U.S. Tariffs and Canada’s Response: Uncertainty Complications Tariff Mitigation

Posted on March 12th, 2025 in Agribusiness, Construction & Real Estate, Cross-border Tax, Domestic Tax, Manufacturing & Distribution, Tourism & Hospitality

Executive summary

The ongoing tariff dispute between the U.S. and Canada has led to significant measures from both countries. As the situation remains dynamic, key strategies for Canadian businesses to manage these risks include using bonded warehouses, transfer pricing, tariff engineering, and diversifying supply chains.

U.S. tariffs on most Canadian goods—and Canada’s reciprocal measures—went into effect March 4 following a month-long delay. While tariffs on some Canadian goods were subsequently paused, tremendous trade uncertainty remains on both sides of the border.

The tariff situation continues to evolve as the U.S. administration eyes new products for protective tariffs and Canada rolls out its response at the federal and provincial levels.

Although the ongoing uncertainty makes planning tariff mitigation more complicated, the following strategies are still available for middle-market companies:

• Bonded warehouses, foreign/free trade zones, and temporary import bonds. These mechanisms allow importers who meet certain requirements, such as limitations on work performed on the goods, to delay tariffs until the goods are distributed into the local market—or bypass tariffs where the goods are exported.

• Transfer pricing. In related party transactions, transfer pricing ensures the price of the good is equivalent to the price in an arm’s length transaction. Companies should revisit their transfer pricing strategies to ensure the lowest defensible price is used.

• Tariff engineering. This involves changes to the manufacturing process, manufacturing locations, and supply chain to change the classification of the goods.

• Diversifying the supply chain and customers. The U.S. is the top export destination for numerous Canadian products. The current tariffs underscore the importance of diversification for Canadian businesses to limit the negative impacts of tariffs.

• Participate in the comment period. Those operating in industries that could be affected by future tariffs—such as manufacturing, real estate and consumer products—could consider participating in the consultation.

You can read more about the ongoing tariff dispute below. The measures detailed below were accurate as of March 6 and are subject to change.

U.S. tariffs on Canada

The following tariffs impacting goods originating from Canada have been confirmed by executive order or official statement from the White House.

The term “CUSMA goods” refers to goods which meet the Canada-United States-Mexico Free Trade Agreement (CUSMA) rules of origin for goods originating in the territory of Canada, the U.S., and Mexico. Generally speaking, CUSMA goods will be wholly obtained or produced in North America, and/or meet requirements on regional content, processing or changes in tariff classification outlined in the CUSMA.

Scheduled effective date	Amount	Affected goods
March 4 – March 6	10%	Energy and energy resources[1]
March 4 – March 6	25%	All, except energy and energy resources
March 7	10%	Energy, energy resources, and potash which are not CUSMA goods
March 7	25%	All non-CUSMA goods not captured in the 10% tariff.
March 12	25%	Steel and aluminium products and derivatives

Products whose value does not exceed US $800 will qualify for the de minimis exemption to the tariffs. The exception is only a temporary reprieve for goods subject to the March 7 tariffs as it will be removed once systems are in place to collect tariffs on these low-value imports.

U.S. President Donald Trump has also indicated the administration is considering the following additional tariffs. The details, including countries impacted, are not publicly finalized.

Scheduled effective date	Details
April 2	Reciprocal tariffs
April 2	Automobiles and agricultural products
Unknown	Approximately 25% tariff on semiconductors and pharmaceuticals

Along with the previously announced tariffs, the U.S. has indicated it is conducting reviews into other areas of concern:

• April 1, 2025: Report on impact and recommendations regarding CUSMA.
• August 12, 2025: Recommendations on reciprocal tariffs to respond to tariff and non-tariff measures, including value-added taxes believed to injure U.S. interests.
• Nov. 22, 2025: Report on copper and copper products including potential recommendations for tariffs or export controls.
• Nov. 26, 2025: Report on lumber and timber including potential recommendations for tariffs or export controls.
• Unknown: Response to digital services taxes introduced by several countries, including Canada, on recommendation by the Organization for Economic Co-operation and Development (OECD).

Canada’s tariff response

Prime Minister Justin Trudeau confirmed on March 4 that Canada would implement a two-phase tariff response originally announced on Feb. 1. Trudeau added he would work with the provinces on further measures and look for other ways to support affected Canadians. One potential option he suggested was expansion and additional flexibility for employment insurance (EI).

