We continue to follow the U.S.-Canada trade dispute, in the context of the changing global trade situation, and will continue to update the following as required. This post updates the situation up to and including the U.S. Executive Order issued on April 2, 2025 that increased U.S. tariffs on many countries, with particular attention to how these developments may affect Canada.
Chronology of the U.S.-Canada Trade Dispute
The current U.S.-Canada trade dispute began with the White House’s March 2, 2025 announcement that, effective on Tuesday, March 4, 2025, the United States would start levying a 25 percent tariff on almost all goods imported from Canada, with a lower tariff of 10 percent applicable on Canadian energy and resource products such as crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and certain critical minerals.
Four days later, on March 6, 2025, another Executive Order was signed by the U.S. President “[i]n order to minimize disruption to the United States automotive industry and automotive workers” (the “March 6 U.S. Order”). The March 6 U.S. Order effectively had the effect of removing all tariffs on goods that are imported into the U.S. free of duty as a good of Canada pursuant to the Agreement between the United States of America, United Mexican States, and Canada (“CUSMA”). The March 6 U.S. Order was effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EST on March 7, 2025. The March 6 U.S. Order also announced that the additional tariff on Canadian potash (that is not subject to duty-free treatment under CUSMA) was reduced to a rate of 10 percent.
Subsequently, as of March 12, 2025, two other presidential executive orders officially reinstated a 25 percent tariff on Canadian steel imports into the United States and Canadian aluminum products. These additional tariffs were immediately met with Canadian countermeasures on $29.8 billion of U.S. steel and aluminum products and other goods including computers, sports equipment and cast iron products, which took effect on March 13, 2025. The goods affected by these countermeasures are notably among those that were listed as targeted products in the second phase of Canada’s response to the U.S. tariffs. The implementation of the second phase of the countermeasures was delayed by Canada after the U.S. issued the March 6 U.S. Order as discussed below (see “Earlier developments”).
On March 11, 2025, after a day-and-a-half of escalation, Ontario Premier Doug Ford suspended his previously announced 25 percent surcharge on Ontario electricity exports after a call with U.S. Secretary of Commerce Howard Lutnick. In return, the U.S. side agreed to a formal meeting to be held within days. These events followed President Trump’s threat to double the tariffs on Canadian steel and aluminum imports as a direct response to Premier Ford’s export charge plan.
On March 25, 2025, President Trump issued a new proclamation whereby all imports of automobiles and automobile parts would be subject to a 25 percent tariff. Such additional tariffs came into effect on April 3, 2025 for automobiles, and subsequently, but no later than May 3, 2025, for automobile parts.
Most recently, on April 2, 2025, the U.S. President’s so-called “Liberation Day”, a presidential executive order (the “April 2 U.S. Order”) established reciprocal tariffs with a baseline rate of 10 percent (the “Baseline Tariff Rate”) on imports from every country effective as of April 5, 2025. However, the actual tariff rate applied to many countries will exceed the Baseline Tariff Rate because, as President Trump also announced, the U.S. will apply higher reciprocal tariffs to certain countries (as determined on a country-by-country basis). Importantly, however, the April 2 U.S. Order provides for exemptions related to Canada, which are discussed in further detail below.
Stikeman Elliott practices only Canadian law and is happy to assist with respect to the Canadian aspects of the proposed tariffs. U.S. counsel should be consulted with respect to U.S. tariff matters.
Background
Earlier developments
The Executive Order that was originally signed by U.S. President Trump on February 1, 2025 (the “Original U.S. Order”), to officialise the imposition of the tariffs, cited the “sustained influx of illicit opioids and other drugs” coming from the Canadian border to justify the action. After being postponed for 30 days, purportedly to allow some form of negotiations between Canada and the United States with respect to border security, the tariffs finally came into effect on March 4, to be later partially reduced as of March 7.
In response to the entry into force of the Original U.S. Order, Department of Finance Canada immediately enacted previously announced countermeasures and imposed 25 percent tariffs on $30 billion worth of goods to take effect on March 4. As a second phase, an additional $125 billion worth of tariffs were to follow within 21 days following a public consultation. However, the Canadian government has since put such second phase on hold in response to the partial lifting of the U.S. tariffs as announced in the March 6 U.S. Order.
