Understanding the specifics of the tariff actions can help importers prepare for what’s to come
*Updated March 7, 2025
By Candace Sider
After a month-long reprieve, Washington announced it would be officially imposing tariffs on goods originating in Canada and Mexico. The tariffs – 25% on all goods except energy products from Canada, which are tariffed at 10% — are rightly seen by industry, economists and governments as being detrimental to all three countries.
With tariffs now 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 businesses dependent on North American trade have an opportunity to consider and prepare for what might come.
WHAT WE DO KNOW
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 energy products or potash, in which case they will be tariffed at 10%. Goods that qualify as originating in North America according to the Rules of Origin outlined in the United States-Mexico-Canada Agreement (USMCA) are exempt as of 12:01 a.m. on March 7, 2025. The language here is very intentional. “Goods originating in Canada or Mexico,” rather than “goods from Canada or Mexico.” 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 (eventually) 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 on goods valued over $250 where previously they did not, and require importers to secure a customs surety bond against the associated duty outlay.
However, due to challenges in the process of collecting duties on low-value goods, 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.
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.
Most recently, the U.S. imposed a 25% tariff on all steel and aluminum imports into the U.S., irrespective of origin. Unlike the tariffs imposed on March 4, 2025, these do not exempt if they qualify for the USMCA.
It’s important to note that it’s not just raw steel and aluminum impacted, but derivatives of these metals, which could include parts for cars, industrial machines, air conditioners and other products, as well as construction hardware such as screws, bolts, parts for cranes and steel wire. Approximately 300 product categories are on the derivatives list. The goods news is that importers of derivatives might be able to secure exemptions if they can prove the steel was melted and poured (or the aluminum smelted and cast) in the U.S.
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 goods were set to take effect. Another $125 billion in U.S.-origin goods was scheduled be implemented approximately three weeks after Phase 1 is initiated; however, the Canadian government paused the implementation of this second phase in response to Washington’s move to exempt USMCA-qualifying goods. The Canadian government has not provided an exemption on U.S.-origin goods that qualify under USMCA.
Goods in Phase 1 include (but are not limited to):
- Agricultural goods, such as poultry, including ducks and turkeys
- Agricultural machinery
- Canned vegetables
- Select dairy products
- Processed meats
- Consumer products, such as footwear and apparel.
- Alcohol, including 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, including cardboard
- Textiles 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 & 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, including bars, sheets, foil and even raw aluminum
- Industrial machinery
- Mechanical appliances and their parts
- Automotive components, including powertrain and drivetrain components such as transmissions and engines
- Housewares, such as appliances
- Plastic & rubber products, such as hoses and tires
- Industrial chemicals, including fertilizers, and cleaning agents
- Wood products, such as lumber and plywood
- Electrical components, such as transformers
- Precious metals, including gold and silver
Goods in Phase 2 include (but are not limited to):
- Additional dairy products
- Additional meats, such as beef and pork
- Vehicles, including 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 CAD). Again, this would require a formal customs entry where one was previously unnecessary and associated customs bond to insure the duty outlay. A process for applying for a refund on duties is available to businesses with reasonable grounds to request one based on D11-6-6.
In addition to the tariffs imposed on March 4, 2025, Canada has also imposed a tariff of 25% on $29.8 billion in U.S. goods effective March 13. This new list of U.S.-origin goods was drawn up in response to Washington’s imposition of a 25% tariff on March 12 on all steel and U.S. imports irrespective of origin.
U.S. goods impacted by these tariffs, include steel ($12.6) and aluminum ($3 billion), as well as additional products ($14.2 billion). The additional products include tools computers, sporting equipment, cast-iron products and more. The list may be expanded as Ottawa looks to match the dollar values of the Canadian steel and aluminum derivatives included in the U.S. tariff action.
China-origin goods moving into the U.S.
All goods originating in China were subject to a 10% tariff effective February 4, 2025. However, on March 4, 2025, added another 10% to the tariff, for a total of 20%. 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 20% tariff also applies to low-value goods under the $800 de minimis threshold. Again, duties associated with low-value shipments are being temporarily delayed until CBP is able to find an effective mechanism to collect these duties.
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.
On March 4, China announced additional tariffs on select U.S.-origin goods in response to the additional 10% tariff imposed by Washington on China-origin goods on the same day. The additional tariffs effective March 4 are as follows:
- 15% tariff on U.S.-origin chicken, wheat, corn and cotton.
- 10% tariff on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables and dairy products.
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. Initially, 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.).
With the implementation of an exemption for all USMCA-qualifying goods, the value of the USMCA becomes unquestionable. Using the trade deal now allows importers into the U.S. of Canada-origin and Mexico-origin goods to avoid the MFN tariffs and the new 25% and 10% tariffs imposed in March 2025. Importers who choose not to use the USMCA will have both the MFN and new duties applied to their goods, making the duty outlay enormous.
WHAT WE DON’T KNOW
Once imposed, the tariffs will likely set off a flurry of diplomatic activity involving representatives from Canada, Mexico and the United States, The outcome of this diplomacy could lead to the tariffs being withdrawn or scaled back, but when or if that happens remains unknown.
In addition, the White House is planning a series of other tariff actions that may or may not take come to fruition depending on any number of variables. These include:
- A 25% tariff on all imports of steel
- A 10% tariff on all imports of aluminum
- Tariffs on specific products, such as automobiles, lumber, pharmaceuticals and semiconductors
- Reciprocal tariffs that would ultimately index the U.S. Most-Favored Nation tariff rate to those of U.S. trading partners.
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. For more information about the impact of tariffs on surety bonds, please click here.
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.