Duty Calls: Preparing for US and Canadian Tariffs

January 17, 2025

Written By Quentin Vander Schueren, Sabrina A. Bandali, Alison FitzGerald, Jessica Horwitz and George Reid

The re-election of President Trump signals a renewed era of trade disruption and volatility in the form of US import tariffs on goods from Canada and other countries. After weeks of speculation, President Trump is expected to unveil new tariffs or other trade restrictive measures on or shortly after his January 20, 2025, inauguration. Working with the provincial governments to develop a ‘Canada First’ collaborative response, the Government of Canada has vowed to impose retaliatory tariffs targeting US imports into Canada and is exploring other and novel ways to respond to the expected US measures. The announcement of the Canadian response is expected to follow soon after the announcement of the US measures.

Although it is not yet clear which specific goods will be impacted by tariffs or restrictive measures on either side of the border, this overview provides a high-level refresher on the lessons learned from the last round of tariff disputes between the United States and Canada and offers actionable steps that Canadian companies—both importers and exporters—can take immediately to manage commercial and regulatory risks.

See our Tariff Preparedness Diagnostic Toolkit to help businesses self-assess readiness for the coming tariffs and other trade measures.

Lessons Learned: The 2018–2019 'Trade War' Playbook

From 2018 to 2019, the United States imposed tariffs on various Canadian exports, sparking retaliatory measures by the Canadian government. For many businesses, the sudden onset of tariffs served as a wake-up call, highlighting the need for robust supply chain visibility, precise contract language and strategic inventory management.

For background on the 2018-2019 Canada-US trade dispute, see our previous blog posts:

• Canada Counters US Tariffs with Measures of its Own (June 30, 2018)
• Countering the Countermeasures Mitigation Strategies for Importers (July 18, 2018)
• Canada Obliged to Retaliate Again to US Tariffs on Aluminum (August 14, 2020)

What to Expect from the Canadian Government Response

Retaliatory Tariffs

The Canadian government has expressed its intention to implement retaliatory import surtaxes on US exports to Canada, and this time the possibility has also been floated of quantitative export restrictions and/or export surtaxes on shipments of strategically sensitive Canadian products to the United States. Consumer-facing products and goods from key US congressional districts have topped Canada’s retaliatory lists in the past. Businesses importing goods from these districts should be prepared for higher tariffs. This time around, there has also been discussion of leveraging Canada's energy resources and critical minerals on the export side, although this strategy does not have uniform domestic political support. 

Public Consultation

Before implementing countermeasures, Canadian authorities may (but are not required to) conduct public consultations. A consultation regarding new tariff measures or surtaxes will typically include a preliminary list of goods subject to proposed tariffs and the timeline for entry into force. Businesses should monitor official announcements closely, particularly consultation notices released by Global Affairs Canada and the Department of Finance, and be prepared to submit comments highlighting potential commercial impacts or supply chain concerns for Canadian businesses. Any such consultation period is likely to be short. Before imposing a retaliatory surtax on steel, aluminum and other US goods in 2018, the government held consultation for only two weeks.

Remission Process

As seen in 2018, Canada may offer limited exemptions or remissions for Canadian businesses if countermeasures risk causing disproportionate harm to Canadian industry or essential supply chains. For instance, there may be tariff exemptions for goods imported under contracts executed before a certain date. The recent remission process established for surtaxes on imports of electric vehicles and steel and aluminum products from China provides a useful example, where exemptions are considered for goods that cannot be sourced domestically, are tied to pre-existing contracts or involve exceptional circumstances impacting the economy. Similar criteria and a thorough submission process would likely apply to any new countermeasures introduced. Importers will need to marshal evidence and make submissions to demonstrate why a remission is warranted.

How to Prepare: Practical Strategies and Tools for Canadian Exporters and Importers

Trade measures have the potential to disrupt supply chains, drive up costs, reduce customer demand and undermine profitability for both exporters and importers. Proper planning is essential to minimize these risks. Following are key strategies that Canadian businesses should keep in mind to navigate the evolving landscape.

