Since taking office, United States President Donald Trump has been vocal about his intention to pursue a wide range of tariff measures against Canada and other trading partners worldwide, including an immediate threat to impose 10% tariffs on Canadian energy products, and blanket 25% tariffs on all other imports of Canadian goods into the United States. Canada, in turn, has promised to swiftly respond with dollar-for-dollar retaliatory tariffs on a sweeping list of strategically selected American goods.

After an agreed one-month reprieve, President Trump has restated his intention to proceed as scheduled with the imposition of the deferred blanket tariffs on Canadian goods on March 4, though the final list of goods to be impacted, and the final tariff rates to be applied, remain to be determined. These tariffs would apply to affected Canadian goods in addition to other applicable tariffs imposed by the United States, including the 25% tariff on all steel and aluminum imports into the United States, scheduled to come into force March 12, 2025. Canada’s retaliatory tariffs can be expected to be imposed concurrently.

While the U.S. tariffs on Canadian goods promise to significantly impact organizations importing goods into the United States, Canada’s expected retaliatory response will be no less consequential for organizations exporting goods from the U.S. into Canada.

With tariff imposition now seemingly unlikely to be avoided, and the implementation date looming, it is important that United States exporters serving the Canadian market prepare by first understanding how Canada’s retaliatory tariffs operate, the impact tariffs will have on the cross-border trade of goods, and their options for mitigating the impact of such measures.

Canada’s retaliatory response

Canada’s initial retaliatory response to blanket U.S tariffs is expected to consist primarily of corresponding 25% tariffs (also known as surtaxes) on a wide range of strategically selected goods, intended to have a targeted economic impact on key sectors, including:
  • Agricultural products
  • Dairy and food products
  • Iron, steel, aluminum and precious metals
  • Machinery and equipment
  • Electronics
  • Jewelry and precious metals
  • Packaging
  • Chemicals
  • Wood and paper

The extensive list of goods expected to be hit by Canada’s retaliatory tariffs was announced in advance of the original February 4 date for tariff implementation, and is available on the Department of Finance's website. While Canada’s retaliatory response will likely evolve in response to changing circumstances, details regarding the initially planned structure and application of Canada’s retaliatory response to U.S. tariffs are set out in our bulletin on the Escalation of the U.S./Canada trade dispute.

U.S. exporters should proactively review the initial list of goods Canada has targeted for retaliation as soon as possible to determine whether any goods currently exported to Canada are potentially captured.

Legal authority

Canada’s retaliatory tariffs will be imposed pursuant to Canada’s Customs Tariff. The Customs Tariff authorizes the Canadian government to impose surtaxes in response to acts, policies or practices of foreign governments that adversely affect, or lead directly or indirectly to adverse effects on, trade in Canadian goods or services.

In addition to imposing tariffs, Cabinet has other powers at its disposal, including the ability to order the suspension or withdrawal of rights or privileges granted to the United States under a trade agreement, such as the prohibitions on export restraints that are currently present in the United States–Mexico–Canada Agreement (USMCA). It should be noted that the currently threatened tariffs are trade restrictions contrary to USMCA’s requirements, making such a waiver necessary.

Application of the tariffs

The now archived United States Surtax Order (2025) and accompanying Customs Notice shed light on the manner in which Canada’s retaliatory tariffs will likely be applied and administered. In the event that Canada proceeds with imposing retaliatory tariffs on March 4, the archived order and notice would be replaced with updated versions reflecting the latest policy decisions of the Canadian government.

Key practical elements related to the application and administration of the tariffs are set out below:

  • Administration

    Tariffs in Canada will be administered by the Canada Border Services Agency (CBSA) and be payable by the importer of record of the goods, in addition to any customs duties otherwise payable on the goods based on their tariff treatment.

  • Financial impact:

    The total amount payable in customs duties on a given import is generally determined based on:

    • the value for duty of the imported goods, which is most commonly the purchase price for the goods in the transaction that resulted in the goods being brought into Canada;
    • the goods’ tariff classification; and
    • the tariff treatment afforded to the goods, which is determined based on the origin of the product.

       

    A 25% retaliatory tariff applicable to U.S.-origin goods of a given tariff classification – a surtax – would be added to the rate of customs duty that is otherwise payable on the relevant goods. That rate would then be applied to the declared value for duty. Subsequently, the Goods and Services Tax (GST) and any provincial tax are calculated by applying the relevant tax rate to the aggregate of the value for duty, plus all applicable duties (including surtaxes) and excise taxes. In context, this means that a U.S. commercial product sold into Canada with a value for duty of $100 that currently benefits from duty free status on import to Canada, to which a 25% surtax is applied, will now be subject to duties and GST of $31.25—nearly a third of the declared value of the product.

