Effective Tuesday, February 4, 2025, Canadian imports into the United States will be subject to an additional 25% tariff, except for Canadian energy products, which will be subject to a 10% tariff, pursuant to an Executive Order “Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border” (Executive Order) signed by U.S. President Donald Trump, on February 1, 2025. Similar tariffs were also imposed on goods produced in Mexico.
In response, the Canadian government announced that it will impose 25% tariffs on C$155-billion of goods from the U.S. — with C$30-billion tariffs imposed on February 4, 2025, and the remaining C$125-billion duties imposed after a 21-day delay to allow Canadian businesses some time to adapt. The full list of specific goods subject to Canadian retaliatory tariffs will be released soon.
The U.S. Executive Order and the Canadian retaliatory measures will significantly impact the economy and disrupt the two countries’ decades-long free trade relationship.
As described in our recent bulletin, Welcome to 2025: Are You Ready for Tariffs?, tariffs will have wide-ranging impacts on Canadian businesses and their global supply chains, and businesses should review their supply chains, supplier contracts and customs valuation methodologies to assess the financial and operational impact of tariff measures.
U.S. Executive Order: Canadian Products Subject to Additional Tariffs
A new 25% tariff will be imposed on all products of Canada except energy and energy resources, which will be subject to a 10% tariff.
“Energy” or “energy resources” include crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water and critical minerals. Electrical energy is not clearly included in energy or energy resources.
These new tariffs are in addition to the current rate of customs duties for goods imported into the U.S., if any. Most Canadian-produced goods imported into the U.S. were previously duty-free under the Canada-U.S.-Mexico Free Trade Agreement (CUSMA).
Non-Canadian goods imported into the U.S. from Canada should not be subject to the tariffs. Canadian travellers’ effects are also not included in the new tariffs.
Further details will be available when the Department of Homeland Security amends the Harmonized Tariff Schedule of the U.S. (HTSUS). Businesses should monitor announcements related to the amendment of the HTSUS by U.S. Federal Register notice on or before February 4, 2025.
Other key takeaways include:
- Goods in transit exempt. Goods loaded onto a vessel at a port of loading or in transit in the final mode of transit on the way to the U.S. prior to 12:01a.m. ET on Saturday, February 1, 2025, are exempt from the new tariffs.
- No duty drawbacks. A duty drawback is a refund of customs duties, taxes or fees paid on imported goods that are subsequently exported, destroyed or used in the production of exported goods. The Executive Order forecloses duty drawbacks with respect to the new U.S. tariffs. This means that integrated supply chains across the U.S. and Canadian border are affected by tariffs on intermediate goods each time they cross the U.S. border, even if they are subsequently exported, destroyed or used in the production of exported goods.
- Elimination of de minimis exception. The Executive Order eliminates the small value (de minimis) exception for all imports from Canada — not just for the purposes of the new tariffs. The U.S. previously excluded small-value imports from Canada under US$800 from duties, which are frequently relied upon by small businesses and e-commerce sellers.
- End date. The U.S. government stated that the tariffs will remain in place until President Trump determines that Canada has taken adequate steps to alleviate purported border security concerns about illegal immigration and illegal drugs.
Canada Retaliates: U.S. Products Subject to Additional Tariffs
In response to the U.S. Executive Order, the Canadian government released an Order-in-Council United States Surtax pursuant to subsection 53(2) and paragraph 79(a) of the Customs Tariff implementing phase 1: a 25% tariff effective February 4, 2025, on select U.S.-originating products including orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper. The complete list is available here.
The next phase of 25% tariffs will be effective in 21 days and will include a wider range of products such as passenger vehicles (including electric vehicles), steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.
Other key takeaways include:
- Consultation period. A full list of the remaining goods will be made available shortly for a 21-day public comment period prior to implementation.
- Goods in transit exempt. Goods in transit to Canada on the day the Order comes into force — February 4, 2025, or the day on which it is registered — will be exempt from the phase 1 tariffs.
- Non-tariff measures. The Canadian government also alluded to potential non-tariff measures to come, in consultation with provincial authorities, including measures relating to critical minerals and blocking U.S. bidding on Canadian government procurement. In its response, Ottawa emphasized that no province or sector would bear a relatively higher burden of retaliation.
The Canadian government’s position is that the U.S. tariffs are in violation of CUSMA, and it could seek redress through a panel convened under the state-to-state CUSMA dispute resolution procedures. However, such disputes can be protracted, and CUSMA itself is up for renegotiation beginning in 2025.
It is widely expected that private parties who are adversely affected by the U.S. tariffs will challenge the U.S. Executive Order before U.S. courts, possibly on the basis that the tariffs exceed the President’s authority under the emergency powers described in the Executive Order. It remains to be seen whether such actions, if taken, would be practically effective in relieving or delaying the impact of these tariffs.
Our team is closely monitoring developments, and we will provide updates when more details are made available by Canada and the U.S.
For further details, please contact the authors or any other member of the Blakes International Trade group.
