Macro & Strategy - June 2026

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I will survive

CUSMA renegotiation and Canada’s push for economic sovereignty

“At first, I was afraid, I was petrified
Kept thinking I could never live,
Without you by my side,

But then I spent so many nights
Thinking how you did me wrong
And I grew strong
And I learned how to get along”

– Gloria Gaynor

Prime Minister Mark Carney says Canada faces a rupture. U.S. President Donald Trump says he doesn’t need anything from Canada. As both countries get ready to renew their vows under the Canada - United Stated - Mexico Agreement (CUSMA) review mechanism, the relationship between the two neighbours is at historical lows, and risks getting rockier. Yet geography and years of economic integration mean that a breakup is all but impossible.

This month, we argue that the proper reaction to the current trade situation is not to be afraid or petrified, but to grow strong and learn how to get along.

CUSMA: No divorce but lingering uncertainty

Going into 2026 , the potential renewal of CUSMA by July 1 was high on the worry list of Canada’s business and financial community. Many were focused on a binary outcome : deal or no deal.

Yet, it’s becoming clearer that the ongoing renegotiation is unlikely to give us that clarity. The more realistic outcome isn’t a dramatic rupture or a new agreement that buys another decade - plus of trade peace, but a shift toward a noisier, more recurring negotiation process with persistent uncertainty in the background.

The July 1 question: deadline or political theatre

The key date on the calendar is July 1. But it is not a true deadline ; rather, it is a procedural milestone used to apply pressure without necessarily producing a comprehensive agreement. The framework offers three broad paths. The first is a renewal that extends the agreement for 16 years. The second is a failure to sign by July 1, leading to annual renegotiations until 2036.

• Canada is seeking to reduce its dependence on the United States by diversifying its exports and reviving domestic productive investment.
• Large upcoming public investment could put upward pressure on interest rates.
• We remain overweight North American equities, underweight fixed income and more neutral on the U.S. dollar.

Lurking in the background is the possibility that, at any point, one country (most likely the United States) will announce its intention to pull out of the agreement unilaterally, effective six months later.

A clean 16- year renewal looks unlikely. Tensions between the three countries are running high, and such a renewal would need to be ratified by the U.S. Congress – a challenging prospect in the current environment . At the same time, an outright U.S. exit also looks unlikely, given North America’s integrated supply chains and the economic and market impact that an exit would entail. In other words, the base case is continuity, but with more friction.

Thus, July 1 is likely to pass without a full agreement, or with a limited agreement that leaves several clauses open for further talks . In that setting, sector - specific tariffs are likely to remain, while free trade continues to apply to most other flows.

The matter of the midterms

Many observers have pointed out that the midterm elections in November could serve as a turning point. A Democrat majority in Congress would curtail President Trump’s power over trade and pressure the administration to seal the deal.

We think they’re indulging in wishful thinking.

The Trump administration has relied extensively on executive power for its trade policy, even with the House and Senate controlled by the Republicans. We have no reason to think this approach will change, regardless of the outcome of the midterms. The Supreme Court has partially curtailed executive power over trade, but many legal avenues are still available to the administration, including sectoral tariffs and country - specific tariffs.¹

Which brings us to a broader discussion about the usefulness of CUSMA and of trade deals with the Trump administration. Recent U.S. tariffs are a clear breach of the agreement, but there are no redress mechanisms available to Canada or Mexico. Even with a 16- year renewal, the current, or the next, administration could breach the agreement again.

The upshot is that investors and businesses will eventually get used to this new contentious, inherently unstable trade relationship with the United States. But unfortunately, the risk of tensions will stay elevated, and protectionism seems to be here to stay.

Economic sovereignty: Diversify what you can and fortify what you must

Free trade within North America has largely been a success for all three countries.

For Canadian businesses, it secured easy access to the world’s largest consumer market. Although the benefits should not be understated, the strategic costs of Canada’s dependence on the U.S. market have now become clearer. Barrier - free trade is more critical to Canada than to the United States, and the Trump administration’s willingness to use that asymmetry as political and economic leverage has highlighted the value of reducing dependence.

