NAFTA to CUSMA: What you need to know about Canada-U.S. free trade agreements

Canada, the United States (U.S.) and Mexico are close allies and trading partners. They’ve traditionally benefitted from a long-standing free trade relationship that was first formally codified in the Canada-United States Free Trade Agreement, followed by the North American Free Trade Agreement (NAFTA), and finally its replacement, the Canada-U.S.-Mexico Agreement (CUSMA). While CUSMA remains in force, recent decisions by the second Trump administration have strained the trading environment between the three partners.

Canada-U.S. trading relationship

Among each other’s largest trading partner, the two countries exchanged C$3.6 billion per day in goods and services in 2023, supporting millions of jobs in both countries. A shared language, land border and business culture make it easy for Canadians to do business in the U.S.

In 2023, trade between Canada and the U.S. exceeded C$1.3 trillion, with C$3.5 billion worth of goods and services crossing the Canada-U.S. border daily. Since 2015, bilateral trade has increased by more than C$400 billion. The economies are deeply intertwined, with significant foreign direct investment (FDI) from both sides. The U.S. is the largest investor in Canada. Canada was America’s largest source of FDI in 2022, and Canada’s is the largest foreign supplier of energy to the U.S.

The Canada-U.S. trade partnership is more than just an economic alliance; it supports millions of jobs and enhances the quality of life in both countries. This relationship is built on trust, shared interests and a history of working together.

Free trade benefits Canada, the U.S. and Mexico

With the review of CUSMA slated for 2026, it’s important to recognize that the U.S. benefits from its relationship with Canada, including access to our technology, resources, and reliable, secure energy. Canada’s also the number one export market for three dozen states, and approximately 40 states export more than C$1 billion in goods and services each to Canada annually. Approximately 70% of Canadian goods exported to the U.S. are used in the manufacturing of other goods.

Free trade agreements (FTAs) benefit all member countries by reducing or removing tariffs and allowing goods and services to flow freely, increasing economic growth.

Free trade between Canada and the U.S. began with the Canada-U.S. Free Trade Agreement, which came into force in 1989. In 1994, this agreement was replaced by NAFTA, which added Mexico to the trading block, increasing trade and financial flow between three countries. In 2020, CUSMA replaced NAFTA after U.S. President Donald Trump came to power and initiated the renewal and renegotiation that was already written into the agreement.  

What’s CUSMA?

CUSMA is the Canada-U.S.-Mexico Agreement—colloquially called NAFTA 2.0 or the new NAFTA, and referred to as the USMCA in the U.S. and T-MEC in Mexico—and for the most part, it maintains and builds on the elements of its predecessor.

NAFTA to CUSMA

Trade rules between Canada and the U.S.  changed slightly under CUSMA. For example, it introduced new market access provisions for automotive and agricultural products and updated rules governing investment, government procurement and intellectual property (IP) rights. 

CUSMA also includes cultural exemptions that allow Canada to support local artists and cultural producers and provides a “sunset review” mechanism after six years (2026), which U.S. President Donald Trump has vowed to invoke.

CUSMA also includes a “non-market economy” (NME) clause that requires notification if a member country begins negotiations with an NME. It includes provisions that:

• protect against devaluation of currencies;
• simplify, standardize and modernize trade-related customs procedures; and
• make it mandatory for state-owned-enterprises (SOE) to adhere to market forces and provide non-discriminatory treatment to competitors.

Another clause prevents the transshipments of dumped steel and aluminum goods from other countries. CUSMA also includes provisions that aim to create a more inclusive and equitable trade environment, such as acknowledging Indigenous peoples' rights and support for gender equality.

EDC’s assessment of the CUSMA negotiations was positive to neutral. Two-way trade in goods grew from C$648 billion in 2020—the year the new agreement came into force—to C$968 billion in 2023, according to Statistics Canada. 

The CUSMA review

As we approach the review of CUSMA in 2026, it’s worth noting that the U.S. benefits significantly from its relationship with Canada:

• Our nation provides technology, bountiful resources and secure energy;
• Canada is the No. 1 export market for 36 U.S. states;
• About 40 states export about C$1 billion annually to Canada; and
• Imports from Canada strengthen American industry and support U.S. manufacturing. 

Trade diversification is always a good strategy

Canada has a strong trading relationship with the U.S., but it also benefits from other trade agreements that offer increased opportunities for exporters to diversify their markets. Canada’s the only G7 economy with comprehensive free trade access to all G7 nations and the European Union (EU). Our 15 free trade agreements (FTAs) cover 61% of the world’s gross domestic product (GDP) and give Canadian businesses access to 1.5 billion international consumers.

FTAs remove tariffs on goods and services, lower customs and duty charges, and create a predictable and transparent trade and investment environment, giving Canadian exporters a competitive advantage. 

Trust EDC to answer your export-related questions

Concerned about the upcoming CUSMA review? Contact us for insights and support in navigating the benefits of Canada’s trade agreements, including CUSMA. Our experts can answer your questions and provide products to help you mitigate risks.

For example, our Foreign Exchange Facility  Guarantee can help exporters hedge against currency fluctuations.

Our Export Guarantee Program can help finance your expansion into the U.S., and our subject matter experts can provide in-market advice as you explore all the benefits of trade agreements, or continue to grow your exporting portfolio.