US-Canada Relations Face Critical Juncture in 2026 Amid Midterm Elections and Trump's Trade Policies

A Pivotal Year for North American Ties

The year 2026 is anticipated to be a critical period for Canada-U.S. relations, influenced significantly by the upcoming U.S. midterm elections and the trade policies of President Donald Trump's administration. Analysts suggest that these converging factors will create a complex environment for the bilateral relationship, particularly concerning trade and economic cooperation.

Donald Trump secured a second term as U.S. President in the 2024 presidential election, defeating Kamala Harris. His return to the White House has already brought changes to global trade and allied relations.

USMCA Review Takes Center Stage

A major focal point for 2026 will be the mandatory six-year review of the United States-Mexico-Canada Agreement (USMCA), scheduled for July 1, 2026. This review is a crucial mechanism embedded in the agreement, requiring all three parties to assess its performance and decide on its future. The outcome will determine whether the USMCA is extended for another 16 years or enters a period of annual reviews, which could potentially lead to its expiration in 2036 if no consensus is reached.

The Trump administration is expected to leverage this review to push for renegotiation and seek concessions from both Canada and Mexico. Key areas of concern for the U.S. are anticipated to include:

• Modifications to automotive rules of origin.
• Strengthened prohibitions against forced labor imports.
• New restrictions on Chinese companies operating within North America.
• Resolution of ongoing disputes, particularly regarding Canada's dairy supply management system and agricultural policies.

U.S. Trade Representative Jamieson Greer has indicated that while the USMCA has been successful to a degree, its shortcomings mean a 'rubberstamp' of the agreement is not in the national interest, signaling a proactive stance on seeking changes.

Midterm Elections and Trade Policy Implications

The 2026 U.S. midterm elections, occurring in November, will serve as a national referendum on the first two years of President Trump's second term. The control of Congress, specifically the House and potentially the Senate, is at stake. Historically, midterm elections often disfavor the incumbent president's party. The results could either impose checks on President Trump's executive power or further embolden his policy agenda, particularly concerning trade and tariffs.

President Trump has consistently utilized tariffs as a tool of his economic nationalism, aiming to protect American industries and reduce trade deficits. In his second term, he has already implemented a 35 percent tariff on certain goods from Canada in August 2025, although goods compliant with the USMCA are exempt. Earlier in February 2025, 25 percent tariffs were imposed on most Canadian imports, with a 10 percent tariff on oil and energy, citing concerns over fentanyl and immigration, though these also saw exemptions for USMCA-compliant products. He has also proposed broader tariffs of 10 to 20 percent on all non-Chinese imported goods.

Outlook for Canada-U.S. Relations

The confluence of the USMCA review and the midterm elections introduces significant uncertainty into the Canada-U.S. trade relationship. Analysts warn that prolonged uncertainty, especially if a consensus on the USMCA extension is not reached, could stifle long-term investments across North America. The Bank of Canada has noted that tariffs and trade policy uncertainty have already reduced demand for Canadian exports, leading to structural changes in the Canadian economy and slower potential output growth.

Canadian Prime Minister Mark Carney has acknowledged the need for Canada to prepare for a potential 'post-USMCA' economic scenario, emphasizing trade diversification as a strategic necessity. Long-standing trade irritants, such as Canada's dairy supply management system and softwood lumber, are expected to be magnified during these high-stakes negotiations.