Following a 30-day reprieve, on March 4, 2024, the United States imposed global 25% tariffs on Canadian goods entering the US and 10% on energy imports. Canada has responded by imposing a retaliatory surtax of 25% on certain US-origin goods entering Canada and announcing that more goods will be added to the list in the coming weeks.
We discuss these developments and key considerations for Canadian businesses below.
Recent Developments
United States Tariffs
Pursuant to the Executive Order signed by President Trump, effective March 4, 2025:
- 25% tariffs apply to products of Canadian origin other than energy products;
- 10% tariffs apply on Canadian origin fuels (including oil, gas, uranium, and natural gas).
These are global tariffs with very few exemptions, meaning that they will have wide impact on Canadian exports. However, on March 5, 2025, President Trump granted a one-month exemption for cars and trucks that are originating under the CUSMA.
Canada’s Retaliatory Surtax
Canada responded with the imposition of 25% tariffs on $30 billion of US origin products detailed in US United States Surtax Order (2025-1), (the “Surtax Order”) which includes approximately a thousand different Canadian tariff classification codes.
US origin goods for the purposes of the Surtax Order are those that are eligible to be marked as goods of the United States in accordance with the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations.
Canada has also announced its intention to impose additional retaliatory tariffs on an even greater number of goods on March 25, 2025 and is seeking input from Canadians on the list of additional goods that may be subject to additional surtax. However, Canada may implement tariffs on goods found on the proposed list prior to March 25, 2025, should the US impose additional tariffs on Canada in the days to come.
Canada’s retaliatory surtaxes contain certain exclusions, notably that the 25% tariffs do not apply to:
- Goods in transit to Canada on March 4;
- Pneumatic rubber tires that are for use as original equipment in the production of any vehicle, machine, or appliance referred to under that heading; and
- Goods that are eligible for classification in accordance with special provisions, such as those dealing with temporary importations, Canadian goods abroad, and settlers’ effects.
Canada’s trade incentive programs, including the duty relief and duty drawback programs, remain in place regarding the additional tariffs. These programs allow Canadian businesses to either avoid having to pay these tariffs or provides for a refund of the additional tariffs paid when the imported goods are then re-exported either in the same condition or after having been used, consumed, or expended to produce other goods that are then exported.
The Canadian government has also announced a remission process whereby the 25% surtax may be refunded if certain conditions apply, such as the absence of alternative sources of supply other than from the US.
Impact of Tariffs and Mitigating Risk
Tariffs/surtaxes are a tax on imported goods. The practical effect is to increase the costs of imported products, harm margins, and potentially make such goods less competitive in the domestic market, as the added costs are passed on to consumers in the form of higher prices.
To mitigate the impact of tariffs, businesses should:
- Determine whether imported goods are subject to retaliatory duties by assessing: (1) whether they are of US origin within the meaning of the surtax order; (2) whether their goods fall under a subject tariff item.
- Review supply chains to identify vulnerabilities and alternate sources of supply for products.
- Review contracts of supply for provisions that may be relevant to either passing on costs, termination, or suspending obligations including:
- Payment and pricing terms governing duties;
- Rights of termination; and
- Force Majeure.
- Consider whether remission or drawback/duties relief may be an option.
Conclusion
Discussions between the Canadian and US governments concerning tariffs and retaliatory surtaxes are ongoing, and therefore the situation may change rapidly. Fasken will continue to monitor the situation and provide updates accordingly.
