Trump’s CUSMA threat: what it means for Canadian insurers and brokers

Trump’s comments Wednesday were pointed. “I don’t know that I’m going to renew it,” he told reporters in the Oval Office, referring to the Canada-United States-Mexico Agreement. “The United States does much better. We don’t need anything that Canada has.”

The markets reacted quickly. But the headline is louder than the reality, says Joy Nott, KPMG Canada partner in trade and customs, who has more than 35 years of experience in international trade and compliance.

“I don’t personally believe the United States is going to withdraw from the agreement,” Nott said in an interview with Canadian Underwriter yesterday. “What they’re going to do is not immediately agree to renew it.”

That distinction matters. If the three countries don’t agree to a 16-year extension by July 1 — the most likely outcome, Nott suggests — CUSMA remains in place but moves into annual reviews for up to 10 years. Specific rules governing specific goods could change each year, but the deal itself stays standing. “There won’t be an interruption, per se,” Nott said. “The deal will still be in place for the next 10 years.”

What changes is the certainty around it. And for Canadian insurers and brokers, that uncertainty has direct cost implications.

Automotive rules are the most likely target. “Automotive will very likely see rule changes — to what extent, that’s the million-dollar question,” Nott said. From there, the next concentric circles of risk include metals — steel, aluminum, copper — followed by technology: semiconductors, printed circuit boards, chips. Agriculture, by contrast, is lower on the risk scale, with dairy and supply management the notable exception.

What it means for brokers and their clients

For Canadian insurance brokers, the CUSMA story is ultimately a cost story — it runs through the supply chain.

Tariffs are already pushing up the price of metals, automotive parts, and manufactured goods. That has a direct downstream effect on what it costs to repair a damaged vehicle or replace insured physical assets. “The price of replacement parts for cars could be going up,” Nott said. “And there’s no way to really know six months in advance what that’s going to look like.”

For brokers caught between regulated premium caps in some provinces and rising replacement costs, the pressure is acute. “It’s a squeeze play right across the whole,” she said. “You’ve got regulated caps on insurance, the increasing price of automotive parts, and the broker in between.”

The broader inflationary dynamic compounds the problem. Rising energy prices — themselves driven by global geopolitical pressures — are pushing up the cost of doing business across every step of the supply chain. “Inflation goes across the board,” Nott said. “Once profit margins hit a certain point, prices need to rise.”

For insurers, the implication is equally direct. However frequently replacement cost calculations are currently being reviewed, this environment demands more. “You can’t set numbers in place and expect them to be reflective of reality in 12 months’ time,” Nott said. “In this environment, that’s almost impossible.” Insurers not in a constant state of reviewing those numbers — and pushing updated figures through to brokers and on to commercial clients — risk a growing gap between what a policy covers and what it actually costs to repair or replace.

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Brokers should be having direct conversations with clients, Nott suggests. “Rising prices could potentially mean rising premiums. That would be obvious to most customers, but I think it’s the main conversation brokers should be having right now.”

For insurers and brokerages making longer-term investment and M&A decisions, Nott’s view is pragmatic. Annual renegotiations are not ideal, but they are preferable to operating without a deal entirely. “What it’s going to mean is that they’re going to have to be more nimble, prepared to make quick decisions, and tolerate a high level of ambiguity for the foreseeable future,” she said.

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Canadian exporters of physical goods to the United States are most exposed to annual reviews of CUSMA. Automotive and metals would be at the highest end of the risk spectrum; the ripple effects of any disruption would run backwards throughout the rest of the Canadian economy.

Nott expects the bulk of the significant rule changes will be settled within 12 months. “Whether or not we like them, that’s a completely different question. But they’ll be in place. We’ll know what we’re dealing with.”

Sonia Sache

Sonia is an award-winning multimedia journalist, producer TV personality and content strategist with more than a decade of experience across television, radio, digital media, and communications.