Stock Prices in Canada Gradually Increase, Remaining Bullish Regarding Prime Minister's Outlook
Canadian businesses and the economy are bracing for a potential shake-up as the long-awaited review of the Canada-US-Mexico Agreement (CUSMA), also known as USMCA, approaches in 2026. The review, which could significantly impact Canadian businesses and the Canadian economy, especially if the U.S. under President Donald Trump adopts a hard stance, is a source of both concern and opportunity.
Possible scenarios for the 2026 USMCA review:
The renewal of the agreement for 16 years with minor updates could preserve stability for investors and businesses, but it may defer needed modernization in areas like AI integration and supply chain resilience. On the other hand, a painful extension, where Canada and Mexico offer concessions to the U.S., could impose tougher U.S. content requirements in the auto sector, tariff rate quotas on Canadian manufacturing and agriculture, and higher wage thresholds restricting preferential tariff treatment. This scenario could lead to increased inflation and unemployment due to decreased regional competitiveness and productivity.
Economic vulnerability and trade dependence:
With about 75% of Canada’s merchandise exports going to the U.S., representing nearly 25% of Canada’s GDP, the Canadian economy is particularly vulnerable to disruptions caused by heightened U.S. tariffs and trade tensions. Canada has limited retaliatory options because counter-tariffs could harm its economy further. This underscores the importance of diplomatic engagement to resolve trade irritants during the 2026 review.
Sectoral and bilateral considerations:
The trade framework has boosted sectors such as automotive and agriculture, but ongoing disputes (e.g., steel and aluminum) remain a challenge. The USMCA offers opportunities for growth in energy, technology, and services if managed cooperatively, but hardline stances could disrupt these prospects.
Broader implications:
A contentious renegotiation could deter investment due to uncertainty, raise costs for Canadian exporters, and fragment North American supply chains, undermining the economic integration that Canada heavily relies on.
This week, Canadian wholesale trade and manufacturing sales numbers for June are set to be released this Friday. Meanwhile, Canadian stocks ended higher on Monday, with the S&P/TSX Composite Index reaching an intraday high of 27,841.39 before closing at 27,775.23, up by 16.55 points. Major sectors that gained in today's trading include Healthcare, Consumer Discretionary, Consumer Staples, and Industrials, while Utilities, Materials, Real Estate, and Energy sectors saw losses.
Constellation Software Inc and Goeasy Ltd were among the prime market-moving stocks today, while Capstone Mining Corp, Ivanhoe Mining Ltd, CDN Apartment Un, and Baytex Energy Corp were the notable losers among individual stocks. Bausch Health Companies, Linamar Corp, Rb Global Inc, and Bird Construction were the prominent gainers among individual stocks.
As the USMCA review looms, Canadian Prime Minister Mark Carney reassured the nation about building a strong economy and protecting businesses and domestic workers. However, a new poll suggests that Carney's popularity might be slightly declining, but net approval remains positive. Traders are also focusing on the upcoming meeting between Trump and Russian President Vladimir Putin on August 15.
[1] Source: C.D. Howe Institute, Brookings Institution [2] Source: Canadian Chamber of Commerce, Business Council of Canada [3] Source: Government of Canada, U.S. Trade Representative
- The renewal of the USMCA for 16 years with minor updates could maintain a stable environment for financing and investing in Canadian businesses, but it might delay necessary modernization in areas like AI integration and supply chain resilience.
- A contentious renegotiation of the USMCA could discourage investment in Canadian businesses due to uncertainty, increase costs for Canadian exporters, and disrupt North American supply chains, potentially leading to inflation and unemployment.
