U.S. imposes tariffs on Canada; Canada retaliates

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

The one month “pause” on the tariffs that President Trump planned to impose on Canada and Mexico has ended and those tariffs will come into effect. Canadian retaliatory tariffs are expected in two waves over the next three weeks.

What tariffs are imposed on Canada?

The United States has imposed a 25% tariff on all Canadian goods, other than “energy” and “energy resources,” to come into effect Tuesday, March 4. Canadian “energy” and “energy resources”—i.e. 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—will be subject to a 10% tariff.

President Trump has reserved the power to increase tariffs, if necessary, in response to retaliatory tariffs from Canada. Duty drawback (which allows for the refund of duties, taxes, and fees paid on imported goods that are subsequently exported) will not be available for these tariffs.

The tariffs are implemented under the International Emergency Economic Powers Act, which authorizes the U.S. President to regulate international commerce after declaring a national emergency in response to any “unusual and extraordinary threat”. The President has cited the purported failure of Canada to counter the flow of illicit drugs, particularly fentanyl, into the United States as a public health crisis and national emergency.

How long will U.S. tariffs last?

It is uncertain what measures, if any, may satisfy the President and secure tariff relief. On February 4, Canada committed to taking steps to secure its border with the United States in response to addressing concerns related to fentanyl and illegal immigration. President Trump previously said the delay would allow time for an unspecified “economic” deal¹.

The Secretary of Homeland Security is ordered to regularly consult with key officials on the situation at the Canada-U.S. border situation and to inform the President of any circumstances that “indicate that the Government of Canada has taken adequate steps to alleviate this public health crisis through cooperative enforcement actions”. If the President then determines that Canada has taken sufficient action, the tariffs will be removed.

What is Canada’s response?

In the run up to February 4, Canada announced retaliatory tariffs to be implemented, dollar-for-dollar, in two tranches:

• A first round of tariffs on a targeted list of $30 billion worth of U.S. goods are now in effect and includes agricultural goods like meat, dairy, orange juice, and peanut butter, coffee, tea, wine and spirits including whiskey.
• A second round of tariffs on a wider list of U.S. products, valued at $125 billion, is expected to come into effect 21 days later, following a public comment period. That list includes cars, trucks, steel and aluminum, among other things.

Reports indicate that Canada’s retaliatory plan remains the same. Duty drawback and duty relief programs remain available for the Canadian retaliatory tariffs now in effect².

In addition to retaliatory measures, Canada stated that the tariffs are unjustified and announced that it would challenge these tariffs under CUSMA and the WTO. Prime Minister Trudeau also stated that the Government of Canada would exercise its authority to “defend” Canadian companies from “takeover” in this circumstance.

Are tariff exemptions available?

In advance of February 4, the Government of Canada:

• Set out a process for requesting remission of tariffs on certain goods from the U.S. Remission requests are considered in cases where goods cannot be sourced domestically or from non-U.S. sources, or in other exceptional circumstances that could severely impact the Canadian economy.
• Stated that it would institute a 21-day comment period for the second wave of tariffs which may provide a window to change the second wave retaliatory tariffs that Canada imposes.

Canada has not yet indicated any different approach at this point in time.

Historically in the U.S., Section 232 exclusions include General Approved Exclusions and specific exclusions for individual requests, with a process involving objections, rebuttals, and surrebuttals, while Section 301 exclusions, particularly for tariffs on China, have varied over time with public comment periods and focus on product availability, economic impact, and strategic importance. At this time, there is no indication there will be an exemption process.

What other tariffs is the United States imposing at this time?

On March 4, the United States is also imposing 25% tariffs on goods from Mexico, and a further 10% tariff on goods from China in addition to the 10% tariff on Chinese goods that came into effect on February 4. China has imposed retaliatory tariffs and Mexico indicated that it would impose retaliatory measures on Sunday.

 
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