By Gail Cole.
A looming U.S.-Canada trade war came into force on March 4, 2025, when the United States imposed additional tariffs on Canadian imports. Canada responded immediately with retaliatory tariffs on a host of U.S. products and promised more tariffs would follow unless the U.S. removes its supplementary tariffs.
(On March 5, White House Press Secretary Karoline Leavitt confirmed that President Trump paused the tariffs on automobiles from Canada and Mexico after meeting with the big three auto dealers (Stellantis, Ford, and General Motors). “There is a one-month exemption on any autos coming through USMCA.”)
Many policymakers on both sides of the border oppose the tariffs and hope they won’t last. In the meantime, Canada is taking a hard line in response to the U.S. tariffs on Canadian goods.
Here’s what we know today. We’ll update this blog post as more information becomes available.
- U.S. tariffs on Canadian goods
- What are Canada’s retaliatory tariffs?
- How Canadian provinces are responding to U.S. tariffs
- Are the tariffs stackable?
- USMCA and the new tariffs
- Global reaction to U.S. tariffs
- How businesses can ease the compliance burden
U.S. tariffs on Canadian goods
Per U.S. Customs and Border Protection (CBP) guidance, there are additional duty rates on “goods that are the product of Canada entered for consumption, or withdrawn from warehouse for consumption,” on or after 12:01 a.m. ET on March 4, 2025.
The new tariffs affect the following Harmonized Tariff Schedule of the United States classifications (HTSUS codes, or simply HTS codes):
- 9903.01.10: A 25% additional ad valorem rate of duty on all imports of articles that are products of Canada except:
- Products classifiable under headings 9903.01.11, 9903.01.12, and 9903.01.13
- Products for personal use in accompanied baggage of persons arriving in the U.S.
- 9903.01.13: A 10% additional ad valorem rate of duty on imports of energy or energy resources of Canada, as defined in section 8 of Executive Order 14156 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
On March 5, White House Press Secretary Karoline Leavitt confirmed that President Trump paused the tariffs on automobiles from Canada and Mexico after meeting with the big three auto dealers (Stellantis, Ford, and General Motors). “There is a one-month exemption on any autos coming through USMCA.”
However, she said reciprocal tariffs will still go into effect on April 2, 2025.
What is a “product of Canada”?
A “product of Canada” means at least 98% of the total direct costs of producing or manufacturing the item were incurred in Canada, and “the last substantial transformation of the good occurred in Canada,” according to the Government of Canada.
“Made in Canada” means between 51% and 98% of the total direct costs occurred in Canada, and the last substantial transformation of the good occurred in Canada. The “Made in Canada” label should be accompanied by an appropriate qualifying statement, such as “Made in Canada with imported parts.”
What are Canada’s retaliatory tariffs?
Canada immediately imposed 25% tariffs on $30 billion CAD in goods as of 12:01 a.m. ET, March 4, 2025. However, these new tariffs do not apply to U.S. goods that were in transit to Canada on March 4.
The tariffs apply to goods imported for commercial and personal purposes, even when exported from a country other than the U.S. In other words, affected goods originating in the U.S. are subject to the tariff even if shipped from another country.
Proof of origin must be submitted for all imported goods, barring certain exceptions.
For this first wave of tariffs, affected products includeapparel and footwear, appliances, beer, coffee, cosmetics, orange juice, peanut butter, motorcycles, spirits, wine, and certain pulp and paper products.
The additional 25% tariff does not apply to goods classified under Chapter 98 of the Schedule to the Customs Tariff, except tariff items 9804.30, 98.25, 98.26, 9897.00.00, 9898.00.00 and 9899.00.00.
According to the Government of Canada, the additional 25% tariffs will remain in place until the U.S. eliminates its tariffs on sales of Canadian goods.
More retaliatory tariffs could follow
Canada is preparing to impose further tariffs in 21 days, should the U.S. continue to apply its tariffs on Canadian imports.
A second round of tariffs would affect another $125 billion CAD worth of products, including:
- Beef and pork
- Dairy
- Fruits and vegetables
- Electric vehicles
- Electronics
- Steel and aluminum
- Trucks and buses
See the Department of Finance Canada for a list of Harmonized System (HS) codes that could be affected by additional tariffs.
How Canadian provinces are responding to U.S. tariffs
Canadian provinces are responding with force. Provincial measures against the U.S. trade policies include canceling contracts with U.S. businesses, pulling U.S. products from shelves, raising tolls on U.S. vehicles, and perhaps even new export taxes.
U.S. products have been pulled from shelves in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec, and Prince Edward Island. This hits more than 3,600 American-made alcohol products hard. British Columbia is targeting red-state liquor products, specifically, which will result in a $40 million a year loss for manufacturers in those states, according to the B.C. government.
B.C. is “prepared to take additional action,” on top of removing liquor from red states, “if needed.”
Alberta Premier Danielle Smith called the Trump tariffs “an unjustifiable economic attack on Canadians and Albertans” as well as “a clear breach of the trade agreement signed by this same U.S. President during his first term.”
On March 5, she said Alberta fully supports Canada’s federal response, and will no longer purchase American alcohol or video lottery terminals. But Alberta won’t reduce exports of oil and gas or impose new export taxes on those products.