The “America First” trade policy
The Original U.S. Order was signed by the U.S. President on February 1, 2025, officialising the imposition of the tariffs, and citing the “sustained influx of illicit opioids and other drugs” coming from the Canadian border to justify the action. However, as previously mentioned, after a promise made by Canada to upgrade its border security, the Original U.S. Order was delayed by 30 days. These tariffs officially came into effect on March 4, 2025.
The Original U.S. Order followed a previous Executive Order issued on January 20, 2025 (President Trump’s first day in office) known as the America First Trade Policy (the “Policy”). The Policy sets out the U.S. administration’s desire for:
“…a robust and reinvigorated trade policy that promotes investment and productivity, enhances [U.S.] industrial and technological advantages, defends [American] economic and national security, and – above all – benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”
In the remainder of this post, we look at:
- The updated U.S. tariffs on Canadian goods;
- Canada’s updated countermeasures; and
- The provisions of the Policy.
Updated U.S. Tariffs: Implementation and Implications
History
Contrary to a widespread belief, this is not the first time that President Trump has imposed tariffs on Canadian goods exported to the U.S. During his first mandate, the U.S. administration ultimately imposed tariffs on imports of steel and aluminum products from Canada at rates of 25 percent and 10 percent, respectively (this followed proclamations signed by the President on March 8, 2018, imposing tariffs on all steel and aluminum products imported into the U.S.). Those tariffs took effect on June 1, 2018, upon the lifting of the temporary exemption that Canada had initially been granted.
Although Canada proceeded to impose retaliatory surtaxes on multiple U.S. products imported into Canada, it took almost a year to end this first real trade war with Canada’s largest commercial partner in the era of U.S.-Canada free trade (which dates to the 1989 Canada-U.S. Free Trade Agreement, which as followed by the 1994 North American Free Trade Agreement (NAFTA), and then by the 2020 Canada-United States-Mexico Agreement (CUSMA). Although narrower sectoral trade disputes between Canada and the United States are not uncommon (the softwood lumber dispute is a good example), the 2018-19 U.S. -Canada trade war was by far the broadest conflict – until 2025.
In this context, the entry into force of the Original U.S. Order on March 4, 2025 could be considered as a “declaration of war” in a second major trade dispute with Canada, the casus belli of which is that Canada (like Mexico) has allegedly failed to strengthen border security to deal with the opioid crisis. In previous declarations, the U.S. President has also stated, at various times, that illegal border crossings by migrants and what he believes to be a significant U.S. trade deficit vis-à-vis Canada are also important issues for the U.S. With Canada’s immediate reaction, this has become a full-out battle.
25 percent duty (products of Canada)
Section 2(a) of the Original U.S. Order provides that: “all articles that are products of Canada as defined by the Federal Register notice described in subsection (e) of this section (Federal Register notice), and except for [Canadian energy or energy resources], shall be, consistent with law, subject to an additional 25 percent ad valorem rate of duty.” The Notice published by the U.S. Customs and Border Protection (“U.S. CBP”) in the Federal Register notes that the test to determine what goods constitute “products of Canada” include both goods of Canada under the CUSMA rules of origin as well as goods for which Canada was the last country of substantial transformation prior to importation into the U.S. (i.e., the “substantial transformation test”).
The 25 percent duty applies with respect to products of Canada entered for consumption, or withdrawn from a U.S. warehouse for consumption, on or after 12:01 a.m. EST on March 4, 2025.
U.S. CBP is responsible for collecting such duty upon importation.
10 percent duty (energy and energy resources)
Section 2(b) of the Original U.S. Order further provides that:
“[w]ith respect to energy or energy resources, as defined in section 8 of Executive Order 14156 of January 20, 2025 (Declaring a National Energy Emergency), and as otherwise included in the Federal Register notice, such articles that are products of Canada as defined by the Federal Register notice shall be, consistent with law, subject to an additional 10 percent ad valorem rate of duty.”
Section 8 of Executive Order 14156 defines the term “energy” or “energy resources” as follows:
“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, as defined by 30 U.S.C. 1606 (a)(3).”
As it is the case for other “products of Canada,” the 10 percent duty is applicable with respect to Canadian energy or energy resources imported on or after 12:01 a.m. EST on March 4, 2025.
Again, the U.S. CBP is in charge of collecting the 10 percent duty.
Exemptions
We understand that narrow exceptions might include personal communications, certain donated articles, informational materials, and transactions ordinarily incident to travel.
