President Trump signed an executive order on February 1, 2025 (“Executive Order“), imposing the long-anticipated tariffs on Canada, Mexico, and China under the International Emergency Economic Powers Act (“U.S. Tariffs“).Canada retaliated swiftly by implementing retaliatory tariffs/countermeasures at a rate of 25% pursuant to sections 53 and 79 of the Customs Tariff by way of an Order in Council (United States Surtax Order (2025) (“Canada Tariffs“). Read the Government of Canada’s press release here.
For the past two decades, goods have largely flowed across North American borders as duty-free, first under the NAFTA, and now under the USMCA. However, as of February 4, the U.S. Tariffs and the Canada Tariffs will apply to all USMCA qualifying goods.
Please note that this is a developing situation and this blog post will continue to be updated as further details are announced in respect of the application of U.S. Tariffs and the Canada Tariffs. You can stay updated by subscribing to Baker McKenzie’s Import and Trade Remedies blog by clicking here and entering your e-mail address.
U.S. implements 25% tariffs on non-energy imports and 10% on energy imports
The Executive Order implementing the U.S. Tariffs ties Mexico and Canada’s alleged failures to stem the flow of migrants without status into the United States and that the two countries, along with China, had failed to prevent fentanyl from being imported into the country. In particular, the Executive Order cites a FINTRAC report on laundering the proceeds of illicit synthetic opioids to justify Canada as a national security threat to the U. S. and states that Canada has failed to “devote sufficient attention and resources” to stem the tide of illicit drugs into the U.S. Despite acknowledging that fentanyl entering the U.S. from Canada is “much less” than Mexico, the Executive Order states that even small amounts of fentanyl can harm Americans.
The Executive Order imposed the following tariffs on products originating from the three countries that are entered into U.S. commerce beginning Tuesday, February 4, 2025 at 12:01 AM EST:
- 25% tariffs on non-energy imports of Canadian- and Mexican-origin;
- 10% tariffs on energy imports of Canadian and Mexican origin and
- 10% tariffs on imports of Chinese-origin goods.
The U.S. Tariffs will apply in addition to existing customs duties and anti-dumping/countervailing duties on goods being imported into the U.S.
Notably, the Executive Order includes a retaliation clause authorizing the imposition of additional tariffs in response to retaliatory measures implemented by Canada (“Should Canada retaliate against the United States in response to this action through import duties on United States exports to Canada or similar measures, the President may increase or expand in scope the duties imposed under this order to ensure the efficacy of this action.”) The Executive Order states that no exclusions will be granted, no drawback will be available, and imports from Canada or Mexico subject to the U.S. Tariffs will not be eligible for duty-free status under the current U.S. de minimis exemptions for low-value (less than USD 800) shipments.
Canada’s countermeasures
The Canada Tariffs were implemented, despite a months-long effort by the Government of Canada negotiating with the U.S. and committing to crackdown on Canadian domestic drug manufacturing and announcing a CAD 1.3 billion package to increase border security.
The Government of Canada is reported to be preparing aid packages for Canadian importers and exporters impacted by the U.S. Tariffs and Canadian Tariffs; however no official announcements have been made.
Canadian Parliament is currently prorogued until March 24, 2025 while the Liberal Party undertakes a leadership race to replace the current Prime Minister and leader of the Liberal Party, Justin Trudeau; however, the leader of the opposition is calling the House of Commons to be recalled in order to address the perceived economic crisis resulting from the U.S. Tariffs and the Canada Tariffs.
Canada Tariffs: Questions & Answers
How has the Government of Canada responded to the U.S. Tariffs?
Canada has implemented a “surtax” (a tariff) under the Customs Tariff. The surtaxes target U.S. origin goods that are classified under the tariff items listed in the implementing legislation, an Order-In-Council.
Canada will impose a 25% retaliatory tariff on CAD 155 billion of U.S. exports in response to U.S. trade actions, which will be implemented in two stages:
- Immediate tariffs on CAD 30 billion of U.S. goods starting Tuesday, February 4th, 2025; and
- Additional tariffs on CAD 125 billion of U.S. goods after a 21-day public consultation.
The Government of Canada is also considering non-tariff measures alongside provincial Premiers, including measures related to critical minerals, energy, procurement, and partnerships. The Premiers are announcing their own countermeasures. To date, British Columbia has directed the province and Crown corporations to buy Canadian goods and services and has directed the B.C. Liquor Distribution Branch to stop buying American liquor from states with Republican political representation. Nova Scotia has also committed to limiting accessing to provincial procurement for American businesses, is exploring termination clauses in existing procurement contracts with American businesses, will double the cost of tolls at Cobequid Pass and will direct the Nova Scotia Liquor Corporation to removing all U.S. liquor from shelves as of February 4. Ontario has also directed the Liquor Control Board of Ontario to remove American products from its shelves and its catalogue (preventing restaurants and retailers from re-stocking American products).
