Tariff turmoil redux: US tariffs and Canadian countermeasures take effect

This is an evolving topic and information is current as of March 5.

As of March 4, the United States has proceeded with the 10-25% tariffs on Canadian-origin imports that were first announced on February 1, and Canada has introduced retaliatory measures. In this article, members of our Cross-Border Trade Law Task Force break down the latest developments and take stock of the changes to the Canada-US trade relationship that will impact Canadian and US businesses.

What tariffs did the US impose on Canada effective March 4? 

As of midnight on March 4, a 25% duty applies to all imports of products of Canada (i.e. Canadian-origin goods) into the US, except certain energy and energy resources listed below, which are subject to a lower 10% duty. The tariffs were implemented pursuant to the President’s authority to address national emergencies under the International Emergency Economic Powers Act. The tariffs were originally set to go into effect on February 4, but were paused for 30 days to allow more time for discussions between the US and Canada. 

How did we get here?

On February 1, US President Donald Trump signed three executive orders imposing tariffs on all imports from Canada, China, and Mexico. These orders were based on declared national emergencies associated with purported illegal immigration and fentanyl imports from each country.¹ The orders followed months of speculation about whether and when such tariffs would be imposed. Canada responded the same day, February 1, announcing retaliatory tariffs.² You can find our previous insights on these announcements in our publications here and here and in our webinar available here. 

With the tariffs originally scheduled to come into force on February 4, Canadian businesses were immediately preparing themselves to begin making significant adjustments. However, on February 3, President Trump and Prime Minister Trudeau agreed to pause the tariffs against Canada for 30 days, pushing the implementation date to March 4.³  

Are the US tariffs different than what was announced on February 1?  

The tariffs that have been implemented are almost identical to those announced on February 1. One of the only exceptions is a March 2 amendment by President Trump⁴ that temporarily allows for the de minimis exception (for imports valued at under $800) to continue to be available for a period of time whereas the original order indicated it would not apply to these tariffs. The de minimis exception will now remain an exception to the tariffs until “adequate systems are in place to fully and expediently process and collect tariff revenue” from such currently eligible products.⁵

More detail has also been provided on repair work and processing. Specifically, US-origin goods that are exported to Canada and then returned to the US after particular repairs/alterations/processing in Canada will only be subject to tariffs for the work performed in Canada. 

What products does the new US tariff order apply to and what are “articles that are products of Canada”?

The US Executive Order outlining these new tariffs specifically targets “all articles that are products of Canada” – which, in trade law lingo, means “Canadian-origin goods.” Not all goods shipped from Canada to the US are considered to be of Canadian origin. Goods manufactured in other countries that transit through Canada are not considered to be of Canadian origin.   

The country of origin of a good depends on technical rules of origin set out in the trade agreements. Typically, they require a good to undergo some degree of substantial transformation in a country in order to become a good of that country. Through its customs notice, the US has stated that whether a product is of Canadian origin will be determined both under the Canada-United States-Mexico Agreement (CUSMA) rules of origin, as well as whether Canada was the last country of “substantial transformation” prior to importation into the United States.⁶

The rules are designed such that companies do not have carte blanche to change the origin of a good in the hopes of avoiding or decreasing duty costs. For example, companies will not be able to avoid the tariffs by shipping products manufactured in Canada to an interim location before the US – since the rules depend on the location of manufacturing processes, not shipping routes. 

What goods will be subject to the US tariffs on Canada? Are there exemptions for industries such as defence or for intangible products?

With very few exceptions, the duties apply to all tangible goods of Canadian origin that are entered through US customs for consumption. There is no mention of exemptions for industries such as defence or aerospace. 

The order does not appear to cover intangible goods or services that have traditionally been exempt from duties and tariffs. Thus, for example, the tariffs do not appear to apply to transfers of digital software or other electronic transmissions of technical data.  

