Tariff chaos: U.S. tariffs and counter-tariffs from Canada, set to commence on Tuesday, February 4.
The United States has taken a significant step in trade relations, imposing tariffs on Canadian-origin products starting from February 4, 2025. This move, which has been met with a reciprocal response from Canada, marks the first blows in a potentially lengthy trade war.
The tariffs, primarily based on President Trump's authority to address national emergencies under the International Emergency Economic Powers Act (IEEPA), are not without precedent. Similar tariffs have been levied against China and Mexico, at a rate of 10% and 25% respectively. However, the use of IEEPA to impose universal tariffs on imports from a country in these circumstances is novel, and there is a widespread assumption that the President's authority to issue these tariffs under IEEPA will be challenged in US courts.
The tariffs target a wide range of goods, including orange juice, peanut butter, wine, spirits, beer, coffee, motorcycles, appliances, apparel, footwear, cosmetics, and pulp and paper. Energy resources, on the other hand, are subject to a 10% tariff, with 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 all falling under this category.
The tariffs are not without exceptions. Goods that were already loaded onto a vessel or in transit on the final mode of transport before 12:01 a.m. ET on February 1 are exempt from the new tariffs. Personal communications, donations of food, clothing or medicine, informational materials, and personal baggage when traveling are also excluded from the tariffs.
The Order removes the de minimis exemption for low-value imports, meaning imports of Canadian-origin goods that are valued at less than $800 will be subject to the new tariffs. This could have a significant impact on small businesses and consumers.
Canada is responding with 25% tariffs on $155 billion of US imports, starting with $30 billion worth of goods on February 4 and adding another $125 billion worth of goods 21 days later. The Canadian government has hinted that 'pandemic-level' relief may be available for Canadian businesses affected by the tariffs.
The tariffs are primarily due to concerns about the flow of drugs, particularly fentanyl, and illegal immigration across the Canada-US border, which the White House has stated constitutes a national emergency under IEEPA. However, the tariffs also address a trade deficit purportedly disadvantaging the US economy.
The Order does not mention a process to request exclusions from the tariff for particular goods, but such a process may be implemented later. Canadian and US businesses should review contractual clauses, re-evaluate the origin of goods, consider supply chain diversification, and engage legal counsel in the days and weeks ahead.
The US-imposed tariffs on Canadian imports are a significant development in trade relations between the two countries. An uncertain period of time lies ahead, and both countries will need to navigate these changes carefully to minimize disruption to their economies.
The authors would like to thank Ian Chesney and Jonah Secreti for their contribution to preparing this legal update.
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