Adapting to CUSMA changes amid a year of trade negotiations

The trade landscape is evolving rapidly. Ongoing legal and policy developments continue to reshape tariff risk, requiring businesses to regularly reassess their exposure. Meanwhile, the Canada-United States-Mexico Agreement (CUSMA), which governs $1 trillion in annual Canada-U.S. trade, is under formal review, with its future direction still to be determined.

For Canadian exporters who rely on equitable access to the American market, the challenge isn’t just managing tariff exposure today, but preparing for what comes next.

“Exporters can’t control trade policy outcomes, but they can take concrete steps right now to protect their contracts, their supply chains and their cash flow, regardless of how the negotiations unfold,” says David Weiner, Export Development Canada’s (EDC) regional vice-president in the United States.

The first mandatory review of CUSMA took place on July 1, 2026. The agreement was not renewed and will now face annual joint reviews.

While negotiations continue, other tariffs impacting Canadian exporters are still in play. The U.S. Supreme Court struck down tariffs imposed under the International Emergency Economic Powers (IEEPA), prompting tens of thousands of importers to register for refunds totalling $127 billion. The U.S. also introduced temporary tariffs under Section 122 of the U.S. Trade Act, which allows tariffs to address serious balance-of-payments deficits. These tariffs can only be renewed by Congress, but generally don’t impact CUSMA-compliant goods, notes Weiner. 

But that’s not the whole story, he adds. The U.S. also launched inquiries under Section 301 (a mechanism to investigate trade violations) against Canada and 59 other countries. Other tariffs covering Canadian steel aluminum, automobiles, auto parts, lumber and furniture remain in effect for now. 

Between CUSMA uncertainty and other possible tariffs, exporters should prepare for changes and act now to manage risk against future volatility. 

Businesses that could be impacted by new tariffs should review their existing export contracts. If these contracts don’t specify who covers the added tariff costs, they may face significant payments, says Iryna Burak, senior advisor, International Business Advisory Services at EDC.

“Companies are reviewing their contracts and sales terms with their U.S. buyers to determine who absorbs the tariffs costs. Many exporters, especially those with low margins, can’t absorb those costs themselves, so we’re seeing them try to pass some, or all, of the tariff burden on to their U.S. customers,” she says.

 Key contract review items include:

1. Who’s explicitly responsible for paying tariffs
2. Under what conditions a contract can be cancelled or renegotiated
3. What arbitration provisions exist
4. Whether force majeure clauses are broad enough to cover sudden tariff changes
5. Pricing adjustment mechanisms tied to duty rate changes

Incoterms—universal trade terms used in sales contracts—also play a critical role in allocating risk, cost and responsibility. Under all 11 Incoterms, except DDP, the buyer typically handles import clearance and payment of duties. Careful negotiation of Incoterms and explicit contractual clarity around tariff responsibilities are essential to managing risk and ensuring smooth cross‑border transactions.

Navigating tariff classification, rules of origin and customs compliance may require professional input—particularly at a time when tariffs are rapidly changing.

“You don’t want to navigate this yourself. Trade compliance specialists are essential. How you describe a good, its contents, the origin of the finished product entering the U.S., all make a significant difference,” says Weiner.

“It also matters long term: If U.S. Customs and Border Protection (CBP) believe you’re misrepresenting goods, you get on a watch list and everything your company exports to the U.S. will be closely scrutinized, with potential fines and penalties,” he says.

Canadian exporters should create their own regulatory and compliance program that builds regulation requirements into their processes from the earliest stages, including market research and research and development.

Businesses can explore compliance and reporting requirements through the Canada Border Service Agency’s online guide and Compliance & logistics: What you don’t know could cost you.

For those who need guidance, Burak says support is readily available.

“We recommend that small- and medium-sized enterprises, who often lack dedicated in-house trade compliance expertise, engage customs brokerage and trade consulting firms before turning to trade lawyers,” she says. “A trade lawyer’s work is generally dispute-driven, when a company is already subject to an audit by CBP or enforcement action.