Electricity has also traditionally been treated as an intangible product that is not cleared through customs and, therefore, not subject to import duties/tariffs. The order, however, has caused some confusion regarding its applicability to hydro-electric generated electricity given the definition of energy and energy resources includes “the kinetic movement of flowing water,” which appears to refer to hydro-electric power. Notwithstanding the inclusion of that phrase, there remains a strong argument that electricity is exempt from the new tariffs. That being said, it remains to be seen whether the Trump administration nevertheless seeks to collect the tariffs on the significant amount of hydroelectric power crossing the border from Canada to the US.

On March 5, the US announced a one-month-exemption from the new US tariffs for the auto sector.

Will drawbacks be available for the US tariffs on Canada?

As it stands, the Executive Order says that no drawbacks will be available for the duties, even though the US maintains programs that generally allow importers to seek deferrals, refunds, reductions, or waivers.

What retaliatory measures did Canada impose?

With its retaliation plan already pre-loaded, the Government of Canada has begun implementing its response. The measures will be implemented in two phases. First, beginning March 4, Canada has imposed a 25% duty on $30 billion worth of US goods (the full list can be found here). As previously stated by the government, the counter-tariffs will not apply to goods from the US that are in transit as of March 4. 

The second phase will see duties of 25% apply to a further list of $125 billion worth of goods from the US. On March 4, the Government of Canada released a Notice of Intent providing a list of products against which it is considering imposing tariffs, with consultations on the list open until March 25 (though the government cautions that it could implement the tariffs sooner to respond to additional tariff threats from the US). The list is long and includes meat and poultry products, fruit, vegetables, nuts, bread, cotton, fabrics, line pipe, screws, stoves, aluminum foil, and much more. 

As with the US tariffs, the Canadian counter-tariffs will only apply “to goods originating from the US, which shall be considered as those goods eligible to be marked as a good of the US in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (CUSMA Countries) Regulations.”⁷

Will drawbacks or remission be available for the Canadian retaliatory tariffs?

The Government of Canada has said that, at least for its first round of counter-tariffs, its existing Duties Relief and Duty Drawback Programs will be available for all duties paid or payable, subject to the requirements under CUSMA.⁸

The government has also published a guidance document on the process for requesting remission of tariffs on products from the US that applied beginning on March 4. The government has indicated that it will consider requests for remission – which allows for relief from the payment of tariffs, or the refund of tariffs already paid – in the following two situations, if there are “exceptional and compelling circumstances”:

• To address situations where goods used as inputs cannot be sourced domestically, either on a national or regional basis, or reasonably from non-US sources; and 
• To address, case-by-case, other exceptional circumstances that could have severe adverse impacts on the Canadian economy.

Have the provinces announced any measures? 

As of the date of publication, provinces have begun announcing their own retaliation plans, but more will likely follow. Ontario Premier Doug Ford has threatened to cut off electricity supply from Ontario to power grids in New York State. The Quebec Government announced penalties of up to 25% on all bids presented by American companies. Some provinces have threatened to double road-toll fees on commercial vehicles from the US. At the time of publishing, only Alberta and Saskatchewan had yet to announce any planned countermeasures, but all provinces appear to be largely supportive of the federal response. 

What other tariffs are coming? Will those be calculated in addition to these measures?  

Steel & Aluminum Tariffs

On February 10 and 11, President Trump signed two additional Executive Orders, which collectively will result in 25% tariffs on all raw, semi-processed, and derivative steel and aluminum imports into the US from any country, including such imports from Canada.⁹ These new tariffs are set to come into effect on March 12.

Technically, these are not new tariffs, as the orders adjust and expand previous tariffs imposed during President Trump’s first term in office. In 2018, President Trump utilized section 232 of the US Trade Expansion Act of 1962 to put 25% tariffs on steel imports and related derivatives and 10% tariffs on aluminum and related derivatives. These tariffs were imposed based on a finding by the US Department of Commerce that steel and aluminum imports were considered to threaten or impair US national security.¹⁰ In subsequent years, both during the remainder of President Trump’s first term and President Biden’s time in office, the tariffs were significantly relaxed through various exceptions and exemptions.