Two pillars stand out in Canada’s response. The first is trade diversification. The second is a push to raise competitiveness and productivity through investment and faster project execution.

Trade diversification: some progress, hard limits

The good news is that diversification efforts are already showing up in the data.

Canada’s exports to the United States are falling while exports to other countries are rising. As of March 2026 , exports to non - U.S. markets increased by more than 30 % over the previous year, while U.S.- bound exports declined by about 6%. But, given the relative size mismatch of both export markets, the U.S. share of total Canadian exports has fallen only to 67% from the mid - 70 % levels that prevailed before Trump’s return to the White House.

Thus, we have plenty more work to do. Energy exports are a clear way to accelerate diversification. Even though completion of the Trans Mountain pipeline allowed Canadian oil to find new buyers in Asia, our oil exports still go overwhelmingly to the United States. Similarly, the LNG Canada export terminal for liquified natural gas on the west coast enables Canadian producers to find new export markets, and more capacity is planned.

That shift is strategically valuable. It reduces Canada’s single - market concentration risk and strengthens its negotiating posture. But it also has clear limits. We cannot change our geography, and some sectors cannot realistically replace the U.S. market on a short horizon, the auto industry being a case in point. More than 90 % of Canadian auto exports still go to the United States, with little volume elsewhere, reflecting deeply integrated North American supply chains. Several other industries are similarly intertwined with U.S. suppliers, standards, logistics, and demand.

Canada cannot realistically move on without the United States as its main trading partner. But it needs to behave as if it could, at least at the margin, so that coercion becomes less effective . CUSMA is still essential, but strategic resilience requires credible options and credible execution.

Productivity and competitiveness: the infrastructure channel

The second pillar is domestic. Canada’s productivity woes and anemic investment growth have been well documented (see our discussion here) and are making the country more vulnerable. Reversing that trend is key. Carney’s plan calls for $1 trillion in new investment in five years, with a strong emphasis on large infrastructure and resource - related projects.

So how is that plan going? A central element is the Major Projects Office (MPO). Several projects have been referred to it, such that it has a pipeline of $100 - $150 billion. At least in theory, the concept is straightforward: Accelerate permitting and coordination, reduce administrative drag, and convert capital interest into real shovels in the ground.

The early signs are modest but positive. Recent corporate activity includes Shell’s acquisition of ARC Resources and Enbridge’s substantial investment in British Columbia’s natural gas pipelines. We note rising foreign direct investment (FDI), with FDI net of Canadian direct investment abroad turning positive early in 2025 for the first time in over a decade. Foreign portfolio flows are also strong ; last February saw foreign investors buy more Canadian equities than the other way around for the first time since 2022. Canadian debt also continues to attract buyers, given our (albeit fragile) AAA rating.

Although improved economic conditions and confidence in Carney’s pro - growth agenda seem to be contributing to foreign investor optimism, Canadian businesses remain cautious. The Bank of Canada’s survey still shows slightly negative net sentiment, despite recent optimism about investment plans.

In summary, Canada’s plan to strengthen its domestic economy is progressing nicely, but much remains to be done . And it starts at home, namely ensuring Canadian businesses have reason to invest again.

Canada Strong Fund: A good idea 10 years too soon?

In this broader strategy, a sovereign wealth fund is an eye - catching proposal, but details are still scarce . The role of a typical sovereign wealth fund is to turn current economic surpluses tied to a dominant resource revenue stream into durable wealth. But Canada still doesn’t have a current account surplus in 2026.

That point matters a fair bit. If the country isn’t generating large external surpluses, funding a sovereign wealth fund can resemble debt - financed investing.

In that case, the fund becomes another public financing vehicle, in the same family as the Canada Infrastructure Bank, the Business Development Bank of Canada, and the Canada Growth Fund . How does a sovereign wealth fund truly differ from what already exists, and what problem does it solve better than the existing toolkit?

The strongest strategic rationale might be intertemporal. Building a structure now could prepare Canada for a future when it becomes a net saver, perhaps under a scenario of materially higher exports. Otherwise, a pragmatic alternative would be consolidation: Streamline the existing public investment vehicles and partner more deliberately with large Canadian asset managers to scale infrastructure investment.