  • U.S. origin

    Retaliatory tariffs will only apply to goods that originate in the United States in accordance with Canada’s Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations. These regulations set out rules for determining the country of origin of goods based on the locations in which the goods themselves, or their inputs, were obtained or produced.

    U.S.-based manufacturers that supply goods to Canada should assess whether their products genuinely qualify as U.S. origin, or if they originate from another country, potentially exempting them from Canada’s retaliatory tariffs. This will be particularly relevant if an organization’s manufacturing processes utilizes inputs from non-U.S. sources.

  • Trade incentive programs and exemptions

    While currently archived, information published by the CBSA in advance of the original February 4 date for tariff imposition indicates that importers of U.S. goods subject to Canada’s retaliatory tariffs will likely be able to leverage existing trade incentive programs to help reduce the impact of the tariffs. This includes the Duty Drawback and the Duties Relief Programs, which allow importers to receive a refund on duties paid for imported goods exported in the same condition they were imported, or consumed in manufacturing goods that are subsequently exported. Certain temporary imports may also benefit from an exemption from Canada’s retaliatory tariffs.

  • Remission processes

While the information is no longer currently available online, on February 3 Canada’s Department of Finance announced a remission process through which certain organizations could request exceptional relief from Canada’s retaliatory tariffs. It indicated that the Canadian government would consider requests for remission in the following two instances:

  1. To address situations where goods used as inputs cannot be sourced domestically, either on a national or regional basis, or reasonably from non-U.S. sources; or
  2. To address, on a case-by-case basis, other exceptional circumstances that could have severe adverse impacts on the Canadian economy. However, as only Canadian-registered companies would be eligible to apply, this option won’t generally be available for U.S organizations that act as non-resident importers of goods into Canada. Certain U.S. exporters may nonetheless wish to engage with their Canadian customers to explore cooperation in support of such a request.

Impacts for U.S. exporters to Canada

  • U.S. exporters acting as non-resident importers

U.S. exporters of goods to Canada may sometimes act as a non-resident importer of record for goods sold into Canada. In these circumstances, U.S exporters will bear direct responsibility for paying  duties and surtaxes on imported goods into Canada. There are a variety of measures importers of U.S. goods into Canada can take to manage their exposure and minimize the impact of Canada’s retaliatory tariffs, which we set out in our bulletin: Managing the bottom line: How importers of U.S. goods can minimize the impact of Canadian tariffs.

  • U.S. exporters not acting as importers

In other circumstances, an exporter of U.S. goods to Canada may not bear direct responsibility for payment of duties to CBSA, as another party may act as importer of record for the goods. However, depending on the specific contractual arrangements negotiated, U.S exporters may nonetheless bear responsibility for costs associated with import, potentially including duties and taxes. In that case, contract values may be reduced, in some cases significantly, and U.S exporters will nonetheless face financial impacts as a result of Canada’s retaliatory tariffs.

Even if a U.S. exporter bears no legal responsibility for import of their goods into Canada, the financial impacts of Canada’s retaliatory tariffs will increase costs for the party that is responsible for import. U.S exporters are therefore likely to experience indirect impacts on their trading relationships with Canadian customers. These impacts include an increased likelihood of more intensive negotiation or re-negotiation of previously standard contracts, and attempts by counterparties to leverage price adjustment, change in laws or force majeure clauses under existing agreements. Broader impacts include potential reductions or shifts in demand for U.S. goods in Canadian markets, requiring adjustments to supply chain strategies.

Looking ahead

Regardless of your current practices and whether your organization currently manages the logistics associated with import of your goods into Canada or bears related costs, it is essential that U.S. exporters to Canada review current contracts with Canadian customers to proactively assess potential avenues for all parties to revisit the agreed terms in order to respond to Canada’s retaliatory tariffs, and otherwise prepare to enter this more turbulent trading environment.

Other key steps to consider include:

  • Exploring inventory and supply chain management strategies to minimize trade in goods subject to tariffs and adjust supply to changes in demand; and
  • Engaging in cross-border advocacy efforts in cooperation with customers and industry partners.

For further details on proactive measures organizations can take to prepare for U.S. tariffs and Canada’s retaliatory measures, see our guide: Preparing for tariffs: A guide for North American importers and exporters