Editorial: With USMCA on the Brink, Canada Needs a Bilateral Strategy, Not a Trilateral Hope

The mandatory joint review of the United States, Mexico, and Canada Agreement is supposed to begin in earnest by July 1, with the three signatories asked to confirm whether they wish to extend the deal for another sixteen years. Washington and Mexico City have already begun their review bilaterally, without Canada in the room. Independent trade analysts now put the probability of a clean trilateral renewal at one in ten. The most likely outcome is that USMCA slides into a decade of annual reviews and ad hoc bilateral tariff actions, which is an outcome that suits the second Trump administration's negotiating style and severely damages Canada's economic interests. Ottawa has been slow to acknowledge that reality. The next ninety days will determine whether the country adapts in time.

The trilateral framing has already failed

Successive Canadian governments have approached USMCA, and its predecessor NAFTA, as a three way deal in which Canada and Mexico together could leverage the symmetry of the agreement to keep American protectionism in check. That framing worked in 1994. It worked again in 2018, when then prime minister Justin Trudeau and Mexican president Andres Manuel Lopez Obrador managed to drag the first Trump administration into a renegotiated agreement that preserved most of the architecture Canadian exporters had relied on for two decades.

It is not working now. The Trump administration's stated USMCA priorities are explicitly bilateral. Washington wants to use the review to extract concessions on automotive content rules, on dairy, on lumber, on critical minerals, and on Chinese supply chain exposure. The administration sees little to gain from negotiating those concessions in a single trilateral package. It sees considerable advantage in negotiating them separately, with the United States as the larger partner in each pair.

The decision to launch the review with Mexico bilaterally on March 18 was not an oversight. It was a structural choice. Canada needs to recognise that choice and respond to it on its own terms.

Bilateralism is not capitulation

It is sometimes argued, particularly in Ottawa policy circles, that any move toward bilateral negotiation with the United States validates Trump's preferred frame and weakens Canada's hand. That concern is real but overstated. The United States is going to negotiate bilaterally with Mexico whether Canada participates or not. The question is not whether bilateralism happens. It is whether Canada has its own table set when it does.

The most successful periods of Canadian trade policy have been moments when Ottawa understood the asymmetry of the relationship and worked it deliberately. Brian Mulroney's original Canada United States Free Trade Agreement was a bilateral deal. The 1965 Auto Pact was bilateral. The 2003 Smart Border Declaration was bilateral. NAFTA grew out of those foundations. Bilateral and trilateral instruments have always coexisted, and Canadian negotiators have at times been at their sharpest when they accepted that the United States was, on certain files, simply not going to share the same table with Mexico.

The right Canadian posture for the next ninety days is to push hard for a meaningful trilateral process while quietly opening a parallel bilateral track on the files where US Canada interests differ from US Mexico interests. Energy, dairy, softwood lumber, and critical minerals all sit in that category.

The retaliation toolkit needs sharpening

Canada's main leverage in any trade dispute with the United States has historically been targeted countertariffs designed to inflict maximum political pain in specific congressional districts. That toolkit worked in 2018, when the federal government's responses to Trump steel and aluminum tariffs hit Republican districts in Wisconsin, Pennsylvania, and Florida hard enough to influence the eventual deal. It is not clear that the same toolkit will work as well this time.

Most provinces have already pulled American wine and liquor from public liquor monopolies. Procurement bans have been quietly imposed in several jurisdictions. The legacy retaliation menu of orange juice, bourbon, and motorcycles has lost some of its bite because the targeted producers have either restructured supply chains or moved production. Canadian negotiators need a refreshed list, calibrated to the second Trump administration's political coalition, before the July deadline arrives.

Equally important, Ottawa needs to be clear eyed about which retaliation tools it actually wants to use. Targeted tariffs on American consumer goods raise prices for Canadian households at a moment when inflation is already running near three per cent on the back of oil price shocks. Tariffs on industrial inputs hit Canadian manufacturers as much as American exporters. The government has to publish a retaliation framework that prioritises American producers with the most political clout in the administration's coalition, while minimising spillover damage to Canadian consumers and producers.

