Understanding the specifics of the tariff actions can help importers prepare for what’s to come
By Candace Sider
There was an almost audible sigh of collective relief on February 3rd when Washington announced it would be postponing tariffs on goods originating in Canada and Mexico. The tariffs – 25% on all goods except energy products from Canada, which were tariffed at 10% — were rightly seen by industry, economists and governments as being detrimental to all three countries.
The delay presented a reprieve – albeit a short one – but has left industries in all three countries with a climate of uncertainty. What will happen next? If tariffs are implemented, what will it mean for supply chains, customs processes and operations that transcend international borders?
Uncertainty, of course, puts a chill on investment and is already showing an impact to the value of the Canadian dollar, but the reprieve presents businesses dependent on North American trade with an opportunity to consider and prepare for what might come.
What we do know
Let’s start with what can we reasonably consider a worst-case scenario – the one originally scheduled to take effect on February 4, 2025 – so businesses can plan for the worst while hoping for the best:
Canada- and Mexico-origin goods moving into the U.S.
Goods originating in Canada or Mexico and moving into the U.S. will be tariffed at 25%, unless they are Canada-origin energy products, in which case they will be tariffed at 10%. The language here is very intentional. “Goods originating in Canada”, rather than “goods from Canada”. In some cases, goods moving into the U.S. from Canada do not originate in Canada; they originate elsewhere and are transshipped through Canada. Those goods will be tariffed based on their respective country of origin. This is particularly important when discussing goods originating in China as those goods hold high tariff rates (more on that later). It’s also important to note that the tariffs are applied on top of any existing tariffs, anti-dumping duties and countervailing duties.
The tariffs apply to all goods, including low-value goods that are usually exempt from tariffs through the so-called de minimis provision, which eliminates duty payments on goods lower than $800 USD. That will not only impact the cost of low-value shipments (which are mostly e-commerce parcels), but the administrative burden as many of those goods will require a formal customs entry where previously they did not. Also, unlike the tariffs that were imposed on China back in 2018, there will be no opportunity for U.S. importers to seek an exemption.
The outcome: Businesses importing Canada-origin goods into the U.S. should not only factor in the cost of tariffs on bulk shipments, but the impact of tariffs on e-commerce processes and demand. An understanding and ability to adapt to new customs processes will be essential (be it through an internal resource or third-party support).
With respect to the cost burden of the tariffs, businesses will have to ask:
- Will our current margins allow us to absorb some of this additional cost?
- If not:
- Will we negotiate better rates with suppliers?
- Will we download the cost to our customers?
- Will we find cost-cutting measures in other parts of our supply chain?
U.S.-origin goods moving into Canada
Not willing to take the imposition of tariffs lying down, Canada’s government told Washington it would respond to U.S. tariffs with its own measures, including a surtax (which ultimately serves as a tariff) on $35 billion in U.S.-origin goods on the same day the U.S. tariffs on Canada-origin were set to take effect. Another $125 billion in U.S.-origin goods would be impacted after consultation with industry.
Goods in Phase 1 include (but are not limited to):
- Agricultural goods (such as poultry, incl. ducks and turkeys)
- Agricultural machinery
- Select dairy products
- Canned vegetables
- Processed meats
- Consumer products (such as footwear and apparel)
- Alcohol (incl. wine, whisky and bourbon)
- Non-alcoholic beverages (whiskey, bourbon, wine, beer, and non-alcoholic beverages)
- Electronics (such as household devices)
- Jewelry
- Musical instruments
- Paper products (incl. cardboard)
- Textile products
- Fabrics (such as cotton and synthetic fibers)
- Sporting goods
- Games
- Hand tools
- Glassware
- Ceramic tiles
- Hardware (such as fasteners, locks, and metal fittings)
- Medical and scientific equipment (Instruments, devices, and lab equipment)
- Metal products made of iron and steel (such as pipes, tubes and sheets, as well as wire)
- Products made from aluminum (incl. bars, sheets, foil and even raw aluminum)
- Industrial machinery
- Mechanical appliances and their parts
- Automotive components (incl. powertrain and drivetrain components such as transmissions and engines)
- Housewares (such as appliances)
- Plastic and rubber products (such as hoses and tires)
- Industrial chemicals (incl. fertilizers, and cleaning agents)
- Wood products (such as lumber and plywood)
- Electrical components (such as transformers)
- Precious metals (incl. gold and silver)
Goods in Phase 2 include (but are not limited to):
- Additional dairy products
- Additional meats (such as beef and pork)
- Vehicles (incl. light trucks, passenger vehicles and electric vehicles, as well as larger vehicles such as trucks, buses and recreational vehicles.)
