Next year’s USMCA renegotiations are ‘fork in the road’ for Canada

Next year’s renegotiation of the U.S.-Mexico-Canada Agreement (USMCA) will be critical for the Canadian economy, says Vim Thasan vice-president, Canadian equities with Beutel Goodman Investment Counsel.

Thasan said the formal review of the free-trade agreement, scheduled to start on July 1, 2026, will be a pivotal step for Canada — one that is already being discussed in boardrooms and executive committees around the country.

“This fork in the road is really important,” he said. “A positive renewal essentially encourages business investments and reduces any risk of recession whereas a fractured negotiation really means more protectionist policy and more cause for concern.”

Speaking on the Soundbites podcast, Thasan said the Canadian economy was relatively stable in 2025, despite some challenges. In its current form, the USMCA (also known as CUSMA) largely protected Canadian exports into the U.S., and headwinds like slowing population growth were offset by declining interest rates and the federal government’s new pro-growth agenda.

In addition, some pockets of the Canadian economy fared particularly well, with the Toronto Stock Exchange delivering back-to-back years of greater than 20% return.

“Three buckets probably account for about two-thirds of the move,” he said. “One is gold, a meaningful contributor, and a much larger part of the Canadian equity market, at about 12% to 13%. Banks certainly have been very strong contributors. And then we’ve had a very narrow group of technology leaders in Canada, specifically Shopify and Celestica.”

While he stressed that Beutel Goodman Investment Managers is all about bottom-up investing rather than macro forecasting, he said some sectors look interesting in the current moment.

Fears over potential disruptions caused by artificial intelligence have led to some dislocations in the market, he said. In particular, there are opportunities in the technology and industrial space.

“We own a company called CGI, a global IT consulting and managed services leader, and it’s been pressured by this macro uncertainty, but also this fear of what AI will do to the IT services sector. As a result, the stock is now trading at historical low valuation and a very attractive free cash flow yield in the high single-digit range.”

He is also finding niche opportunities in the auto collision repair segment, which has been going through some cyclical pressures. One firm he likes is Boyd Group, one of the country’s largest auto collision repair networks.

“Earnings have been depressed because used-car prices have pushed down the salvage-versus-repair equation, and high insurance premiums have led to lower claims activity,” he said. “But the fundamentals, we believe, are at a bit of an inflection point. Same-store sales growth are starting to improve. That will lead to more cars in the shop to improve margins, and free cash flow generation.”

Despite the general optimism over Canadian equities, he said there are also some watch points.

“You’ve seen some dividend cuts in the telcos and renewables and tariff-exposed sectors,” he said. “This is an indication that the balance sheet is not as strong because the free cash flow generation is not supporting some of the uses of capital.”

Another watch point is private credit stress, rising due to the intense pressure on tech companies to build out AI-related infrastructure.

Looking forward, he said new opportunities for Canada are likely to present themselves in the energy sector.

“I think with the growing role of natural gas, LNG, and energy infrastructure, the narrative has changed with the change in leadership,” he said.

The bottom line is to stay invested and to stay diversified.

“There are a lot of factors that move the market. Timing the market does not work, but diversification does,” he said.

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.