Canada's Economy Faces 'Severe But Not Cataclysmic' Impact from US Withdrawal from CUSMA

A new report from Deloitte Canada finds that a U.S. withdrawal from the Canada-United States-Mexico trade agreement (CUSMA) would have a 'severe but not cataclysmic impact' on Canada's economy.

The report, titled 'Tariffs: A rough road leads to new destinations,' imagines two scenarios for the future of CUSMA. In the first scenario, the U.S. withdraws entirely from the agreement, resulting in a 10% global tariff imposed by the U.S. on previously exempt sectors like oil and gas.

According to the report, this would lead to a 1.6% decline in Canadian GDP by 2036, representing $402 billion in lost GDP over the decade. The pain would not be shared equally, with sectors reliant on exports suffering the most.

The report predicts that manufacturing could see a 28% drop in GDP over the decade, while electronics, machinery, and equipment could lose 21%. Oil and gas would fare better, with a loss of only 0.4% in GDP for oil and 0.9% for natural gas.

In contrast, the report's second scenario, 'Accelerated diversification,' paints a more positive picture. In this best-case scenario, Canada maintains all its existing free trade agreements while successfully negotiating new ones elsewhere.

The report predicts that GDP growth would be 0.6% by 2036, representing $141 billion in gains and the creation of 53,000 jobs per year. The gains aren't as large as the losses under the first scenario, but at least they're positive.