As the renegotiation process gets underway with consultations, Senior Investment Strategist highlights what could spook markets and what might offer certainty
July of 2026 isn’t as far away as it might feel. That date will mark six years since the initial signing of the Canada-US Mexico-Agreement (CUSMA) that replaced NAFTA. The deal mandates a joint review process every six years, initiated by public consultations. Those consultations have now begun in the US, Canada, and Mexico, effectively firing the starting gun for three countries to renegotiate their most important trade agreements in the wake of a new US trade policy that has torn up many of the written and unwritten deals of global trade.
The period of consultation, pre-negotiation, and negotiation ahead of us may introduce new volatility into markets and economic forecasts. That may be particularly acute in Canada where Prime Minister Carney says the focus on trade negotiations has already shifted from bilateral agreements with the United States directly over sectoral tariffs to a focus on multilateral CUSMA renegotiations. BeiChen Lin, Senior Investment Strategist and Head of Canadian Strategy at Russell Investments, explains that the uncertainty this process may introduce for markets may be unwelcome, but that discipline can help advisors and their clients through another cloudy period.
“Markets usually like to see some more signs of certainty. And really, I think the way to achieve that is by trying to begin these consultations and negotiations earlier on rather than waiting until the last minute,” Lin says. “the important thing for a lot of observers in Canada is to focus on where CUSMA is going to go from here. Because to the extent that Canada can maintain the same duty-free access that they had under the currently in effect CUSMA agreement, that's going to act as a little bit of a relief valve from some of the trade pressures and some of the economic headwinds that we're seeing in the Canadian economy at the moment.”
Acknowledging that the outcome of these negotiations is unknowable at this point, Lin notes that we may see a further focus on what qualifies as a North American origin product. Just as the initial CUSMA negotiations placed a higher standard for North American origin goods in order to achieve CUSMA compliance, Lin believes there may be a further heightening of those standards. He cites the Trump administrations’ existing tariffs on automobiles as evidence that the US, at least, is focused on the origin of components in North American manufactured goods.
When dealing with the Trump administration, unpredictability is always a factor that must be considered. At least on the surface, the US President has appeared willing to walk away from negotiations or existing agreements. Despite that appearance, though, Lin argues that the incentives for all three countries point to the arrival at an eventual deal. The economic benefit for the US, Canada, and Mexico from this deal is simply too positive to pass up.
While that core motivation may drive these countries to an eventual deal, Lin notes that the path is unlikely to be linear. There will be moments, he says, when the deal seems dead. There will also be moments when a deal seems right around the corner. As those moments occur, equity markets may react emotively and where the uncertainty introduced by these negotiations may weigh on equity markets. Lin notes that this uncertainty could weigh particularly heavily on Canadian equities and the Canadian dollar, simply because the preponderance of Canadian exports are still headed to the Untied States despite recent attempts to diversify.
As he continues to observe and make sense of this evolving process, Lin says he will be looking closely at small business confidence in both the US and Canada. He explains that this enterprise segment contributes significantly to the economy of both countries. At the same time, small businesses have fewer levers to pull on their supply chains. A mega-cap business might have an easier time changing vendors, while smaller businesses tend to have fewer choices. If business confidence holds up despite this uncertainty, Lin believes it could be a sign of resilience.
Negotiation shocks may be felt by other markets as well, Lin notes, especially US equity markets which have reached near all-time highs and where valuations have crept much higher. Those dizzying heights might introduce some fragility into those markets. Conversely, Canadian equities are still trading at relative value and may see some resilience as a result.
“I think what investors need to know is that throughout the path of this business negotiation process, we could see some choppiness. We could see a return to volatility,” Lin says. “But then if you think about what happens to markets in the long term, we think that investors can benefit significantly if they maintain that long-term orientation and really stick to their strategic plan, especially in those moments when it feels the most. uncomfortable to do so.”