What goods are targeted by the Canada Tariffs?
The first round of Canada Tariffs apply to a wide variety of U.S. origin goods, such as beer, wine, coffee, tea, bourbon, fruit, fruit juices, vegetables, perfumes, shoes, household appliances, furniture, sports equipment, lumber, and plastics. The Order In Council implementing the first round of the Canada Tariffs identifies goods by tariff item. The entire list of tariff items is available here.
Targeted goods in the first round include tariff items within the following chapters of the Customs Tariff Schedule, Canada’s implementation of the harmonized system: Chapter 1, 2, 4, 7 to 25, 33, to 35, 39, 40, 42, 44, 47 to 49, 57, 61 to 65, 69 to 71, 73, 82, 83, 84, 85, 87, 88, 93, and 94 to 97.
Will more goods be added to the Canada Tariffs?
The Government of Canada has initiated the first round of tariffs targeting CAD 30 billion worth of U.S. origin goods. A second round of tariffs targeting CAD 120 billion worth of U.S. origin goods is scheduled to be implemented after a 21-day public consultation. The second round of tariffs will target vehicles and trucks, including electric vehicles, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.
Additionally, it is possible that the Government of Canada will retaliate further if the U.S. increases the amount of the U.S. Tariffs from 25% on non-energy imports of Canadian origin and 10% of energy imports of Canadian origin. In his press conference on Saturday, February 1st, Prime Minister Trudeau has expressed that Canada does not desire escalation.
If goods qualify for USMCA tariff treatment, do Canada Tariffs apply?
Yes. Canada Tariffs apply to goods qualifying for USMCA preferential tariff treatment. In other words, U.S. origin goods can no longer be imported into Canada duty-free; a 25% tariff will apply.
How will the Canada Tariffs be calculated on eligible imports?
The Canada Tariffs will apply in addition to customs duties and anti-dumping/countervailing duties owing in respect of the goods. The Canada Tariffs should be calculated on the declared value for duty of the imported goods. Note that GST (at a rate of 5%) is paid on the duty-paid value of the goods. Accordingly, importers should expect increased GST liability on their imports.
If a U.S. origin good imported into Canada is valued at CAD 100 and CAD 10 in MFN duties are owing pursuant to the Customs Tariff, the Canada Tariffs are calculated on CAD 100 (100 x 1..25 = 125). GST is calculated on the duty paid value (e.g. CAD 135 (CAD 100 VFD + CAD 10 MFN duties + CAD 25 Canada Tariff = CAD 135) at a rate of 5% on CAD 135.
When do Canada’s tariffs/countermeasures come into force?
The Canada Tariffs come into force in two rounds: immediate tariffs will be implemented on $30 billion of US exports on Tuesday, February 4. Broader tariffs on $125 billion worth of U.S. origin goods to be implemented after a 21-day public consultation.
The Canada Tariff does not apply to goods that originate in the United States that are in transit to Canada on the day on which this Order comes into force. The Canada Border Services Agency (“CBSA”) has confirmed in a Customs Notice that “in transit to Canada” means goods bound for but not yet arrived in Canada, and under the control of a carrier.
Importers should retain proof that goods were in transit to Canada prior to the coming into force date (February 4, 2025). Proof may include, sales orders, purchase orders, shipping documents (for example, a through bill of lading (TBL)), report of entry documents, and cargo control documents.
Note that there are specific terms in respect of goods entering a Sufferance Warehouse on or before February 4, and subsequently enter the commerce of Canada.
How is origin determined?
Origin will be considered as those goods eligible to be marked as goods of the U.S. in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (CUSMA Countries) Regulations.
An importer will have the burden of proof in claiming origin.
Personal importations of goods (i.e. casual goods) are considered to originate in the U.S. when the goods are marked as a good of the U.S., or the goods have no country of origin marking and there is no evidence that the goods are the product of a country other than the U.S.
Will the Canada Tariffs only apply to commercial goods?
TheCanada Tariffs will apply to both commercial and personal importations of U.S. origin goods, even when shipped to Canada from a country other than the U.S. See the CBSA’s Customs Notice here.
How do importers account for the surtax?
Importers must declare imported goods as subject to the Canada Tariffs when completing a Commercial Accounting Declaration via CARM Client Portal, Electronic Data Interchange or Application Programming Interface and declare the surtax code: 25015A.
The amount of surtax owing to the CBSA is entered in field 85 “Surtax” of a Commercial Accounting Document. If an importer uses the self-declare option in CARM, the amount of surtax owing must be calculated by the importer and entered in the surtax field (no. 85).
Will there be an opportunity to seek a remission order from the Department of Finance?
