Tariffs, CUSMA and the Canadian Labour Market

The US Supreme Court ruling on the International Emergency Economic Powers Act (IEEPA) highlights a critical distinction for the Canadian economy: while legal victories in Washington offer symbolic relief, the preservation of the Canada-United States-Mexico Agreement (CUSMA) remains the primary determinant of stability for the labour and staffing sectors.

The Significance of the IEEPA Ruling

The U.S. Supreme Court recently struck down the administration's authority to impose broad-based tariffs under the IEEPA, ruling that such powers rest with Congress. While this removed a 35% tariff threat on non-compliant goods, its direct impact on Canada is relatively muted. Approximately 89% of Canadian exports already enter the U.S. duty-free by meeting CUSMA rules of origin. Consequently, the ruling affects less than 5% of total Canadian exports.

For the labour market, the real challenge persists through Section 232 tariffs, which were not part of this court case. These "national security" duties continue to target vital sectors such as steel, aluminum, and automotive parts, industries that are heavy users of both permanent and temporary staffing.

Impacts on the Labour and Staffing Market

The trade environment has created a bifurcated labour market in Canada. Industries dependent on U.S. demand, which employ roughly 1.9 million Canadians, have faced significant headwinds.

Sectoral Job Losses: Data from 2025 indicates that goods-producing sectors have borne the brunt of trade uncertainty. Manufacturing and trade-related industries saw notable employment contractions, while the services sector (largely insulated from these specific tariffs) continued to add jobs.
Staffing Volatility: The staffing industry often serves as a bellwether for economic shifts. In the current climate, many firms have moved toward a "wait-and-see" approach. A recent RBC report notes that only about one-third of Canadian firms intended to hire over the coming year, reflecting a cautious sentiment driven by trade-related risks.
Regional Disparities: The impact is most visible in manufacturing hubs like Windsor–Sarnia, where unemployment rates climbed significantly as auto production and parts manufacturing slowed in response to cumulative tariff pressures.

The Role of CUSMA as an Economic Shield

The analysis underscores that Canada’s competitive advantage is tied directly to its status as the lowest-tariffed trade partner of the U.S. This status is maintained entirely through CUSMA exemptions. If these exemptions were to fray or be removed during upcoming treaty reviews, the effective tariff rate on Canadian goods could jump from roughly 3% to over 20%.

For the staffing and recruitment sector, the preservation of CUSMA is the difference between a managed slowdown and a severe industrial contraction. The integration of North American supply chains is so deep that many intermediate goods cross the border multiple times. Without the "lower-friction" trade provided by CUSMA, the cost of labour-intensive production in Canada would become prohibitive, likely leading to further factory closures and the migration of production (and jobs) to the United States.

Outlook for 2026

The baseline forecast for the Canadian economy rests on the assumption that CUSMA exemptions will remain intact. While the IEEPA ruling limits the U.S. administration's ability to use "emergency" powers for blanket tariffs, it does not prevent the use of other legislative tools.

The staffing market will likely remain in a state of flux as businesses navigate these regulatory shifts. Until there is more certainty surrounding the formal CUSMA review, hiring in trade-exposed sectors is expected to remain subdued, with growth continuing to lean heavily on the service-producing side of the economy. Maintaining the current free-trade framework is not just a matter of trade policy; it is the fundamental requirement for stabilizing the nearly two million Canadian jobs tied to the American market.