US Supreme Court Ruling Makes Upcoming CUSMA Review Even More Critical for Canada

By Steven Globerman and Jock Finlayson

On February 20th, the United States Supreme Court (SCOTUS) released its long-awaited decision on the legality of the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs. In a 6-3 decision, SCOTUS upheld a lower court’s decision that Trump exceeded his presidential authority under that Act, and that congressional authorization is needed because the sweeping “emergency” tariffs President Trump imposed last year have major economic and political significance.

While a welcome limit on this (or any other) president’s legal ability to cite national emergencies to leverage economic and political concessions from other countries, the ruling has only a limited direct impact on Canada. The sectoral tariffs Trump imposed in 2025 on Canadian exports of steel, aluminum, autos and lumber were enacted under different U.S. legislation (Section 232 of the Trade Act of 1971) that provides presidential authority to introduce trade restrictions due to national security. To-date, President Trump’s use of the IEEPA to justify across-the-board tariffs on Canadian goods—because of a supposed flood of fentanyl and illegal immigrants entering the U.S. from Canada—has had a very limited overall effect on Canada’s exports, since the bulk of such exports are still able to enter the U.S. tariff-free, provided they satisfy the North American content rules under the Canada-U.S.-Mexico Free Trade Agreement (CUSMA).

Notwithstanding the SCOTUS ruling, the Trump administration retains significant authority to levy tariffs and implement other restrictions on imports. Consequently, substantial uncertainty will continue to surround the Canada-U.S. trade relationship. It’s unclear whether and how the ruling will affect the Trump administration’s position and bargaining demands in the upcoming trilateral review of CUSMA. However, the SCOTUS ruling, coupled with a recent congressional vote to revoke Trump’s emergency tariffs on Canada and disapproval of Trump’s tariffs by a majority of Americans, may strengthen Canada’s hand in the CUSMA review process. To the extent that Trump acknowledges that judicial, political and public opinion are turning against his slapdash trade protectionism, he might be more willing to engage in constructive discussions with Canada (and Mexico). Indeed, shortly after the ruling the president threatened to levy a new 10-15 per cent tariff on most U.S. imports, but exempted Canada and Mexico. For Canada, this means it’s worthwhile to work toward a revamped CUSMA, notwithstanding Trump’s occasional musings about walking away from the agreement.

But clearly, to retain the CUSMA framework Canada must make politically difficult concessions on issues such as agricultural supply management, cultural protection, banking and telecommunications regulation, and possibly the regulation of drug prices. Any concessions in these areas will also come with significant transition costs (although one can argue that most of the changes in Canadian policy that Trump might seek are in Canada’s long-run economic benefit to implement). It’s also worth noting that any serious Canadian push to diversify trade will also carry substantial costs including major expenditures to develop new and improved transportation infrastructure. Investing in trade-enabling infrastructure to support export diversification may also exacerbate political tensions between provinces, as evidenced by the friction between Alberta and British Columbia over a potential new oil pipeline from Alberta through B.C. to supply Asian markets.

Of course, the Trump administration may decide to disregard any trade agreement when it believes it’s politically advantageous to do so, although it’s again worth noting that the bulk of Canada’s exports to the U.S. have remained shielded from U.S. tariffs under the auspices of CUSMA.

In any case, a recommitment by the Trump administration to CUSMA, perhaps accompanied by a side agreement to reduce or eliminate U.S. sectoral tariffs on specific Canadian goods, would provide time for the Carney government to identify and implement trade diversification initiatives. In this period of cross-border friction, one hopes that Prime Minister Carney keeps an open mind about rejuvenating the bilateral economic relationship with Canada’s predominant trading partner.

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