The Department of Finance has outlined a discretionary remission process for Canadian importers affected by the Canada Tariffs in the coming days. You can access it here. The remission process applies to the first round of Canada Tariffs and any subsequent rounds. The Government of Canada is considering requests for remission in these two instances:
- Situations where goods used as inputs cannot be sourced domestically, either on a national or regional basis, or reasonably from non-U.S. sources.
- To address, on a case-by-case basis, other exceptional circumstances that could have severe adverse impacts on the Canadian economy.
In granting a remission order, the Government of Canada will weigh public policy reasons in the factual circumstances against the policy rationale of the Canada Tariffs.
Remission requests must be sent by e-mail to fin.remissions-remises.fin@canada.ca, with “U.S. Remission” in the subject line and must include information on the following:
- Outline of company operations, corporate structure and location
- Detailed description of the goods on which remission is sought with the tariff item
- Volume and value of goods for which the remission is requested or importation information for future imports
- Evidence illustrating that the goods cannot be sourced from Canadian or non-US suppliers (including any relevant contractual provisions) and whether this is temporary or transitional
- If the goods are used in a manufacturing process, a breakdown of manufacturing costs for one unit of the good at issue and the unit selling price for the end product with an explanation of the impact of the Canada Tariff on cost and price
- Information regarding the effect of remission of employment, production volumes and investment
- Information regarding Canadian competitors
- Commentary on the request for remission, including exceptional circumstances warranting remission
- Consent to share non-confidential information to domestic producers to validate information
- Any relevant letters of support or market data supporting the request for remission
How long can I expect the Canada Tariffs to be in force?
The Executive Order states that the Secretary of Homeland Security, among others, shall inform the President of circumstances that indicate that the Government of Canada has “taken adequate steps to alleviate this public health crisis though cooperative enforcement actions” and that upon the President determining that sufficient action has been taken, the U.S. Tariffs will be repealed.
We expect that once the U.S. Tariffs are repealed, Canada will respond accordingly and repeal the Canada Tariffs.
Duty Mitigation & Risk Management
North American businesses relying on cross-border manufacturing supply chains, where goods historically flowed freely between Canada, the U.S. and Mexico, have been disrupted by the introduction of tariffs by the U.S. and countermeasures introduced by Canada.
- Be confident in the tariff classification, origin and valuation of manufacturing inputs or final goods. Accurate determinations of classification, origin, and a declared value for duty allows a business to quickly compare their tariff classifications against the terms of a surtax order and determine whether goods are subject to surtaxes. Ensuring goods are properly valued (e.g., not overvalued) will allow a business to minimize duty impact.
- Review existing and future supplier and customer contracts, in particular, provisions referencing Incoterms which are used to define obligations and apportion risk, including responsibility for customs clearance and payment of duties, in cross-border sales. Attention should also be paid to the scope of force majeure provisions, which may provide for termination rights for certain legislative action and termination and amending provisions.
- Consider re-structuring manufacturing supply chains to move origin-determining processes to a duty-effective location.
- Prepare financially. If a supply chain is at risk for tariffs, consider setting aside funds to pay increased duties and taxes (taxes are calculated on the duty-paid value of the goods when imported into Canada). Take the time to determine how tariffs may impact financial outcomes.
- Prepare government relations teams to meet with industry associations, key public officials, or consider engaging in conversations with key public officials (subject to applicable lobbying laws) for the 21-day consultation period in relation to the proposed second round of Canada Tariffs on CAD 120 billion worth of U.S. origin goods, or a business seeks to take advantage of the recently announced remission order process – discretionary relief for the payment of Canada Tariffs or a refund of Canada Tariffs already paid.
- Where possible, diversify suppliers (by jurisdiction) for key inputs. Redundancy, allowing for supply chain flexibility, can be crucial. In doing so, consider the beneficial impact of Canada’s Free Trade Agreements.
- While the Executive Order issued by the U.S. excludes the application of U.S. duty drawback programs in respect of the U.S. Tariffs, the Government of Canada has confirmed in this Customs Notice that pre-existing Canadian duties relief programs will apply to the Canada Tariffs. Some pre-existing duties relief programs that are available include the following:
- Duty Relief Program: Deferral of duties at importation on goods that will be exported either in the same condition or after being consumed, expended or used in the processing of other goods within four years.
- Duty Drawback Program: Payment of duties on imported goods, with opportunity to file a “drawback” claim (a refund of duties paid at the time of import) once goods are further processed, displayed/demonstrated, used for development or production (of other goods to be exported), or not otherwise used in Canada prior to their export.
- Canadian Goods Abroad Program: Partial duty relief for goods previously imported to Canada (duty paid), exported to another country for repair, additions, or other work and then re-exported to Canada.
