage protects your revenue when buyers walk away due to external shocks like tariffs.
• Customs bonds can backstop your compliance obligations, while specialized policies can protect against the financial consequences of classification disputes or regulatory changes.
• Marine cargo insurance protects your goods in transit, so logistical complexity does not lead to uninsured losses.

The North American trading environment has entered uncharted territory, a period of flux unprecedented in three decades. While a formal extension of CUSMA could restore predictability, Canadian manufacturers cannot afford to bet their futures on diplomatic outcomes beyond their control.

By integrating scenario planning with comprehensive operational, financial, and insurance strategies, businesses can do more than endure disruption. You can position your business to capture the opportunities that may emerge as rules shift, competitors stumble, and new incentive structures reshape the competitive landscape.

To learn more about the potential impacts of the upcoming CUSMA joint review on your business, read our Trade policy outlook for North American manufacturing report on www.marsh.com.

About the Author:
Falak Kothari serves as the Manufacturing industry leader at Marsh Canada. Based in Toronto, he facilitates in-depth risk discovery discussions and spearheads a dedicated client team to ensure that manufacturing clients receive the full breadth of Marsh McLennan’s resources. By developing strategic marketplace initiatives and crafting bespoke solutions, Falak effectively addresses the unique business and insurance risks faced by manufacturers. He leverages the expertise of Mercer, Guy Carpenter, and Oliver Wyman, alongside Marsh, to provide clients with industry-led knowledge and innovative solutions. As a key member of the Canadian leadership team, Falak manages industry P&L, drives strategic growth, and provides thought leadership that enhances operational resilience and competitive advantage for manufacturing clients.

Experience
Falak joined Marsh in 2013 and has over 12 years of experience in the insurance industry, establishing himself as a trusted risk advisor, particularly in Manufacturing. His expertise includes property, casualty, cyber, and executive lines of coverage, gained during his earlier role as a placement specialist. He excels at identifying key risk issues and crafting effective risk management solutions that drive growth. With strong market relationships, Falak secures favorable outcomes for clients, guiding them through the complexities of the manufacturing landscape. He collaborates effectively with internal and external stakeholders to implement strategies that meet the industry’s evolving needs. Having successfully managed large account teams, he integrates specialty resources and external providers to align with clients’ risk management priorities.

Education

• MBA, MET Institute of Management, Mumbai, India
• Masters of Commerce, Mumbai University, India

Affiliations

• Registered Insurance Broker in Ontario (RIBO)
• Canadian Accredited Insurance Broker (CAIB)
• Canadian Risk Management (CRM)
• Chartered Insurance Professional (CIP)

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