Rag the Puck? The Case for Holding the Line on CUSMA
Why “No Deal” Is Not the Worst Case
Could Canada “rag the puck” and avoid the risk of renegotiating the free trade agreement (CUSMA) while Donald Trump remains in power? The answer is “yes” — though probably not without some transitional costs and legal turbulence. The real issue is whether the expected cost of negotiating under threat from a counterparty that has repeatedly shown contempt for agreed rules would exceed the likely cost of simply trying to wait him out. The following considerations clarify the trade-offs involved in the latter option, and they are not as one-sided as many assume.
There is a requirement to “review” CUSMA by July 2026, but that carries no legal obligation to amend a single provision. Canada (and Mexico) could attend, listen, and decline to open the text.
To force the issue, President Trump might threaten to invoke the six-month withdrawal clause. But CUSMA binds the United States through statute — the USMCA Implementation Act — which formalizes a congressional-executive agreement. That statute is silent as to which branch of government may trigger termination. Unilateral presidential withdrawal would almost certainly trigger constitutional litigation over separation of powers, possibly reaching the U.S. Supreme Court. The issue would not be trade policy but constitutional authority. The recent Supreme Court decision limiting expansive executive trade powers suggests that presidential claims would not automatically prevail.
If CUSMA were nevertheless terminated after six months’ notice, zero tariffs on covered goods would revert to Most-Favoured-Nation (MFN) rates unless (i) the President imposed targeted sectoral tariffs under other statutory authorities (as in the case of steel and aluminum), or (ii) invoked the untested Section 122 of the Trade Act of 1974.
Regarding (i): the fact that Trump has already levied sectoral tariffs on steel and aluminum, despite CUSMA, shows that the agreement fails to guarantee protection against such action. These measures were taken under Section 232 of the Trade Expansion Act of 1962, which allows import restrictions –e.g., tariffs or quotas—deemed necessary for national security. Section 232 tariffs are not capped, are not time-limited, and are solely at the discretion of the President once the Commerce Department has determined, via investigation, that national security is threatened. The only durable defence in this case is political pressure from business and regional interests in the US that are harmed by such tariffs.
Regarding (ii): under s.122, the President can impose temporary, across-the-board “import surcharges” capped at 15% and limited to 150 days absent congressional approval of an extension. Section 122 is explicitly tethered to “large and serious” balance-of-payments concerns, a condition that would be extremely difficult to establish under present economic conditions. While the United States runs a chronic trade deficit, it is not facing a monetary crisis. Any use of s.122 would thus almost certainly provoke immediate litigation by importers. Courts would consider both the statutory predicate and the scale of potential refund liability in assessing requests for injunctions. Since the legal process would generate delay and uncertainty, a court could suspend the tariffs pending final judgment.
So, it’s clear that Canada could in fact rag the puck and avoid reopening CUSMA while Donald Trump is in office. Trump’s most legally straightforward escalation tool would be an s.122 surcharge, but to extend this beyond 150 days would need 60-votes in the Senate—a very high bar under the circumstances.
Apart from a temporary s.122 surcharge, a post-CUSMA world would mean (a) MFN tariffs, and (b) targeted sectoral measures where statutory conditions need to be met amid business and regional opposition, but which CUSMA itself has failed to prevent. Regarding MFN tariffs, the U.S. is already one of the lowest-tariff economies in the world. MFN tariffs on most industrial goods are typically 0–3%. Passenger vehicles face a 2.5% MFN rate (although light trucks face 25%). Some agricultural and textile products carry higher duties but for most sectors the MFN baseline would be economically manageable, especially since authoritative empirical work shows that tariffs are largely borne by end customers in the importing country.
This is not to suggest that a U.S. exit from CUSMA would be costless. The agreement provides a relatively robust legal framework that increases certainty, supports investment, and structures dispute settlement. There would be adjustment costs. But even without CUSMA, the United States would remain Canada’s dominant trading partner owing to geography, cultural proximity, and economic complementarity. On the positive side, reduced preferential access would further incentivize Canadian businesses to diversify markets and spur competitiveness, factors that would force greater productivity, leading ultimately to higher incomes for Canadians.
Canada’s leverage derives from a simple asymmetry: the legal and economic downside of “no deal” is bounded, while the downside of reopening the agreement under pressure from Donald Trump is potentially unbounded. Strategic patience is not passivity. It’s discipline under pressure.
 | A guest post by
|
A thoughtful analysis, with a " rag the puck" strategy, that I fully concur with. Other than selling US wine and liquor again, there is nothing on the USTR bargaining list that we agree with. Bargaining with Trump, we have learned ,is a mugs game. Post the mid-terms and the next Presidential elections, we may have reasonable people to work with. Our current trade diversification strategies are staring to take affect, but significant change will require a decade of sustained export growth outside the USA.
Peter,
An enlightening and sober contribution to issues many of us had not anticipated, despite the frequent historical evidence of US imperial practices and attitudes inherent in the very evolution of the way that country has acquired states and territories. Something we should seriously consider!