Now, based on the same national security grounds, President Trump has withdrawn the various exceptions and exemptions granted in recent years, expanded the universe of what are going to be considered derivative products subject to the tariffs, and, in the case of aluminum, significantly increased the relevant tariff rate. The orders removed and wind down all pre-existing country- and product-specific exemptions, including for Canada. The orders specify that any previous country-specific arrangements will be terminated as of March 12. In addition, all “general approved” product-specific exemptions are rescinded as of the same date.¹¹ Individual product exclusions that were previously granted, however, shall remain effective until their expiration date or until the relevant volume is imported, whichever occurs first.  

The orders also removed the authority from the Commerce Secretary to approve further product-specific exclusions. In justifying the move, the White House takes aim at former President Biden’s relaxation of the tariffs by referring to previous exemptions as “loopholes” that “permitted evasion of the tariffs and weakened the effectiveness of the program.”¹² The full list of applicable items, including the relevant derivative steel and aluminum products, that will be subject to the tariffs has since been released.¹³

Excluded from the tariffs, however, are derivative steel products that were processed in Canada (or another country) from steel or aluminum that was first melted and poured or smelted and cast in the United States.

Copper Tariffs

On February 25, President Trump signed an Executive Order¹⁴ directing the Secretary of Commerce to initiate an investigation under Section 232 of copper imports that could lead to tariffs being imposed on imports of raw and refined copper as well as derivative copper products. 

For now, the possibility of tariffs is just in the investigation phase. The Secretary of Commerce must provide the President a report within 270 days (on or before November 22, 2025) that details the conclusions from the investigation and provides policy recommendations on how to mitigate any threats to national security, including potential tariffs.

Further Tariffs

In early February, President Trump announced his intent to impose, and directed the various executive agencies to investigate, broad-based reciprocal tariffs that would match either the value or the impact of any tariffs or trade measures put in place by other countries on US products.¹⁵ While not specifically naming Canada, these reciprocal tariffs would apply to all US trading partners. These tariffs are still under investigation, though the Trump Administration has repeatedly stated that such tariffs could be imposed as soon as April 2. 

President Trump has also ordered a national security investigation into US lumber imports indicating that further tariffs on Canadian softwood lumber may occur in addition to existing duties. This investigation is expected to be completed within 270 days. 

As part of its “America First Trade Policy,” the US is still undergoing an investigative review of alleged trade deficits that negatively impact the US economy. With that investigation scheduled to wrap up on April 1, even greater tariffs, or other barriers to trade, could be coming. 

What concrete actions can businesses take in the face of trade uncertainty?

Businesses can and should consider the following actions in the face of trade uncertainty:

• Review contractual clauses. Companies will be considering tariff liability based on the wording of their current contracts. Many contracts in place (or contracting templates for service and supply agreements) were likely created when trade between Canada and the US was much more certain, and most goods were tariff and duty-free. Companies should review existing contracts to see who bears the risk of increased tariffs (if specified) and identify contractual carveouts for significant changes like this, including by reviewing change of law and force majeure clauses. Companies should also ensure templates allocate risk between who is buying and who is selling, in terms of tariff payments, in a way that reflects the intended risk allocation between the contracting parties.  
• Re-evaluate origin. Companies should re-evaluate whether goods being imported into the US are truly of Canadian origin, and vice versa for goods imported from the US into Canada and, if so, whether any changes to the manufacturing process could be made to optimize costs and tariffs. 
• Consider supply chain diversification. Businesses should consider whether and how supply chains can be diversified and investigate alternate sources of supply.
• Look to other Free Trade Agreements. Companies should draw on free trade agreements with other regions, like the Canada-European Union Comprehensive Economic and Trade Agreement and Comprehensive and Progressive Agreement for Trans-Pacific Partnership, in considering alternate markets for their products.

For the most recent developments and additional resources, check our International Trade hub frequently.