In Manitoba, businesses adversely affected by the tariffs will be able to defer payments of the provincial sales tax and the health and post-secondary education tax. Premier Wabanakwut Kinew is also considering cutting exports of hydroelectricity and preventing U.S. companies from bidding on Manitoba government contracts.
New Brunswick will sign no new contracts with American companies and is seeking new markets for items traditionally exported to the U.S., such as lumber and seafood. On March 4, Premier Susan Holt told CTV News her province has been preparing for Trump’s tariffs for months. “The president might not realize that we supply American defense with jet fuel,” she said. “If you go to the base in Maine … those planes don’t get in the air without Canadian jet fuel.”
The Government of Newfoundland and Labrador is looking for new markets for local businesses and encouraging residents to avoid purchasing American products.
Nova Scotia has doubled tolls for U.S. commercial vehicles at the Cobequid Pass and limited provincial procurement for American businesses (they can no longer bid on provincial businesses). It may cancel existing contracts.
Doug Ford, the Premier of Ontario, isn’t pulling any punches. He told reporters he’ll “do everything — including cut off their energy with a smile on my face,” in response to the U.S. tariffs. “They rely on our energy; they need to feel the pain. They want to come at us hard, we’re going to come back twice as hard.” The three biggest customers for Ontario power are New York, Michigan, and Minnesota.
Prince Edward Island is reviewing all American government contracts.
Quebec announced a 25% penalty for American firms bidding on Quebec government contracts. Like Ontario Premier Doug Ford, Premier François Legault is considering shutting down power exports to the U.S.
In a Facebook statement, Saskatchewan Premier Scott Moe said, “Canada’s response needs to be economically sound and reasoned.” His government is “carefully considering Saskatchewan’s response” and his cabinet would “consider all options” on March 5.
Are the tariffs stackable?
Yes. One product may be subject to multiple tariffs, including a standard rate of duty, an additional duty, and a punitive duty.
Under the substantial transformation test, a product imported from Canada could be subject to a 25% Canada tariff as well as a 20% China tariff and/or another tariff.
USMCA and the new tariffs
Most products traded between the U.S., Canada, and Mexico have been free from tariffs under the United States-Mexico-Canada Agreement (USMCA). President Trump spearheaded USMCA during his first term in office after ending the North American Free Trade Agreement (NAFTA).
“The USMCA is the largest, most significant, modern, and balanced trade agreement in history,” Trump said when signing the USMCA in January 2020. “All of our countries will benefit greatly.”
Congress isn’t scheduled to conduct a formal review of the USMCA until July 2026. According to a document published by the Congressional Research Service in December 2024, a key point will be to determine whether to extend the pact.
For now, goods that previously qualified for a reduction of normally applicable import duties under USMCA are subject to the additional tariffs that took effect on March 4. (Except automobiles, for one month.)
Guidance published by the Canadian Government notes that Canada’s Duties Relief Program and Drawback Program are available for surtax paid or payable, subject to the provisions of the Canada-United States-Mexico Agreement (CUSMA).
Global reaction to U.S. tariffs
Canada isn’t alone in retaliating.
Starting March 10, 2025, China will impose tariffs on roughly $21 billion worth of U.S. agricultural products. A 10% tariff will apply to beef, dairy products, fruit, pork, seafood, sorghum, soybeans, and vegetables. A 15% tariff will affect products such as chicken, corn, cotton, and wheat.
Mexico intends to announce retaliatory tariffs on U.S. goods on March 9.
The European Parliament in February said negotiation would be “the EU’s first likely course of action” should the U.S. raise tariffs on EU goods. Yet European Commission President Ursula von der Leyen said unjustified tariffs on the EU will not go unanswered. Counter tariffs on U.S. goods were mentioned, as was filing a complaint with the World Trade Organization and seeking reparations.
On March 4, the European Commission condemned the U.S. tariffs on Canada and Mexico but didn’t comment on the increased China tariffs.
This isn’t over. Trump intends to implement 25% tariffs on steel and aluminum imports as of March 12, and he may establish more tariffs on more countries. Furthermore, the de minimis exemption for Canada, Mexico, and China is set to end as soon as CBP can implement the necessary processes.
Businesses caught in the crossfire of this new trade war need to be able to comply with new import tax requirements, whatever they are.
How businesses can ease the compliance burden
Given the late-breaking nature of the recent tariff changes, automation is key to compliance.
Avalara Cross-Border automates tariff code classification and delivers real-time calculation of customs duties and import taxes for our customers. We keep our finger on the pulse of tariff policy changes and update our systems to keep businesses compliant.
“Our talented team of content researchers and content engineers work around the clock to ensure the vast array of trade content we deliver to our customers is both timely and accurate,” says Craig Reed, GM of Cross-Border at Avalara. “Despite the dizzying pace of change this past month, our team has been on top of it. Whether it’s restrictions content, tariffs, classification codes, or other trade content, we provide our customers with the tools and services they need to be in compliance, all powered by our powerful AI and automation engines.”
For more information about the changing tariff landscape, check out:
- How to prepare for Trump tariffs
- How to handle U.S.-China tariffs and the eventual end of de minimis
- De minimis exemption changes are coming: Is your business ready?
- Trump steel and aluminum tariffs: What you need to know
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Tags: Small Business