“In contrast, trade consulting firms can act as an extension of the company’s trade compliance or logistics team, providing proactive support through staff training and ongoing compliance assistance with requirements such as CUSMA compliance,” she adds.

Managing CUSMA and other free trade agreement (FTA) solicitations and qualification processes can be time‑consuming and resource intensive. Trade consultants can help by running FTA solicitations, engaging and following up with suppliers and validating submissions for accuracy and completeness. They can also assess and qualify products for FTA eligibility, and when goods don’t qualify, provide practical guidance on sourcing or manufacturing changes to achieve compliance. Consultants can manage these processes year‑round and adjust qualifications as supply chains or production inputs change.

Unexpected tariffs can trigger U.S. importers to delay or cancel contracts when faced with high taxes on goods. Trade credit insurance—specifically EDC’s accounts receivable insurance—is increasingly relevant for exporters facing the possibility of unpaid accounts. Accounts receivable insurance can cover that disruption and protect cash flow by offering coverage for non-payment up to 90% of insured losses if a customer fails to pay.

With market volatility putting increased pressure on exchange rates, EDC’s Foreign Exchange Guarantee (FXG) is also relevant for companies who are hedging to manage risk.

“Hedging essentially means you’re promising to buy a set amount of currency at a specific exchange rate, like a forward contract. When you do that, the bank or foreign exchange firm will typically ask for collateral as assurance. What FXG does is provide a guarantee to the bank, so they don’t require collateral from the Canadian exporter,” says Weiner.

Between geopolitical upheaval, tariffs and climate impacts, supply chain diversification is not only a best practice, but a necessity.

“The more choices you have on the supply chain, the less exposed you are. Supply chain resiliency—having more than one supplier for any component and a thorough analysis of your vulnerabilities—is critical,” says Weiner.

Some Canadian exporters are combating the uncertainty by moving part of their operations to the U.S. This may include establishing a U.S. subsidiary or assembly/manufacturing plant. This move, however, requires a careful assessment of costs, compliance obligations and operational risks relative to expected benefits when optimizing their supply chains. Tariff reduction alone shouldn’t be the sole consideration, Burak says.

“What does it cost to have operations in the U.S. versus Canada? Is the move driven by long‑term market access, customer proximity, or resilience—or mainly by short‑term tariff mitigation? Do the projected tariff savings outweigh increased costs related to U.S. labour, real estate, compliance, taxation and ongoing operations? Each company needs to do their own analysis of whether it’s worth it,” she says.

Before relocating, Weiner advises exporters to seek advice from EDC’s experts.

He cites an instance when a food manufacturer considered moving production to the U.S., but hadn’t factored in that U.S. sugar can be up to 40% cheaper in Canada. Plus, importing European machinery for the U.S. location would attract a 35% tariff.

“This exporter ran the numbers and concluded she was having a knee-jerk reaction. Even if a tariff applied on Canadian exports, she could still land a product in the U.S. at a lower price than manufacturing there,” he says.

Other common options to mitigate tariff exposure and rising landed costs include:

1. Consolidation of shipments: By consolidating multiple shipments into a single customs entry when commercially and operationally feasible, importers can limit merchandise processing fee (MPF) charges, otherwise assessed on a per‑entry basis and subject to minimum and maximum thresholds. This approach can help reduce overall customs clearance costs, especially for companies with frequent, smaller shipments into the United States.
2. Bonded warehouses: By storing inventory in the U.S., exporters can defer duty payments until the goods are formally released for U.S. consumption. This will improve cash flow and provide a buffer against evolving U.S. trade policy, where tariff measures may be amended, expanded, or replaced by subsequent actions.
3. Foreign trade zones (FTZs): These have similar cash flow benefits as a bonded warehouse, deferring payment of duties until goods enter the U.S. market. But FTZs offer greater operational flexibility, allowing activities such as assembly, processing and manufacturing, as well as unlimited storage time.
4. Import for Re-Export Program (Global Affairs Canada): This program allows Canadian manufacturers to import U.S.-priced inputs such as dairy for use in products re-exported to the U.S., without applying Canadian tariffs.

