Trade uncertainty in North America is here to stay for a while. Discussions on renewing the U.S., Mexico, Canada trade pact (USMCA) are continuing, and the talks may extend beyond the U.S. midterm elections into next year. But U.S. tariffs on steel, aluminum and autos are hindering a broader agreement.

Those were some of the takeaways from a recent BMO digital event titled, “Global Trade Outlook: The USMCA and Beyond”. The event was moderated by Michael Miranda, President of BMO Family Office and Head of Investments for BMO Wealth Management. He was joined by:

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  Steve Verheul, Former Chief Trade Negotiator for Canada and Independent Geopolitical Strategist

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  Douglas Porter, Chief Economist at BMO

The discussion covered the current tariff dispute, the price of another year for maintaining the status quo and the implications for markets and rates.

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Here are the highlights:

Steve Verheul said the USMCA review is unlikely to produce a quick resolution because the talks have yet to produce terms Canada and Mexico could accept. He said the arrangements other countries reached with the U.S. last year look too thin to hold up over time. “I don’t think we’ll see an outcome in the short term,” he said. “I think it’s more likely that the discussions will continue beyond the midterms and possibly even into next year.”

While Canada and Mexico have shown flexibility on a number of the bilateral issues in the review, Verheul said the U.S. has not reciprocated. That leaves Canada and Mexico with little incentive to push toward a close. He said the central question running through the talks is U.S. tariff policy within North America, especially the duties on steel, aluminum and autos.

The timing of any new deal might still be shaped by politics. Verheul said there could be pressure on the U.S. administration to show progress closer to the midterm elections in November, but he suggested that would only matter if the substance of the offer changed. Canada and Mexico may be willing to resolve narrower issues, but a broader deal would have to address the tariff measures that matter most to both countries. Without that, any agreement may fall short of what’s needed to settle the review.

Douglas Porter said BMO’s base case calls for little change over the year ahead, with neither a new deal nor a collapse of the current agreement built into its outlook. “What we’ve been assuming in terms of our economic forecast is basically something close to the status quo persisting over the next year or so,” he said.

The cost of that holding pattern is already showing up in the numbers. The Canadian economy essentially did not grow in the year to Q1, and neither did Mexico’s. In Canada, weakness has been concentrated in exports and business investment, which Porter described as the textbook effect of trade uncertainty with a country’s largest trading partner.

The pressure is most acute in the sectors directly exposed to U.S. tariffs. Porter pointed to autos, metals and lumber as the areas where the current arrangement is most difficult to plan around. He said companies in those industries have little reason to commit capital while the duties remain in place. “It’s not sustainable to deal with these kinds of tariffs,” he said.

Tariff headlines may have driven trading volume earlier in the year, but Porter said that effect has faded as the broader market proved more resilient than investors first feared. The equity market has since turned back toward AI while bonds and currencies continue to reflect concern about the Canada–U.S. trade status.

Porter said currency markets treat the trade file as a medium- to long-term negative for the Canadian dollar. The currency has lost ground against peers, including the euro and the Australian dollar. Rate decisions abroad explain part of the story of the gap. “There’s no question that the uncertainty around Canada’s trade relationship with the U.S. has weighed on the Canadian dollar over the past year,” he said.

That uncertainty also feeds directly into expectations for monetary policy. Porter said markets a few months ago had been pricing in one or two Bank of Canada rate hikes by the end of the year, but he saw little room for the central bank to remove accommodative policy without a USMCA deal. That backdrop, he said, is also a reason Canadian rates remain more than a percentage point below their U.S. counterparts. “If we don’t get a deal with the U.S. on the USMCA this year, I put very low probability on the Bank of Canada raising interest rates this year,” he said.