A new analysis from Deloitte Canada has laid bare the economic stakes for Canada should the United States withdraw from the continental free-trade agreement, arguing that diversifying exports alone would only partially cushion the blow. The consultancy’s report, released Thursday and titled “Tariffs: A Rough Road Leads to New Destinations,” urges policymakers to pursue a parallel agenda of dismantling interprovincial trade barriers and nurturing emerging industries to safeguard long-term prosperity.
The United States accounted for roughly 70 per cent of Canada’s exports in 2025, leaving the domestic economy acutely exposed to any rupture in the United States–Mexico–Canada Agreement. Should the pact dissolve entirely, the report projects Canada’s real gross domestic product would shrink by 1.6 per cent, equivalent to a $402-billion shortfall, over the coming decade compared with the status quo baseline of current tariff levels and an intact USMCA. Employment would contract by an average of 163,000 positions annually, dragging wages and consumer spending down with it.
“What we wanted to do is to get a better picture around what the impact is if the worst happens and the USMCA falls apart, and then how much can we offset of the negative impact,” said Matthew Stewart, a Deloitte Canada partner and report co-author.
A sector-by-sector reckoning
Manufacturing would absorb the heaviest losses under the worst-case scenario. Output of motor vehicles and parts would tumble 28 per cent relative to the baseline, while electronics, machinery and equipment would shed 21 per cent. Rubber and plastics products would decline 20 per cent and chemicals 13 per cent by 2036. The oil and gas sector, currently insulated from a 10 per cent global U.S. tariff, would also feel the chill: oil sales south of the border would drop 11 per cent and natural gas exports would contract by 30 per cent.
The authors describe the overall prognosis as “a severe but not cataclysmic impact on Canada’s overall economy, although perhaps cataclysmic for some sectors.”
The limits of new markets
The report’s best-case scenario envisions Canada preserving its existing trade architecture, including the USMCA, while simultaneously negotiating new agreements with partners elsewhere. Yet the modelling suggests the rewards of diversification, though welcome, would fall well short of offsetting the damage inflicted by a U.S. withdrawal. Under this optimistic trajectory, real GDP would expand by 0.6 per cent, or $141-billion, across the next decade, generating close to 53,000 jobs per year. Agriculture stands to benefit most, particularly through deeper trade with China and India, alongside segments of the manufacturing sector.
The authors argue that Canada cannot simply redirect established commodities to new buyers. “It also needs to lean into policies that enable greater self-sufficiency … by breaking down internal barriers and developing new areas of specialisation at home that lay the basis to competitively serve world markets.”
Removing the barriers within
The report points to Ottawa’s recent spending on defence, export infrastructure and critical-minerals refining as encouraging signals. It also highlights Deloitte research from 2025 suggesting that a full phase-out of interprovincial trade barriers over five years could generate an extra $881-billion in economic output by 2040 and create 133,000 jobs. Stewart acknowledged that capturing the entire prize would be unrealistic, though he believes at least half remains within reach.
“Together with the diversification and more open internal trade, we could offset most of the decline from a worsening situation with the United States,” he said.
Why it Matters
The Deloitte analysis reframes a familiar debate over trade diversification by insisting that Canada’s resilience cannot rest on new external partners alone. With the U.S. economy still the destination for the lion’s share of Canadian exports, the report makes a forceful case that dismantling the country’s own internal trade frictions is no longer a peripheral policy ambition but an economic necessity. Whether Ottawa treats it as such may well determine how deeply Canadian workers, manufacturers and resource producers feel the tremors of any rupture with Washington.