There is also an exception for goods eligible for duty-free de minimis treatment under 19 U.S.C. 1321, i.e., shipments valued at less than $800. However, an amendment to the U.S. Order clarifies that such duty-free de minimis treatment shall cease to be available for eligible goods upon notification by the Secretary of Commerce to the President that adequate systems are in place to fully and expeditiously process and collect tariff revenue applicable to such goods. It is unclear if or when this is expected to happen.
Additional tariffs
Section 2(d) of the Original U.S. Order provides that in the case of Canada’s retaliation against the U.S. tariffs, the President may then increase or expand in scope the tariffs imposed under such order.
The March 6 U.S. Order
The March 6 U.S. Order effectively had the effect of removing all U.S. tariffs on products of Canada that satisfy the CUSMA rules of origin. The March 6 U.S. Order is effective with respect to all goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on March 7, 2025.
The March 6 U.S. Order also provides for a reduced 10 percent tariff on Canadian potash imported from Canada that falls outside the CUSMA preferential treatment.
Therefore, effective as of March 7, 2025, the U.S. CBP only collects additional tariffs on products of Canada that do not satisfy the CUSMA rules of origin (using a 25 percent rate for most products and a lower 10 percent tariff on energy products and potash). As an exception, Canadian automobiles satisfying the CUSMA rules of origin are subject to a 25% rate of duty on their non-US content as of April 3, 2025.
Other U.S. Announcements
Section 232 Tariffs on Steel and Aluminum
In an apparent disavowal of the Joint Statement by Canada and the United States on Section 232 Duties on Steel and Aluminum entered into in May 2019, the U.S. President signed two executive orders on February 10 and 11 which cancelled all exemptions to section 232 tariffs on steel and aluminum imports, including previous exemptions granted to Canada. The two executive orders reinstated a 25 percent duty on all steel imports and also raised tariffs on aluminum from 10 to 25 percent. As mentioned above, these additional duties took effect on March 12, 2025. The exemptions made available on March 7, 2025 for imported goods that qualify as originating goods under the CUSMA are applicable for Canadian steel and aluminum products.
Note that pursuant to Section 3(b) of the April 2 U.S. Order, no articles or derivatives of steel or aluminum subject to the above-mentioned tariffs shall also be subject to additional ad valorem duties under the April 2 U.S. Order.
Reciprocal Trade and Tariffs
On February 13, 2025, the U.S. President signed a Presidential Memorandum requiring the implementation of a comprehensive plan for allegedly “restoring fairness in U.S. trade relationships and countering non-reciprocal trading arrangements”. Such plan, called the “Fair and Reciprocal Plan”, is designed to pursue two main objectives: (1) reducing the U.S. annual trade deficit in goods, and (2) addressing what are perceived as unfair and unbalanced aspects of U.S. trade with its foreign trading partners. Canada’s digital services tax imposed on American companies, the goods and services tax/harmonized sales tax imposed on importation of U.S. goods into Canada, as well as the large duties imposed on “supply-managed” products, such as dairy, have notably been cited as “unfair” Canadian measures against the U.S. Although the President also mentioned that Canadian softwood lumber could also be targeted, it is noteworthy that such Canadian products imported into the U.S. are already subject to a combined anti-dumping and countervailing duties of about 14.5 percent.
In practice, the April 2 U.S. Order did not actually impose additional tariffs on products of Canada, as they are already subject to previously issued executive orders, as discussed above. In fact, the April 2 U.S. Order may even lower the tariffs on Canadian goods in the event that such earlier executive orders are terminated or suspended. The key points are as follows:
- As a reminder, all goods of Canada that do not qualify as originating under CUSMA (except for automobiles as discussed below) are currently subject to an additional ad valorem tariff of 25 percent, while energy or energy resources and potash imported from Canada and not qualifying as originating under CUSMA are subject to the lower additional ad valorem tariff of 10 percent.
- Pursuant to the April 2 U.S. Order, any ad valorem rate of duty on articles imported from Canada under the terms of that Order will not be imposed on top of any ad valorem rate of duty specified by an earlier U.S. Order. (In other words, the rate of duty will remain the same as it was under the earlier U.S. Order.)
- On the other hand, the April 2 U.S. Order also provides that if the earlier U.S. Orders are terminated or suspended: (i) items from Canada that do not qualify as originating under CUSMA will be subject to an ad valorem rate of duty of 12 percent (rather than 25 percent); and (ii) ad valorem tariffs on articles imported from Canada shall not apply to energy or energy resources, to potash, or to an article eligible for duty-free treatment under CUSMA that is a part or component of an article substantially finished in the United States.
