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CUSMA and Trade Negotiations: What Happened, and What Does it Mean for Canada’s Cultural Sector, Industries and Sovereignty?

CUSMA and Trade Negotiations: What Happened, and What Does it Mean for Canada’s Cultural Sector, Industries and Sovereignty?

By Clara Godbillon-Vasseur and Miriam Kramer

Photograph of the United States' and Canada's flags

Last update: September 1st, 2026

As the United States, Canada and Mexico have been reviewing and renegotiating the Canada-United States-Mexico Agreement (CUSMA), Prime Minister Mark Carney announced on Friday, August 21, 2026 that Canada was walking away from trade negotiations with the United States at this time, citing last minute terms and demands that would not be beneficial to Canada. This brief aims to decrypt these most recent developments and their impact on Canada's cultural sector and creative industries, as well as on Canada’s sovereignty.

Background

The Canada-United States-Mexico Agreement (CUSMA), which was negotiated under the previous Trump administration and entered into force on July 1, 2020, is a free trade agreement that keeps the vast majority of North American trade tariff-free. It is set to expire automatically after 16 years (in 2036) unless the parties agree to extend it. A formal joint review was set for year 6 of implementation, in 2026, to assess the agreement’s performance, propose updates and decide whether to extend the agreement past 2036. 

When the U.S. refused an extension of CUSMA on July 1st, 2026, CUSMA remained in force, but the three parties have now entered a process of annual review and renegotiation until a new agreement is reached or until CUSMA terminates in 2036. As long as neither the U.S. nor Canada exercises its right to withdraw from the agreement (which neither country has done so far), CUSMA still applies to the trade between the two countries until 2036.

New tariffs despite CUSMA

Exceptions were made under CUSMA for tariffs that would fall under the International Emergency Economic Powers Act (IEEPA), which allows the U.S. president to regulate economic transactions during situation of critical national emergencies that could threaten the country’s sovereignty.

Since February 2025, the U.S. has used Section 232 of the IEEPA to restore previously imposed tariffs and impose new ones on imports from Canada (such as copper, steel and aluminum), citing national security concerns to claim emergency powers. The U.S. also used other sections of the IEEPA to impose broad tariffs, which some U.S. courts have struck down. Most recently, the U.S. government used Section 338 of the U.S. Tariff Act—which gives the president the power to impose a maximum tariff of 50% on imports from countries that are deemed to “discriminate” against the U.S. specifically—to impose 50% tariffs on a list of goods from Canada, including alcoholic beverages, dairy products and auto parts. These tariffs were briefly paused during negotiations but eventually came into effect on August 22, 2026.

In retaliation, the Government of Canada announced its own tariffs on U.S. goods, set to take effect on September 8. The government also announced a $7.5 billion package of additional measures to support Canadian workers and businesses, the details of which have not yet been released. These retaliatory tariffs may be permitted under Section 53(2) of the Customs Tariff, which allows the Governor in Council, on the required ministerial recommendations, to adopt measures to enforce Canada’s rights under a trade agreement or respond to foreign governmental acts, policies or practices adversely affecting Canadian trade.

While the new tariffs imposed by the US and effective as of August 22, 2026 do not directly affect the cultural sector and creative industries, they impact various goods that could increase production costs, especially textiles, electronics and paper products.

Reassuring signal for Canada’s Francophonie and cultural sector

According to PM Carney, one of the dealbreakers that led the Government of Canada to walk away from trade negotiations is the necessity to preserve Canadian cultural sovereignty.

Canada’s top negotiators stated that the U.S. had issues with Canada's subsidies for Francophone culture, its emphasis on the discoverability of French-language content online and the requirement to have bilingual labels on products sold in Canada. However, on August 25 and 26, 2026, U.S. President Donald J. Trump and U.S. Trade Representative Jamieson Greer said that French-language requirements were not a red line for the U.S. in these trade negotiations. 

Either way, the cultural exception clause in CUSMA, which allows Canada to take measures to support and protect its cultural industries, seems to be a priority for the Government of Canada. While it does not seem to be immediately threatened at this point, it could become a bargaining chip in the future. 

Threats to Canada’s Cultural and Digital Sovereignty

Canada’s cultural sector and creative industries have already been drawn into broader Canada-U.S. trade tensions. In recent months, U.S. policymakers, technology companies and industry associations have criticized a number of Canadian cultural policies—including the Online Streaming Act and Digital Services Tax—characterizing them as discriminatory toward American firms. While these measures have not yet been subject to the same trade actions faced by sectors such as dairy and alcohol, the rhetoric surrounding them suggests that Canadian cultural policy could remain vulnerable to future trade challenges.

The same dynamic may emerge in the digital and artificial intelligence sectors. As the Government of Canada advances its goal of building sovereign AI capacity and strengthening domestic digital infrastructure, future investments or procurement policies that favour Canadian firms could face scrutiny from U.S. interest holders. This creates a potential tension between Canada's efforts to foster domestic innovation and its exposure to trade pressures from its largest economic partner.

More broadly, recent trade discussions raise important questions about the future of Canadian digital policy autonomy. Prior to the breakdown of negotiations, the U.S. Trade Representative highlighted "digital trade alignment" as an area of success. While the precise meaning of this commitment has not been publicly disclosed, it has fueled concern among observers that Canada could face increasing pressure to modify or limit digital regulatory initiatives that affect large U.S. technology companies. These concerns have been raised in relation to measures such as the Online Streaming Act and the Online News Act, both of which have been criticized by U.S.-based tech companies.

Although the implications remain uncertain, the broader issue is clear: preserving Canada's ability to pursue independent cultural, digital, and data governance policies could become more challenging in an environment where such measures are increasingly viewed through the lens of trade competitiveness and market access. Ensuring that Canada retains the policy space to support domestic cultural expression, strengthen digital sovereignty and develop its own AI ecosystem will be an important consideration in future trade negotiations.

The Cultural Policy Hub will continue to monitor this file and will work with its partners to share updates on CUSMA and trade negotiations, including future opportunities and implications for the cultural sector and creative industries.