How Trump-inspired CUSMA compliance levels could become a trap

 CUSMA compliance suddenly became a must-have for dodging high tariffs and surviving the trade war

US President Donald Trump speaks to the press upon returning to Joint Base Andrews in Maryland on January 13, 2026. Photo by MANDEL NGAN /AFP via Getty Images

WASHINGTON, D.C. — Thanks largely to Donald Trump, Canada-U.S.-Mexico Agreement (CUSMA) compliance among Canadian firms is higher than ever.

Before the president returned to the White House with threats of imposing high tariffs against Canadian imports, many companies simply didn’t bother seeking CUSMA compliance because they enjoyed low “most-favoured-nation” tariffs. Even some auto giants found it easier to simply pay the World Trade Organization’s bound rate for some of their models to gain U.S. market access, rather than shifting supply chains to heavily North American content to qualify for CUSMA compliance.

But that all changed after Trump’s second inauguration, when CUSMA compliance suddenly became a must-have for dodging high tariffs and surviving the trade war.

“(Those companies) initially were not ready when Trump came in, but because it was the one exemption to tariffs, there was strong pressure on companies to put everything they could into compliance so that the (CUSMA) would shield them from tariffs,” said Christopher Sands, director of the Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies in Washington, D.C.

“It was easier to shift suppliers and make those adjustments rather than paying the … 25 per cent,

the initial auto tariff that Trump threw out there.”

As a result, between December 2024 and July 2025, compliance — measured as the share of trade value declared under CUSMA preferential treatment — for Canadian exports to the U.S. rose from 35.5 to 78.7 per cent, according to a new Brookings Institution report that Sands helped compile.

Tony Stillo, director of Canada Economics at Oxford Economics, says compliance has now nearly tripled from early last year to 90 per cent.

Getting that CUSMA Certification of Origin, however, isn’t as easy as ticking a box. For many businesses, it meant hiring accountants, internal auditors, or, in some cases, specialty consultants, to map rules of origin and trace supplies.

“They have to establish that their components are all compliant with the rules of origin in the (CUSMA),” said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, “and there’s a lot of fine print in that.”

“That means they have to trace not only their immediate suppliers, but the suppliers to those suppliers” to avoid being audited, he added.

For some firms, it also meant rethinking their supply inputs and swapping non-North American parts for those that qualified as North American, which were often costlier than products purchased from Latin America or Asia.

It was also possible that the newly sought North American suppliers couldn’t easily ramp up their capacity to meet demand, Sands explained. In turn, some had to borrow money to expand production.

Re-assessing entire supply chains also meant renegotiations with suppliers and, in cases, cancellation of contracts. Firms, after all, fear the hefty fines involved with noncompliance.

“There’s the time cost, the contract cost, and the potential penalties,” Sands said.

But last year, the savings on tariffs far outweighed the compliance costs, experts say.

“It paid for itself,” said Hufbauer.

Stillo agreed, noting that the “Canadian economy would’ve been hit harder last year if we hadn’t become (CUSMA) compliant.”

A 2025 Oxford Economics report noted how compliance buffered Canada, but it also highlighted the economic hardship, in terms of planning and investment, that resulted from the uncertainty related to Trump’s policy shifts.

So compliance by Canadian exporters tripled last year, reshaping North American trade by forcing greater alignment with CUSMA’s rules of origin. But Canada’s economy still struggled amid the uncertainty of Trump’s tariffs. Now, with this summer’s review of the agreement looming, exporters face the possibility of Trump changing the rules — or abandoning them altogether.

So could the higher level of compliance oddly make Canada more vulnerable?

“It might,” said Hufbauer, “depending on how Trump pursues tariffs with other countries.”

Trump’s team may push, for example, for the rules of origin to include a high level of U.S.-made content, not merely North American-made products, thereby moving the goalposts for compliance.

Canada and Mexico could push back, of course, but if it’s a dealbreaker for the U.S., it will come down to who blinks first — and both Canada and Mexico need the U.S. far more than America needs them. Canadian exports to the U.S. account for about a fifth of Canada’s GDP, but U.S. exports to Canada and Mexico combined make up less than three per cent of U.S. GDP, according to the wealth management firm Plante Moran.

If the deal was killed … we think the Canadian economy would fall into recession in the latter part of this year

For now, higher compliance makes Canadian firms safer, but it also leaves them more exposed in the long run. CUSMA rules could be toughened, driving up compliance costs, or the agreement could fall apart — a worst-case scenario — which Stillo said would put Canada on a permanent lower growth path.

“If the deal was killed … we think the Canadian economy would fall into recession in the latter part of this year,” he said.

Sands also noted that over-compliance can be both a protection and a trap, but he sees options for exporters, even if CUSMA falls apart. If the agreement dies, the super-compliant firms can slowly lower their costs by turning to more global sources for production inputs.

That’s easier than what businesses went through last year, he explained.

“Shifting to higher (CUSMA) compliance is more painful and costly than adapting to a post‑(CUSMA) world where there’s no safe harbour, because you’re already super‑compliant,” Sands explained.

“If you’re suddenly no longer facing that pressure, you can gradually go back to something that’s more competitive.”

He was clear that CUSMA is a benefit to both Canada and the U.S. because it allows exporters to operate without tariffs, for the most part.

“But Trump has introduced a lot of new baseline tariffs,” Sands added.

“If they stick, we’ll miss (CUSMA) when it’s gone, for sure. But unless the U.S. replaces (CUSMA) with 50 per cent tariffs or something that’s really egregious, we will still be adjusting to something that’s less onerous than what we’re in now.”