Section 232 Tariffs on Copper
In an Executive Order signed on February 25, 2025, the U.S. President asked the U.S. Secretary of Commerce to initiate an investigation under section 232 of the Trade Expansion Act to determine the effects on national security of imports of copper in all forms. Within 270 days of this order, the U.S. Secretary of Commerce will submit a report to the President, together with recommendations on actions to mitigate such threats, including potential tariffs.
Note that pursuant to the April 2 U.S. Order, copper shall not be subject to the ad valorem rates of duty provided for under such order.
Section 232 Tariffs on Automobiles and Automobile Parts
As previously mentioned, on March 25, 2025, President Trump announced that all U.S. imports of automobiles and automobile parts would be subject to a 25 percent tariff, with such ad valorem tariffs entering into effect on or after 12:01 a.m. EDT on April 3, 2025, for automobiles, and subsequently but no later than May 3, 2025, for automobile parts.
Importers of automobiles under the CUSMA will be given the opportunity to certify their U.S. content and systems will be implemented such that the 25% tariff will only apply to the parts of the automobile that are not American-made. Furthermore, the Proclamation also provides that the ad valorem tariff of 25 percent shall not apply to automobile parts that qualify for preferential treatment under CUSMA until such time as a calculation is established and a notice is published in the Federal Register.
Updated Canadian Countermeasures
First phase (Effective as of March 4, 2025)
The Canadian protective measures were originally designed to be implemented in two separate phases. The first phase includes 25 percent tariffs (also called surtax) on $30 billion in goods imported from the U.S. and is effective as of March 4, 2025. The list of targeted goods is quite broad and includes a variety of goods produced in the U.S. such as:
- orange juice,
- peanut butter,
- wine, spirits and beer,
- coffee,
- appliances,
- apparel and footwear,
- motorcycles,
- cosmetics, and
- pulp and paper.
The approach adopted by Canada is similar to the measures that were implemented by Canada during the 2018-19 trade war although the current list of targeted goods are broader.
According to the Backgrounder published by the Department of Finance, only goods “considered as those goods eligible to be marked as a good of the U.S. in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (CUSMA Countries) Regulations” will be subject to the 25 percent tariffs. This means that only goods that would have been eligible for preferential tariff treatment pursuant to the CUSMA are meant to be subject to the countermeasures.
Second phase (currently paused)
The second phase of the Canadian countermeasures, if enacted, will include the imposition of 25 percent tariffs on other imported U.S. goods worth $125 billion. Although the second list of proposed targeted goods was published on March 4, the implementation of the second phase is now on pause as the U.S. decided to waive the tariffs on products of Canada that are originating under the CUSMA as per the March 6 U.S. Order. To the extent the Department of Finance reinstates the second phase, a 21-day public comment period shall be granted prior to entry into force. The second phase, if implemented as proposed, will target several U.S. products such as passenger 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.
It is noteworthy that Canada ultimately implemented certain additional countermeasures as of March 13 using goods that were listed in the second list of proposed targeted goods published on March 4 (see below).
Other Canadian countermeasures
As noted above, on March 12, 2025, Canada announced an additional $29.8 billion in countermeasures in response to the section 232 tariffs on Canada’s steel and aluminum products. Such countermeasures, which took effect on March 13, 2025, target U.S. steel and aluminum products as well as other U.S. goods including computers, sports equipment and cast iron products. These goods are among those targeted as part of the second phase of Canada’s tariffs implementation, which was delayed in recognition of the March 6 U.S. Order, as mentioned above.
All other U.S. measures to be imposed against Canadian goods could be subject to immediate Canada’s retaliation, such as reciprocal Canadian tariffs, equivalent tariff countermeasures on other U.S. products, or the implementation of non-tariff barriers, as the case may be.
At the provincial level, various measures have been discussed or implemented. To date, the most significant provincial measure that has been announced is a proposed 25 percent export charge on Ontario electricity exports to the U.S., which would affect customers in New York, Michigan and Minnesota. This export charge was to take effect on March 11, 2025 but after the discussions with the U.S. Secretary of Commerce referred to above, it was suspended by Premier Ford.
