New Deloitte modelling shows trade diversification alone won't fill the gap from a CUSMA breakdown
A formal US withdrawal from the Canada-United States-Mexico Agreement (CUSMA) would strip $402 billion from Canada's real gross domestic product over the next decade and eliminate approximately 163,000 jobs annually on average.
Trade diversification alone would only partially offset those losses, according to a new report released this week by Deloitte Canada.
The report, "Tariffs: A Rough Road Leads to New Destinations," was co-authored by Matthew Stewart, a partner in Deloitte Canada's Economics and Financial Advisory group, alongside Danielle Bochove and Trevin Stratton of the Future of Canada Centre.
Working from a July 1 baseline — reflecting current tariff conditions with CUSMA still intact — the authors model two divergent economic futures and conclude that the gap between them exceeds $500 billion over ten years.
Two scenarios, a half-trillion-dollar divide
In the downside scenario, the US formally exits CUSMA and trade reverts to World Trade Organization Most-Favoured-Nation rates.
Canada's real GDP falls 1.6% by 2036, with manufacturing absorbing the heaviest sector losses.
Motor vehicles and parts face a 28% real GDP decline against the baseline, while electronics, machinery, and equipment drop 21%.
Rubber and plastics products fall 20% and chemicals 13%. Energy is not spared: oil exports to the US contract 11% and natural gas plunges 30%.
"The bottom line is a severe but not cataclysmic impact on Canada's overall economy, although perhaps cataclysmic for some sectors," wrote Stewart and his co-authors.
The upside scenario models Canada maintaining CUSMA while aggressively pursuing new free trade agreements globally.
Under that path, real GDP grows 0.6% by 2036, adding $141 billion in cumulative output and approximately 53,000 jobs annually.
Agriculture is the primary beneficiary, with food manufacturing projected to grow $16 billion per year by 2036 on expanded access to China and India.
What a trade breakdown means for borrowers
For Canadian mortgage professionals, the macro projections carry a direct market translation. Ontario and Quebec, Canada's manufacturing heartland, face the steepest sectoral losses under a CUSMA collapse.
Sustained job losses and wage compression in those provinces would tighten borrower qualification margins, erode housing demand, and increase stress across residential portfolios.
BMO Capital Markets' Sal Guatieri says prolonged tariff uncertainty could weaken homebuyer confidence and delay recovery, especially in Ontario and British Columbia.https://t.co/r91L9M9P1O
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 3, 2026
The Bank of Canada has held its policy rate at 2.25% since October 2025, with CUSMA uncertainty a central factor in the central bank's reluctance to resume easing.
Robert Kavcic, senior economist and director at BMO Economics in Toronto, described the persistence of trade risk as "just a reminder that uncertainty on the trade front has not gone away."
Stewart argues that one lever remains entirely within Canada's control. "The final piece that we can do, that is completely within our control, is interprovincial trade barriers," he said. "And we have been talking about this for years. And I know we made some effort to reduce them, but there's still substantial barriers."
Deloitte calculates that eliminating those internal barriers over five years would generate $881 billion in additional economic output by 2040.
"Together with the diversification and more open internal trade, we could offset most of the decline from a worsening situation with the United States," Stewart said.
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