- Steel and aluminum products
- Selected vegetables and fruits
- Aerospace products
Like the U.S. tariffs, Canada’s would apply to low-value shipments (Canada’s de minimis threshold is a much lower $150). Again, this would require a formal customs entry where one was previously unnecessary. A process for applying for a refund on duties is available to businesses with reasonable grounds to request one based on D11-6-6.
China-origin goods moving into the U.S.
All goods originating in China are now subject to a 10% tariff. This tariff is over and above the existing tariffs on China-origin goods that have been imposed since 2018. Those tariff rates range from 7.5% to 100% (but are 25% for most goods). The impact will be felt most acutely on:
- Mobile phones
- Computers and accessories
- Electric and industrial equipment
- Toys, games and sporting goods
- Appliances and furniture
- Clothing and textiles
- Car parts
- Telecommunications equipment
- Cookware, cutlery and tools
- Shoes
The 10% tariff also applies to low-value goods under the $800 de minimis threshold. However, due to challenges in the process of collecting the duties associated with the new tariffs, the application of the tariff on low-value goods has been temporarily suspended. Once the tariff does take effect on low-value goods, only goods more than $250 in value will require a formal customs entry. Those below $250 will still be able to enter the U.S. through an informal, advanced customs entry. Fortunately for e-commerce vendors, the vast majority of low-value shipments are well below $250.
U.S.-origin goods moving into China
Predictably, China responded to the U.S. tariffs with tariffs of its own and launched a dispute at the World Trade Organization. Effective February 10, 2025, China has imposed a 15% tariff on coal and liquified natural gas imports from the U.S., as well as a 10% tariff on crude oil, agricultural machinery and large-engine cars. This was largely as symbolic gesture on the part of Beijing as these products are exported to China by U.S. companies in relatively small volumes.
Why the United States-Mexico-Canada agreement (USMCA) still matters
The USMCA has been a massive boon to trade across North America, but using the trade deal requires a fair bit of administrative oversight. That administration costs time and money. The tariff threat made many question the value of continuing to use the trade deal.
But there is value in using the USMCA. The purpose of the trade deal is to eliminate the standard tariffs that would have otherwise applied to goods moving across North America’s borders. Known as the Most-Favored Nation rate, these tariffs vary in rate by product and country of origin. Using the USMCA eliminates these tariffs. Not using the USMCA means the goods are tariffed using the combined MFN and 25% tariff.
For example, the MFN rate for a Mexico-origin passenger vehicle being imported into the U.S. is 2.5%. Without the use of the USMCA, that 2.5% would be added to the 25% tariff for a total tariff of 27.5%. Imagine the impact if the MFN rate were 25% (as it is on Mexico-origin light trucks imported into the U.S.).
What we don’t know
Over the course of February, diplomats from all three countries will meet to determine how to find common ground to avoid the imposition of tariffs. Washington has insisted the tariffs are being imposed to compel greater cooperation on America’s northern and southern borders. If Canada and Mexico are able to sufficiently appease the U.S., tariffs could be avoided altogether. Alternatively, tariffs could be imposed on a smaller scale (i.e., targeted at specific product imports; applied only when volumes exceed a specific threshold; or a reduce universal tariff rate). Or everything that was supposed to happen on February 4, 2025, just happens one month later.
What you can do today
Not knowing makes planning difficult. But there are actions businesses can take even without knowing the specifics of what might come in early March.
- Evaluate existing client relationships: Are there are opportunities to renegotiate existing contracts with suppliers, either to secure a better rate for the imported goods to offset impact of tariffs, or to identify opportunities for securing alternative sources of supply.
- Look at liquidity: Will you have sufficient financial resiliency to withstand the immediate impact of tariffs? If not, you may need to secure additional sources of capital. This also applies to import surety bonds, the value of which may need to be increased to account for the surge in duty outlay.
- Carefully classify goods: For Canadian importers it will be particularly critical to ensure proper classification of products. The wrong classification could attract a higher duty rate requiring recovery of funds. This becomes time consuming, cumbersome and impacts your bottom financial line.
- Verify your valuations: Ensuring correct valuation will be critical to mitigating the impact of goods. Precise valuation and leveraging duty-mitigation measures such as first-sale rule.
- Determine opportunity for duty relief and recovery: Canadian importers will want to leverage duty recovery options available to them, particularly those who are unable to source comparable goods elsewhere.
Candace Sider is Vice President, Government and Regulatory Affairs, North America, at trade services firm Livingston International.