Aftermath of 1989 Canada-U.S. Free Trade Agreement (CUSFTA) shows workers transitioned smoothly to new roles after layoffs

As the issue of tariffs between Canada and the United States intensifies, a recently published study found that tariff reductions, overall, are a good thing for workers.
The Canada-U.S. Free Trade Agreement (CUSFTA), implemented in 1989, significantly impacted the Canadian labour market over the long term, according to the study by researchers  Brian Kovak, of Heinz College, Carnegie Mellon University; and Peter Morrow, of the Department of Economics at the University of Toronto.
While Canadian tariff cuts heightened layoff risks, most workers transitioned smoothly into new roles across various industries, they found out after using 21 years of longitudinal worker-firm administrative data from Statistics Canada and examining how Canadian workers navigated increased export expansion and import competition.
"Canadian tariff reductions did not lower total years worked or cumulative earnings for workers during the 16 years following the FTA’s enactment," the study states.
The 25-per-cent tariffs that U.S. President Donald Trump had threatened to impose on American goods that cross the border into Canada will be in force starting Feb. 4, 2025.
Meanwhile, Canada is moving forward with 25-per-cent tariffs on $155 billion worth of goods in response to the “unjustified and unreasonable tariffs imposed by the United States (U.S.) on Canadian goods”, according to the federal government.
Low tariffs and layoffs
The study from the Carnegie Mellon University and University of Toronto researchers found that Canadian workers in industries where tariffs were reduced faced a higher probability of job separation. Among low-attachment workers at large firms, an interquartile increase in Canadian tariff cuts led to a three-percentage-point rise in layoffs.
In contrast, U.S. tariff cuts under the agreement reduced layoff risks by two percentage points in the same group.
Despite these job losses, the study found little impact on total employment over time, as many displaced workers found roles in alternative manufacturing industries, construction, and services.
"Canadian workers quickly moved from industries facing large increases in import competition to industries facing smaller shocks," the study states.
Nearly nine in 10 (87 per cent) Canadian employers say they are prepared to deal with those tariffs and that even if they may impact the course of business initially, they will be able to pivot and adjust accordingly, reports the Chief Executive Group. Only 13 per cent say it would be devastating for their companies.
Export expansion helps offset layoffs
One of the key reasons for the smooth transition, according to the study, was the reciprocal nature of the agreement. While Canadian workers faced increased import competition due to domestic tariff reductions, the simultaneous lowering of U.S. tariffs created new employment opportunities in industries that gained greater access to the American market.
"Workers subject to Canadian tariff cuts were able to replace lost years of employment by transitioning to closely related industries benefiting from U.S. tariff cuts," the study explains.
The study also found that Canadian tariff cuts primarily affected new job entrants rather than incumbent workers, limiting the overall impact on long-term employment.
With Canadians expecting job cuts, 80% of them want the Canadian federal government to support people who would be impacted by job losses because of the tariffs, according to a previous report.
Free trade and long-term earnings
The study also found no significant impact on overall long-term earnings. Even among those who lost their jobs due to Canadian tariff cuts, income losses were largely offset by new employment opportunities.
"The effects of import competition on overall earnings remain small and indistinguishable from zero at all time horizons," the study states.
Previously, Ontario Premier Doug Ford praised the federal government’s plan to secure the Canada-U.S. border in response to Trump’s threat to impose tariffs on Canadian imports.
Here are the products from the U.S. that will be subject to 25 per cent tariffs effective Feb. 4, 2025.