A strategy not without risks

Looking at the federal government’s overall economic strategy, we see two risks that deserve emphasis. First, overreliance on public money could threaten Canada’s fiscal advantage. We think Canada’s AAA rating may be at risk (see our December 2025 monthly here), and the recent Spring Fiscal Update shows no clear plan to return to a balanced budget.

Second, the broader pro-growth pivot under the Carney government appears to lean heavily on new and existing agencies and on process navigation rather than on deep structural reforms to taxation or regulation. The durability of the pivot will depend on whether execution can overcome institutional inertia.

Ultimately, Carney’s plan for a stronger Canada will be judged on whether it achieves its goals. Will Canada successfully diversify its trade away from the United States? Will business investment rise, leading to improved growth and productivity? It’s still early days, but investors and Canadians will want to see tangible results soon.

Market implications: less tail risk, more regime risk

CUSMA continuity is positive, even if imperfect

Keeping the broad contours of CUSMA should be viewed positively, even if the outcome is one of lingering trade uncertainty. It potentially removes a major tail - risk scenario but the likely shift toward ongoing negotiation means a higher baseline of policy noise, particularly for sectors exposed to targeted tariffs.

Canada infrastructure is still a live investment theme

The pivot toward major projects and investment acceleration supports the infrastructure theme. If the Major Projects Office pipeline project came to fruition, it would lift domestic demand, improve oil-sector productivity, and create opportunities across construction, engineering, industrial services, utilities, and selected private credit linked to real assets.

Canadian dollar: Appreciation is plausible under the right conditions

The Canadian dollar sold off after Trump’s election and his various threats to Canada. It has since rebounded but is stuck in a range of US$0.72- $0.74. A stronger investment narrative, rising foreign capital inflows, and improved competitiveness could trigger an appreciation above this level.

Long-term rates: upward bias

A higher public investment agenda combined with expanded public financing tools generally implies more duration supply and higher long - term rates, especially if markets begin to price in a less favourable fiscal trajectory. Even without a fiscal shock, the balance of risks for long-end yields tilts upward when the state leans more actively on its balance sheet.

Conclusion: sovereignty without autarky

Canada isn’t trying to decouple from the United States. It’s trying to reduce its vulnerability to a single market while building a more productive and investable economy at home. CUSMA remains central, but the new reality is a more volatile trade relationship whereby politics can re-enter the pricing of economic fundamentals.

For investors, the most useful framing is this: The probability of a dramatic rupture looks low, but a new regime of recurring negotiations, sector-level tariffs, and strategic industrial policy is taking shape.

Identifying the relative winners and losers under this new regime will be key. In other words, Canada will survive. But it will take all the (political and economic) strength we have not to fall apart.

Positioning

We are still overweight equities, with a clear tilt toward North America. Strong nominal growth continues to be driven by a large, capital - intensive investment cycle in technology, energy infrastructure, and supply chains. In the United States, earnings are capturing a disproportionate share of this growth, with recent revisions supporting margins despite tighter financing conditions. This context underpins superior earnings durability and deeper exposure to structural growth themes than in Europe, where softer momentum, weaker forward indicators, and higher energy sensitivity continue to cloud the outlook . Taken together, these factors support a concentrated equity overweight in North America.

We are still underweight fixed income. Inflation is proving more persistent than expected, driven by supply constraints and strong investment rather than an overheating labour market. In the United States, inflation is stuck above target and is set to accelerate beyond 4% this summer as a result of the oil shock, leaving the Federal Reserve with limited room to cut rates. At the same time, governments are issuing more debt, and investors are demanding higher compensation to hold it.

Our view on the U.S. dollar is becoming more balanced. With the Fed less likely to cut rates aggressively, the downside for the dollar is more limited. At the same time, higher energy prices are weighing more heavily on Europe, creating divergences across currencies. While the dollar should remain supported in the near term, longer-term forces are becoming more mixed. We therefore moved away from a clearly negative stance to a more neutral view.

¹ Canada, like many other countries, is under investigation pursuant to section 301, which allows for up to 25% tariffs on specific countries .