Diversification needs to graduate from rhetoric to ratios

Every Canadian government for thirty years has talked about trade diversification. Most of them have left office with the United States accounting for roughly the same share of Canadian exports they inherited. The current ratio sits near seventy five per cent. The diversification rhetoric has not moved the dial because the United States is, by any measure of geographic and regulatory proximity, the easiest export market Canadian firms have ever had access to. Diversification is hard, the United States market is easy, and most exporters do the rational thing.

If diversification is to mean anything in the next decade, it has to be tied to specific, measurable policy levers. Export Development Canada and Business Development Bank financing should be priced more aggressively for non US destinations. Trade commissioner service capacity in the European Union, the Indo Pacific, and Latin America should be expanded relative to the US footprint. Tax treatment of foreign affiliate income should be reviewed to make sure it does not, accidentally, penalise diversification away from the US market.

The Carney government's recent diplomatic moves, including the prime minister's planned attendance at the eighth European Political Community Summit in Yerevan, suggest the cabinet understands the strategic logic. The execution will need to follow the rhetoric for the policy to matter to Canadian exporters facing actual decisions about where to expand.

The China question Ottawa cannot avoid

One particularly thorny piece of the USMCA review is Washington's concern that Canada and Mexico are being used as back doors for Chinese goods entering the North American market. Canada recently struck a limited tariff truce with Beijing, and that truce sits awkwardly with American demands for tougher rules of origin and stricter supply chain disclosure.

The honest answer is that Ottawa is going to have to choose. The United States accounts for seventy five per cent of Canadian goods exports. China accounts for roughly four per cent. The asymmetry is not close. If Washington insists on supply chain provisions that limit Chinese inputs into North American autos, batteries, or critical minerals, Canada will eventually have to align, even at the cost of friction with Beijing.

That alignment should not be a quiet capitulation. Canada has legitimate interests in preserving access to Chinese capital for clean technology and to Chinese demand for canola, pork, and uranium. The right framing is a managed alignment, in which Ottawa accepts North American supply chain rules in exchange for explicit US guarantees on energy and critical minerals access, and in which Canadian exporters are given a clearly defined runway to adjust.

Provinces need to be at the table, not in the gallery

One quiet failure of Canadian trade policy over the past decade has been the marginalisation of provinces in trade negotiations. Quebec has its own forestry and dairy interests. Alberta has its own pipeline and oil sands interests. Ontario has its own auto sector. British Columbia has its own softwood and port interests. Atlantic Canada has its own seafood and energy interests. Each of those interests gets harder to defend the further it is from the negotiating room.

The federal government should commit, publicly and immediately, to a formal provincial consultation mechanism for the duration of the USMCA review. The Council of the Federation should meet on trade at least once a quarter through 2026. Provincial trade ministers should be embedded in Canadian negotiating teams on file specific issues. The current ad hoc consultation process is not working, and the provinces will become more vocal, not less, as the July deadline approaches.

What should change before July

Three changes would put Canada in a meaningfully stronger position by the time the joint review formally lands. First, open a parallel bilateral US Canada negotiating track, separate from the trilateral process, on the files where Canadian interests do not align with Mexican interests. Second, publish an updated retaliation framework, with specific targeted lists and an explicit cost benefit analysis, so that markets and exporters know what to expect. Third, lock in a structured provincial consultation mechanism with measurable milestones, so that no province feels it has been sidelined when concessions are eventually made.

The probability of a clean USMCA renewal by July 1 is low, and the probability that Canadian exporters will be navigating bilateral US trade actions for the next decade is high. The government can still negotiate a workable arrangement, but only if it accepts the structure of the negotiation that is actually happening, rather than the structure that Ottawa would prefer to imagine.

The country has been here before. It came out of the 1988 free trade fight stronger than its critics expected, and it can come out of the 2026 review stronger than the current pessimism suggests. But not by hoping for a return to a trilateral norm that the Trump administration has already discarded.