Innovation Minister François-Philippe Champagne announced the guidance to the Investment Canada Act will be updated to require consideration of Canada’s economic security in allowing foreign acquisitions of or mergers with Canadian companies.

Along with initiating disputes before the World Trade Organization and using the CUSMA dispute resolution measures, Canada implemented its two-phase tariff response. A 25%t tariff was imposed on a subset of goods originating from the U.S. on March 4 and is scheduled to extend to a further list of goods following a 21-day consultation period. This tariff applies to both commercial and personal-use goods.

The following is a non-exhaustive and high-level list of impacted goods:

Initial group of goods

• Food and drink products including dairy products, confectionaries, fruits and vegetables, beverages (alcoholic and non-alcoholic), cereals and spices.
• Hygiene and beauty products, including perfumes, deodorants, soap and shavers.
• Home furniture, décor, and home appliances.
• Pneumatic tires, motorcycles, and unmanned aircraft.
• Personal use bags (including handbags, suitcases).
• Clothing, footwear, and accessories.
• Products for outdoor activities (such as tents, sails, and life jackets).
• Wood and wood products.
• Paper and cardboard products (e.g. toilet paper, notebooks, and boxes).
• Plastic packaging materials.
• Tools.
• Firearms and related products.
• Tobacco and related products.

Extended group of goods

• Live animals, fish, crustaceans, invertebrates, insects, and birds and the products thereof.
• Flowers and trees, including their seeds/bulbs and the products thereof (e.g. bark, chocolate, and teas).
• Vegetables, fruits, berries, cereals, mushrooms, and nuts and the products thereof (including oils, waffles, beverages, and pasta).
• Minerals, clay, stones, ores, ceramic, metals, glass, and rocks (including products derived from coal).
• Mineral or chemical fertilizers.
• Electrical energy.
• Polymers, resins, cellulose, and asbestos products.
• Items used in artistic and athletic activities, as well as some toys, video game consoles, and collector items.
• Apparel, accessories hygiene, cleaning products, home goods, and home appliances.
• Machinery for construction, agriculture, printing, and additive manufacturing.
• Certain vehicles, trailers, tankers, and boats.
• Various electronic resistors, insulators, and semiconductor devices.
• Various screws, bolts, springs, nuts, magnets, and batteries.

These tariffs will not apply to:

• Certain equipment in the production of any vehicle, machine, or appliance, including original equipment manufacturer tires.
• Goods made in the U.S. entering Canada for repair.
• With certain exceptions, goods classified under Chapter 98 and 99 of the Customs Tariff. These chapters include special classification categories that consider factors such as use of goods (for example, foreign-based containers or trailers used in the international commercial transportation of goods).

Importers will be able to make use of Canada’s duties relief and duty drawback programs (subject to CUSMA) to bypass tariffs or receive a refund of tariffs on previously imported goods which are exported from Canada.

Provincial responses to U.S. measures

Many Canadian provinces are introducing their own responses to U.S. tariffs using measures within their jurisdiction—while some premiers are pushing to lower barriers to interprovincial trade.

Outlined below are measures from the provincial governments of Alberta, British Columbia, Quebec, and Ontario. 

Alberta

Alberta announced it will no longer be purchasing alcohol or video lottery terminals from the U.S., nor will government entities—both provincial and municipal—be making purchases of goods and services from the U.S.

British Columbia

B.C. announced that:

• Its liquor stores will no longer sell products from Republican-led states,
• Canadian businesses will have priority in governmental procurement decisions; and,
• It will introduce legislation to apply tolls to commercial trucks transiting through the province headed to Alaska.

B.C. Premier David Eby also indicated he’s looking to introduce support for affected businesses and individuals but did not provide details.

Ontario

The province-run LCBO has removed U.S. alcohol from its shelves, and U.S. companies will no longer be considered in government procurement and infrastructure contracts. A 25% export tariff on electricity headed to Michigan, New York, and Minnesota will apply as of March 10. Ontario Premier Doug Ford indicated he is considering other measures as well.

Quebec

Quebec’s government asked the province-run SAQ to no longer sell or supply U.S. alcohol. The province will also impose a penalty of 25% on U.S. companies bidding on government contracts without an existing presence in Quebec. Quebec said it will support affected domestic businesses by allowing companies to qualify for up to $50 million in liquidity loans with a maximum term of seven years.

[1] Includes 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

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This article was written by Cassandra Knapman and originally appeared on 2025-03-06. Reprinted with permission from RSM Canada LLP.
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