Reducing exposure to tariffs by relocating parts of a business should be done in phases, adjusted to risk tolerance and market conditions. Exporters should consider:

• Third-party logistics providers (3PL): By handing logistics, inventory management, warehousing, order fulfillment and transportation to a 3PL, exporters can get to customers without investing in infrastructure. This strategy also de-risks border delays.
• Rented warehouses: This allows businesses to have a U.S. footprint without the commitment and risks of ownership.
• Contract manufacturing or co-packing: By contracting a U.S. producer already operating at scale to manufacture a product, exporters can enter— or leave—a market without needing infrastructure.

The buzzword for exporters is diversification—for good reason. Building diversified export relationships beyond North America reduces the risk of over-concentration on where revenue originates. For example, with its rapid economic growth, billions of potential customers and appetite for new goods and services, the Asia-Pacific market is a key area for diversifying exporters.

But diversification doesn’t just mean finding buyers in other countries. Despite current tariff concerns, the U.S. is also where many global multinationals are headquartered and where companies contract suppliers capable of serving them globally.

“Accessing a C-Suite decision-maker at a multinational in the U.S. is far easier than doing so in Japan or Korea. There’s less cultural formality and it’s geographically close,” says Weiner, who adds that regardless of the current trade situation, existing relationships with U.S. suppliers and buyers should be protected.

“The most important thing is to protect your relationships. Don’t take adversarial positions with your U.S. counterparts over something neither side controls. Governments will sometimes force us into uncomfortable positions. What we can control is how we treat the people on the other side of the table,” he says.

Looking longer term, Canadian companies shouldn’t lose sight of U.S. demand for Canadian exports, he adds.

“There are things Canada has that the U.S. genuinely needs, like critical minerals, defence capabilities, technologies that the U.S. can’t produce on its own or fast enough. That’s where Canadian exporters should be focusing,” he says. “Not on what we used to sell the U.S., but on what they actually needs from us.”

While there isn’t one indicator of risk exposure for Canadian exporters, key factors combined can impact businesses, says Prince Owusu, an economist with EDC.

• Market-level demand: Exporters should closely track demand and growth momentum, industrial production and Purchasing Managers Index (PMI) readings. “When these indicators weaken simultaneously, it often signals rising inventory pressure and greater buyer sensitivity to price changes, which increases the risk of contract renegotiation or delayed payments,” says Owusu.
• Exchange rates and financial conditions: Movements in bilateral Canadian dollar exchange rates can change contract profitability quickly, especially when economies are under pressure. It’s important to review contractual currency clauses, payment terms and hedging strategies.
• Trade policy and cost passthrough indicators: Exporters take note: When higher trade costs, including customs friction, compliance costs and logistics, “coincide with weakening demand, exporters’ ability to pass costs through diminishes.”
• Supply chain stress: Measures such as global supply chain pressure indices, shipping rates and delivery times provide early warnings about cost volatility and disruption risk.

Exporter sentiment and confidence: “Data shows that exporters reporting declining confidence are more likely to delay investment, tighten credit terms, or pull back from marginal markets—even before hard data deteriorates,” says Owusu.

EDC offers a range of financial and knowledge solutions to help Canadian exporters navigate this environment:

• Trade Impact Program was launched to help Canadian companies manage economic uncertainty in response to trade disruptions. The program has deployed $5 billion in support.
• Accounts receivable insurance covers up to 90% of losses if a foreign buyer fails to pay. It protects you against a range of issues, including contract cancellation, non-payment and U.S. buyers facing changed tariff conditions.
• Foreign Exchange Guarantee (FXG) enables exporters to hedge currency exposure through forward contracts without posting collateral.
• Portfolio Credit Insurance allows you to offer longer payment terms and can cover contract repudiation in some cases.
  
• Financing and guarantees for U.S. expansion, including standby letters of credit, asset-based lending across the border and support for acquisitions or joint ventures.
• Advisory support through the Export Help Hub team, provides navigational guidance on market entry, supply chain strategy and U.S. expansion decisions.