US threat fuels uncertainty for businesses

US President Donald Trump's threat not to renew the Canada-United States-Mexico Agreement is widely seen by experts as a negotiating tactic that could increase uncertainty for businesses and investors across North America.

Mesbah Fathy Sharaf, an economics professor at the University of Alberta, said Trump's comments should be taken seriously, "but I would not treat them as a final decision to walk away from CUSMA".

"This sounds like a way of putting pressure on Canada and Mexico before the review process. The message is basically that the US does not want renewal to be automatic," he said.

Trump recently suggested that Washington may not renew the trade deal during its scheduled review process, raising fresh questions about the future of North American economic integration.

Sharaf said the remarks appear to be "mostly a negotiating tactic", though they also reflect broader US priorities.

"Washington has concerns about trade deficits, manufacturing, supply chains and economic security," he said. "The US is likely looking for tougher rules on autos, steel and aluminum, agriculture, digital trade, and enforcement. It may also want a review process that gives it more leverage in the future."

Ronald Stagg, a history professor at Toronto Metropolitan University, said Ottawa has already taken steps to ease tensions with Washington while preparing for trade talks.

"What else will be on the table has not yet been revealed," Stagg said.

The US appears to be seeking additional concessions in several sectors, including dairy, steel and aluminum, forest products, and regulations affecting media and technology companies, he said.

Limited room

Sharaf said that while Canada and Mexico may push back on some US demands, their room to maneuver remains limited due to their reliance on the US market.

"Canada and Mexico can resist, but only up to a point," he said. "Both countries depend heavily on the US market, so they cannot ignore American demands."

Meanwhile, the relationship is not entirely one-sided.

"The US also depends on them," Sharaf said. "Canada supplies energy, minerals and agricultural products, while Mexico is deeply tied into US manufacturing."

The greatest risk from a more contentious review process is the uncertainty it creates for businesses and investors, he said.

"The biggest problem would be uncertainty. Businesses do not like making long-term investment decisions when trade rules may keep changing," he added.

If reviews become more frequent or increasingly political, companies could delay investments, reconsider supply-chain strategies or build additional costs into their operations, Sharaf said.

"This would matter a lot in sectors like autos, energy, agriculture and advanced manufacturing, where North American supply chains are highly connected," he said.

Stagg argued that the broader significance extends beyond individual trade disputes.

"The fact that the Americans have been negotiating with Mexico for some time also signals that Canadian negotiations for a renewed CUSMA will be difficult," he said. "The old close trade relationship with the United States no longer exists."

Canada should no longer expect preferential treatment from Washington, he added.

The uncertainty surrounding the agreement could also reinforce Canada's efforts to diversify its trade relationships beyond the US.

When access to the US market becomes uncertain, Canada has more reasons to look elsewhere, such as Europe and Asia-Pacific, Sharaf said.

However, he said people should not expect rapid change.

"The US market cannot be replaced quickly because of geography, scale and decades of integration," he said.

"So diversification is important, but it is more of a long-term insurance policy than an immediate substitute."

gaoyang@chinadailyusa.com