'I'm optimistic that a deal will be reached': Doyle on CUSMA renegotiations

Key Concepts

• Tariff Threats: US imposition of potential tariffs on EU goods, and potential extension to Canada.
• Retaliation: EU’s potential response with a significant retaliation package (93 billion euros) and broader non-tariff measures.
• USMCA/CUSMA: The United States-Mexico-Canada Agreement, currently under renegotiation, and its potential impact from US tariff policies.
• Risk-Off Event: Market reaction to increased trade tensions, typically involving sell-offs in trade-sensitive sectors.
• International Economic Emergency Powers Act (IEEPA): US law allowing the President to impose tariffs based on national security concerns.
• Greenland & Military Exercises: Canada’s potential participation in military exercises in Greenland and the risk of US tariffs as a result.

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Market Reaction to US Tariff Threats & Potential Retaliation

US markets are currently closed, but futures are down following renewed tariff threats from President Trump against the European Union. The EU initially prepared a substantial 93 billion euro retaliation package, but is currently holding off on implementation. Canada is also considering sending troops to Greenland for military exercises, potentially making it a target for US tariffs. David Doyle, Head of Economics at Macquarie Group, characterizes this as a significant shift in tone from the latter half of 2025, when progress seemed to be made on trade negotiations. He notes the stronger response from EU officials compared to previous instances, like the Liberation Day announcement last year.

Impact of EU Retaliation on Markets

Doyle emphasizes that substantial EU retaliation would be a “risk-off event,” triggering market sell-offs, particularly in trade-sensitive sectors. He draws a parallel to the market reaction around Liberation Day last year, where fears of retaliation drove a broad market decline. The key difference then was the lack of actual retaliation, which contributed to the economy’s resilience. If widespread retaliation occurs, Doyle predicts a negative impact on both markets and the economy, potentially leading to a “significant correction.”

Alternative EU Response Strategies

Beyond the 93 billion euro tariff package, the EU has other options. These include a more diplomatic approach to negotiate a solution with the US. More aggressively, the EU could leverage a broad-based retaliation clause passed in 2023, restricting intellectual property rights, targeting the services sector (tech and finance), and limiting market access for US companies. Doyle notes that France has suggested pursuing this more aggressive route, which he believes could be even more impactful than the tariff package. Another option mentioned is bolstering the defense of Greenland as a potential bargaining chip.

Canada’s Position & USMCA/CUSMA Renegotiations

Canada’s potential participation in military exercises in Greenland raises the risk of being targeted by US tariffs, mirroring the threats against European countries. However, the situation is complicated by the ongoing renegotiation of the USMCA/CUSMA (United States-Mexico-Canada Agreement). Doyle explains that if Trump utilizes the International Economic Emergency Powers Act (IEEPA) to impose tariffs, goods compliant with USMCA/CUSMA typically avoid the increased rates – estimated to cover 80-90% of trade.

The primary concern for Canada, therefore, isn’t necessarily the direct economic impact of tariffs, but how these threats will influence the USMCA/CUSMA renegotiations. The recent trade deal between Canada and China is also cited as a factor potentially impacting the negotiations.

Optimism Regarding USMCA/CUSMA Renewal

Despite the complexities, Doyle expresses optimism that a deal to renew USMCA/CUSMA will be reached in 2026. He acknowledges the path to a deal may be “not a straight line,” with potential for further “curveballs and strong-arm tactics” from the Trump administration. However, he believes even a deal that isn’t ideal for Canada is preferable to no deal at all. He anticipates both the Canadian and US governments will “drive a hard bargain,” and that Canada may have to accept unfavorable terms to secure an agreement. Ultimately, a renewed agreement, even with compromises, would reduce economic uncertainty and provide a positive outlook for the Canadian economy. He cautions, however, that the situation remains fluid and the rhetoric from Washington regarding Greenland could lead to a more aggressive stance towards Canada.

Technical Terms & Concepts

• USMCA/CUSMA (United States-Mexico-Canada Agreement): A free trade agreement between the US, Mexico, and Canada, replacing NAFTA.
• IEEPA (International Economic Emergency Powers Act): US legislation granting the President broad authority to regulate international trade and financial transactions in response to national security threats.
• Risk-Off: A market sentiment characterized by investors selling risky assets (like stocks) and moving towards safer investments (like bonds).
• Tariff: A tax imposed on imported or exported goods.
• Retaliation: A reciprocal action taken in response to another party’s actions, typically involving tariffs or other trade restrictions.

Logical Connections

The discussion progresses logically from the initial tariff threats to the potential responses from the EU and Canada. It then delves into the economic consequences of these actions, specifically focusing on market reactions and the impact on the USMCA/CUSMA agreement. The analysis consistently links the geopolitical situation (tariff threats, military exercises) to the economic implications (market volatility, trade negotiations). The conversation builds from broad observations about the shift in trade policy to specific details about the legal framework (IEEPA) and potential negotiation strategies.

Data & Statistics

• 93 billion euros: The potential size of the EU’s retaliation package.
• 80-90%: Estimated percentage of USMCA/CUSMA compliant goods that would be exempt from increased tariffs under IEEPA.
• 2023: Year the EU passed a broad-based retaliation clause.
• 2026: Anticipated year for the renewal of USMCA/CUSMA.

Conclusion

The current situation presents a heightened level of trade policy uncertainty. The US’s renewed tariff threats, coupled with the potential for substantial EU and Canadian responses, pose risks to global markets and economic growth. The renegotiation of USMCA/CUSMA adds another layer of complexity, with the outcome significantly influenced by the broader trade tensions. While a deal to renew the agreement remains likely, it may involve compromises for Canada. The situation requires close monitoring, as the rhetoric from Washington and evolving geopolitical dynamics could quickly alter the landscape.