Tariff tension escalates: Implementation of U.S. tariffs and Canadian counter-tariffs set for February 4
The United States announced plans to impose tariffs on Canadian-origin products, except for energy resources, starting on February 4, 2025. The tariffs, which range from 10% to 25%, are based on a declared national emergency associated with purported illegal immigration and fentanyl imports from Canada.
The tariffs were issued under the International Emergency Economic Powers Act (IEEPA), a law that grants the President broad authority to regulate international commerce during a national emergency. 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 specifically target goods 'marked as goods of the United States' in accordance with the rules of origin set out in regulation for CUSMA countries. 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.
The White House has stated that the primary rationale for the tariffs against Canada is the flow of drugs (particularly fentanyl) and illegal immigration across the Canada-US border, which it has stated constitutes a national emergency under IEEPA. The President has also raised concerns about a trade deficit purportedly disadvantaging the US economy.
The tariffs could increase in response to Canada's retaliatory measures. In response, Canada has announced plans to impose 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 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. Canadian and US businesses should review contractual clauses in current and upcoming supply or purchase contracts, re-evaluate whether goods being imported are truly of Canadian-origin, consider diversifying supply chains, draw on free trade agreements with other regions, and engage sophisticated legal counsel and customs brokers.
It is important to note that the basis for these tariffs, as imposed by US President Trump, was his invocation of the IEEPA of 1977. However, US courts later ruled that IEEPA does not legally authorize the imposition of tariffs, making most of these Trump tariffs unconstitutional.
The tariffs do not apply to personal communications, donations of food, clothing or medicine, informational materials, and personal baggage when traveling. There is no mention of a process to request exclusions from the tariff for particular goods in the Order.
The tariffs may lead to Canada taking non-tariff measures related to exports of energy and critical minerals. It is a developing situation, and both countries are encouraged to engage in dialogue to find a resolution that benefits both economies.
