CUSMA's ongoing renegotiation has not directly changed how trade credit risk is underwritten, according to Paul Jooste (pictured), vice-president of complex risk in trade credit at Hub International, though the broader uncertainty surrounding it has had a measurable economic effect on clients.
Jooste said the current situation needs to be understood against the backdrop of the tariff discussions that dominated the market last year, which had already created a large amount of uncertainty before this year's review outcome arrived. CUSMA has, to an extent, curbed the impact those tariffs had on businesses, he said – but the agreement itself has not gone away. It now operates on a year-to-year revision cycle running through its expiry in 2036, with an opt-out clause giving six months' advance warning if any of the three partners decides to leave.
That structure and the talks, in his view, have not meaningfully added to the uncertainty already in the market. What they have done, he said, is create an environment in which clients and policyholders have to actively manage risk in a way they previously did not need to.
"Has [CUSMA] impacted the underwriting side? Not necessarily. Has it had an economical impact? Absolutely," Jooste said. That economic impact is visible in the data, he said, with the risk environment worsening and claims frequency increasing – a strain felt not only in Canada but across all three CUSMA partners, including the U.S. and Mexico.
Clients are responding to the uncertainty in two distinct ways, Jooste said. Some are taking a wait-and-see approach, while others are proactively managing the environment and looking for ways to turn the uncertainty to their advantage. In his assessment, waiting is the weaker strategy: the environment is too dynamic for business owners to sit out, and he does not believe the situation will resolve itself in the short term.
"This is the new normal," Jooste said. Businesses need to get used to the current trading environment, he said, keep abreast of what it means for their operations, and manage it proactively rather than expect it to pass. Those willing to identify and act on the opportunities that emerge from the uncertainty, he said, are the ones positioned to survive. "Those who sit back and wait for this to resolve itself, which I don't believe is going to be in the short term, are going to be the biggest losers."
Asked what signals he watches to judge whether risk is escalating or holding steady, Jooste pointed to claims activity and non-payment activity, which his team monitors on a regular basis alongside insurers. Both have been increasing, he said. He characterized the rise as driven mainly by frequency and value rather than severity – the data isn't being pushed up by the large outlier losses he referred to as "torpedo claims," but by a steady increase in the number of claims submitted. Government insolvency statistics, which he also tracks, have trended upward over the past six months, he said, reinforcing his view that the risk environment is deteriorating.
Jooste attributed part of that deterioration to conditions beyond CUSMA alone. The tariff situation is unfolding at the same time as a broader global economic problem, he said, including an energy crisis that has pushed up transportation costs and marine insurance costs. Those increases have fed inflation across the market, he said, which in turn is contributing to the rise in defaults. He noted that Canada is not unique in confronting this combination of pressures.
"It's almost as if the uncertainty sits on top of the economic environment and is amplifying the difficult trading conditions," he said.
Asked which industries or regions are faring better or worse, Jooste said the companies best positioned are those that can pivot quickly – businesses without heavy, layered decision-making processes that can move nimbly into different markets as conditions shift. He said he continues to expect the U.S. to remain a major trading partner for Canada given how deeply integrated the two economies are. At the same time, he said, some clients are looking further afield, exploring developing markets in Southeast Asia as well as opportunities in Latin America as they diversify away from concentrated cross-border reliance.
By sector, Jooste named automotive as the industry most affected, alongside lumber, steel and aluminum – the three he described as most influenced by the CUSMA situation specifically.
