I recently came across a rather

shocking new poll

suggesting that fewer than half of Canadians believe the end of the Canada-U.S.-Mexico Agreement (

CUSMA

) would be bad for the country. Only 45 per cent said it would hurt Canada, while a majority believed it would make no difference or might even be beneficial, according to the Abacus Data survey of 1,500 Canadians in February.

As a portfolio manager I do not have the luxury of taking such a head-in-the-sand approach. This is because markets do not price public opinion; they price outcomes. Consequently, there are material risks whenever large economic risks like this are misunderstood, minimized, or ignored, potentially resulting in large losses in areas traditionally viewed as safe.

Under CUSMA’s own rules, the agreement is up for formal review this June and the United States has the unilateral ability to withdraw entirely with notice or pivot toward a bilateral framework on its own terms. A cancellation or downgrade does not require congressional gridlock or multilateral consensus.

The problem is that Canada’s economic

trade

is highly geographic with roughly three-quarters of goods being exported to the United States, and roughly 85–90 per cent of these currently entering the U.S. duty‑free. Without CUSMA, trade defaults to WTO most‑favoured‑nation tariffs and exposes Canada to U.S. trade‑remedy tools such as Section 232, Section 301, anti‑dumping, and countervailing duties. Even small tariffs matter enormously in high‑volume, low‑margin, just‑in‑time trade, which describes much of Canada–U.S. commerce.

Private‑sector modelling suggests that in the absence of CUSMA Canada’s real gross domestic product (GDP) would likely be one to two per cent lower than otherwise over several years, reflecting reduced export competitiveness, weaker investment and supply‑chain disruption. That may sound manageable but not when Canada’s real GDP performance in Q4 2025 was the worst in the G7 with a loss of

0.2 per cent

.

And then consider this: Canada’s GDP per capita peaked around 90 per cent of the U.S. level particularly during the post-Second World War era (1945 to 1970s). Today it has fallen to about 65–75 per cent, representing the widest sustained

gap between the two countries

since the post‑Second World War era.

Trade disruption would also likely weaken the Canadian dollar and introduce stagflation‑like dynamics. Higher import costs and tariffs would create short‑term inflation pressure, adding to the affordability crisis in this country. For example, Canada still has some of the worst food inflation in the entire developed world, nearly double the rate they have in Japan, the next closest G7 country.

From an investor’s perspective, this introduces a discrete, time‑bound policy risk that is currently being priced as if it does not exist.

Canadian long‑term bondholders are exposed to a dangerous mix of policy drift, fiscal slippage, trade vulnerability and duration risk, all while being inadequately compensated for bearing those risks. The issue is not whether Canada would “collapse” without CUSMA but whether its economic trajectory would quietly and persistently continue to deteriorate. Long‑term bonds are promises about the future, and right now that future is being priced far too optimistically.

For those wondering what the impact would potentially be, simply take a look at the United Kingdom, New Zealand and Australia. These are all countries Prime Minister Mark Carney appears to be emulating the economic policy frameworks of, including aggressive energy transition goals layered onto mature, heavily regulated economies.

Canada’s 10‑year yield currently sits near 3.25 per cent, while the U.K., Australia, and New Zealand trade roughly 100 basis points higher. If Canadian yields were to migrate even partway toward that peer group, long‑term Canadian bondholders could face mark‑to‑market losses in the range of nine to 10 per cent, without any recession or credit event. This is pure duration risk, magnified by policy uncertainty.

The bottom line is that trade diversification is sensible but it is not a substitute for CUSMA. Geography, infrastructure and supply chains make the United States structurally irreplaceable for Canada. Even optimistic diversification strategies take decades, not years. In the meantime, investors must price the risk that Canada’s growth model becomes less efficient rather than more resilient under our current leadership.

For fixed‑income investors, caution argues for defence over complacency. That can mean selectively replacing Canadian long-term bonds with foreign sovereign exposure, or, in our case, eliminating Canadian government bonds entirely in favour of structured notes with substantial downside buffers. We also view gold as a useful partial hedge against sovereign and policy risk, especially striking given Canada’s status as the only OECD country with no official gold reserves.

Unacknowledged risk doesn’t vanish; it waits, often with serious consequences for those who choose to never see it coming.

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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