U.S. tariffs and Canada's counter-tariffs set to go into effect on Tuesday, February 4
The Canadian government has hinted at potential pandemic-level relief for businesses affected by tariffs, as the North American country responds to a series of measures imposed by the United States. The tariffs, announced by President Trump, are based on declared national emergencies associated with illegal immigration and fentanyl imports.
Under the International Emergency Economic Powers Act (IEEPA), the US is imposing a 25% tariff on most Canadian-origin products, except energy resources subject to a 10% tariff. The tariffs, effective February 4, 2025, target a wide range of goods including orange juice, peanut butter, wine, spirits, beer, coffee, motorcycles, appliances, apparel, footwear, cosmetics, and pulp and paper.
In response, Canada is imposing 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. Goods 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 Order, which outlines the tariffs, excludes personal communications, donations of food, clothing or medicine, informational materials, and personal baggage when traveling from the tariffs. However, it does not mention a process to request exclusions for particular goods.
Ontario Premier Doug Ford and Nova Scotia Premier Tim Houston have directed provincially run liquor stores to remove US alcohol from store shelves effective February 4. The Order also removes the de minimis exemption for low-value imports, meaning imports of Canadian-origin goods valued at less than $800 will be subject to the new tariffs.
The tariffs are a reciprocal response to the US tariffs against Canada. The US tariffs, too, are based on declared national emergencies. Prime Minister Trudeau has stated that Canada will take retaliatory measures if the tariffs are challenged under the state-to-state dispute resolution provisions in Chapter 31 of CUSMA.
Canadian and US businesses should review contractual clauses, re-evaluate the origin of goods, consider supply chain diversification, investigate alternate markets, and engage legal counsel and customs brokers in light of these developments. There is a wide-spread assumption that the President's authority to issue these tariffs under IEEPA will be challenged in US courts.
It is important to note that details on potential Canadian drawbacks or other relief have not yet been announced. Canada may also take "non-tariff measures" related to exports of energy and critical minerals in response to the tariffs. Energy resources subject to the 10% tariff include 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.
The use of IEEPA to impose universal tariffs on imports from a country in these circumstances is novel, and there is a wide-spread assumption that the President's authority to issue these tariffs under IEEPA will be challenged in US courts. The tariffs imposed by the US on Canadian-origin products run contrary to the Canada-US-Mexico Agreement (CUSMA), but an exemption in Article 32.2 for "Essential Security" may be invoked to justify the tariffs.
President Trump imposed tariffs including a 25% tariff on steel imports and a 10% tariff on aluminum imports in 2018, as well as tariffs on Chinese goods starting at 10-25% under various executive orders aimed at addressing trade imbalances and intellectual property concerns.
In conclusion, the new tariffs on US goods by Canada mark a significant escalation in trade tensions between the two countries. Businesses on both sides of the border should carefully review their operations and seek professional advice to navigate these challenging times.