Finally, in response to the U.S. tariffs imposed on Canadian automobiles and automobile parts and the April 2 U.S. Order, Canadian Prime Minister Mark Carney announced that Canada will implement new countermeasures, including the application of a 25 per cent tariff on (i) non-CUSMA compliant fully assembled vehicles imported into Canada from the United States; and (ii) on non-Canadian and non-Mexican content of CUSMA compliant fully assembled vehicles imported into Canada from the United States.
Exemptions
Remission process
As it is also the case for the current Canadian tariffs imposed on certain goods from China, a process for requesting the remission of tariffs on U.S. imported goods has been implemented by the Department of Finance to mitigate the impact of such duties on Canadian workers and businesses.
The process for requesting remission of tariffs is available for all goods covered under the first phase. The same process will be available for goods covered under the second phase if necessary.
The duty relief could either be obtained prospectively or retrospectively, as the case may be. In the latter case, a refund of tariffs already paid would be obtained. According to the Department of Finance, the remission could be granted in the following instances:
- 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.
- To address, on a case-by-case basis, other exceptional circumstances that could have severe adverse impacts on the Canadian economy.
Public consultations (next phase)
If necessary, businesses could use the 21-day public comment period to convince the Department of Finance to exclude goods from the proposed list of U.S. products to be targeted as part of the next phase of the Canadian countermeasures.
Impact of the Trade War
While it is to be hoped that all issues underlying the imposition of tariffs by both countries will soon be resolved, it is inevitable that the current trade war increases the time and expense of many types of business transactions involving U.S. and Canadian buyers and sellers.
Delays in transactions
The implementation of tariffs may reduce the volume of imports and exports and business transactions between Canada and the U.S. If a cycle of tariffs and countermeasures (or reciprocal threats) begins, the resulting uncertainty may, in and of itself, deter businesses from pursuing transactions or at least delay transactions while trade implications are considered, and tariff-specific closing contractual conditions are negotiated.
Transfer pricing
The new tariffs could also have an impact on transfer pricing for multinational groups. Related parties within a multinational group must set their transfer price by reference to similar transactions between unrelated parties. The transfer price, which includes the cost of tariffs to reflect market conditions, determines the allocation of taxable income between related parties. The burden of tariffs generally falls on the importer, whose income would consequently be reduced, unless the parties agree to allocate the cost differently. Take, for example, a transaction between related U.S. and Canadian entities in which the U.S. entity acquires goods subject to tariffs from the Canadian entity: while the U.S. entity (as the importer responsible to pay the tariffs) might argue that such extra costs should be shared between the parties, it is uncertain whether Canadian tax authorities would agree to shift the cost of such tariffs to Canadian entities through a transfer pricing adjustment.
Provisions of the America First Trade Policy
Broadly, the Policy directs certain U.S. government agencies to investigate the causes of the U.S.’s “large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits.” Following this investigation, on April 1, 2025, such U.S. agencies submitted their reports recommending appropriate measures to address the above (the “Report”).
Among other things, the Report includes:
- A review of certain trade agreements and suggestions on how to modernize same, including by: (i) lowering foreign tariff rates for American exporters, (ii) improving transparency and predictability in foreign regulatory regimes, (iii) improving market access for U.S. agricultural products, (iv) strengthening rules of origin, and (v) improving the alignment of U.S. trading partners in respect of economic security and non-market policies and practices;
- The requirement that the Secretary of the Treasury carry out an in-depth assessment of the policies and practices of major trading partners with respect to currency exchange rates and address the lack of transparency by foreign governments in currency markets;
- A review of the policies and regulations regarding the application of antidumping and countervailing duty laws (“AD/CVD Laws”) and corresponding recommendations including: (i) potentially adding new countries to the list of non-market economies; (ii) methodologies to better implement AD/CVD Laws, and (iii) more-active self-initiation of new investigations.; and
- A quantification of the loss of tariff revenues and an assessment of the import risks resulting from the $800 or less duty-free de minimis exemption, as well as the corresponding recommendation to end same.
The Report also suggests the creation of a new “External Revenue Service” to collect tariffs, duties, and other foreign trade-related revenue.
Future of the CUSMA
With respect to the CUSMA, the Policy calls for a public consultation to assess the impact of the free trade agreement on U.S. businesses in preparation for its scheduled July 2026 review. The U.S. Trade Representative is tasked with making recommendations regarding U.S. participation in CUSMA.
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