U.S. tariffs and Canada's response: Uncertainty complicates tariff mitigation

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 24 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 US 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.

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.

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.
• Aug. 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 Organisation for Economic Co-operation and Development (OECD).

Canada’s tariff response

On March 4, then-prime minister Justin Trudeau said that Canada would implement a two-phase tariff response originally announced on Feb. 1, along with initiating disputes before the World Trade Organization (WTO) and using the CUSMA dispute resolution measures.

The federal government introduced further actions intended to support businesses and workers domestically, including access to the work-sharing measures under employment insurance (EI), deferring corporate income tax payments and GST/HST remittances from April 2, 2025 to June 30, 2025 and working with premiers to lower interprovincial barriers to trade.

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.

Canada’s response includes a 25 per cent tariff imposed on a subset of goods originating from the U.S. on March 4 and an extension of that tariff to a further list of goods following a consultation period that is scheduled to end April 2. This tariff applies to both commercial and personal-use goods.

On March 12, the federal government moved up the tariff implementation on a number of goods originally included in its second phase to March 13 in response to U.S. steel and aluminum tariffs.

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.

You can find a full list from the federal government in this release.

March 13 goods

• Iron and steel products
• Hand tools
• Accessories (watches, umbrellas etc.)
• Hobby and sports equipment

You can find a full list from the federal government in this release.

Post-consultation 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.

You can find a full list from the federal government in this release.

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. A remission process is additionally available to request exceptional relief.

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. The roll-out of these provinces’ respective budgets is being covered here.

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 and it will prioritize non-U.S. suppliers for government contracts.

B.C. has introduced legislation to allow the provincial government to bypass its legislature in imposing laws meant to respond to tariff threats, lower tariff barriers between provinces or protect the economic interests of both the country and province. The legislation also introduces tolls for non-Canadian commercial trucks transiting through the province that would be automatically repealed in 2027.

B.C. is also looking to require Canadian produced low-carbon biofuels to be used in gas and diesel.

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. 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 per cent 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}