Contract Management

Canadian importers and exporters should ensure their contracts are equipped to handle sudden changes in trade policy, including new or increased tariffs and other trade measures, particularly for products that have long lead times. Consider if your contracts address the following:

• Trade Disruption: Specify how unforeseen events like additional tariffs or other regulatory actions will be managed. For instance, include clauses addressing whether costs can be passed on, timelines extended, whether parties can renegotiate or terminate, and which party bears the immediate financial impact. Define clear thresholds that activate your trade disruption clause and set out procedures for resolution (e.g., renegotiation or cost-sharing).
• Material Cost Changes: Include a price adjustment or provision for renegotiation of terms without penalties triggerable upon a substantial increase in raw material or finished goods costs resulting from the imposition of tariffs or other trade measures. Include termination provisions where renegotiation fails.
• Risk Apportionment: Clearly assign responsibility for additional tariffs, duties or surtaxes. Explicitly addressing who pays for unexpected cost increases reduces the likelihood of future conflicts and costly disputes.

In addition to these clauses, consider including broader force majeure or change-in-law provisions that capture sudden regulatory shifts. For additional background on the interpretation and application of force majeure clauses, you can refer to our blog post Force Majeure Clauses and COVID-19 Pandemic Impacts—An Assessment of Ontario Judgments Three Years On (March 24, 2023). A well-drafted contract allows both importers and exporters to adapt quickly to evolving trade landscapes—especially in times of heightened uncertainty.

Finally, trade credit insurance may protect against the risk of non-payment of goods by customers provided that such insurance includes as a covered event non-payment in circumstances of increased cost due to state trade or regulatory action.

Tariff Risk Mitigation

For Canadian businesses that import from the United States—and that may soon face Canadian retaliatory tariffs and other trade measures—there are several mechanisms under existing trade promotion programs that can reduce or delay payment of duties or taxes:

• Tariff Classification, Valuation and Origin: Ensuring that your goods are accurately classified can make a substantial difference in the rate of duty. Combined with proper origin determination—such as verifying whether goods qualify for preferential treatment under a free trade agreement—and a strategic approach to valuation, these measures can yield significant savings. Maintaining an organized repository of supporting documentation, including freight records, purchase orders and proof of origin is essential to support your claims and guard against costly compliance issues.
• Obtain Guidance: If you are uncertain about classification, valuation or origin qualification of your goods, obtaining an Advance Ruling (for tariff classification or origin under a free trade agreement) or National Customs Ruling (for valuation, non-FTA preferential origin, or marking) from the CBSA can clarify uncertainties and help avoid costly re-assessments.
• Duty Deferral Program: The Duty Deferral Program encompasses several mechanisms that allow eligible businesses to defer, reduce or eliminate the payment of customs duties and certain taxes on imported goods that are subsequently exported. These include the Duties Relief Program, Duty Drawback Program and Customs Bonded Warehouse Program, each with specific eligibility requirements, time limits and record-keeping requirements. The program is designed to support businesses engaged in international trade by reducing the financial burden associated with duties on goods that do not remain in the domestic market.
• Zero-Rated Goods: Some products are eligible for a zero rate of GST when imported into Canada.
• Special Tariff Provisions: Some products may be eligible for zero rates of duty if they are imported for use in certain end applications, as specified in Chapters 98 and 99 of Canada's Customs Tariff.
• Canadian Goods Returned and Temporary Importations: Items originating in Canada or that were previously imported and duty-cleared into Canada that leave the country and later return (e.g., returned inventory, capital goods or vehicles exported temporarily for service abroad, etc.) may be eligible for partial or complete duty and/or tax relief upon their return to Canada. Similarly, goods that will only be in Canada temporarily may be eligible for duty and/or tax deferral on the condition that they are re-exported within a specified time frame.

Note that some relief programs may not be available for special surtaxes or other trade restrictive measures depending on the type of measure and the legal authority under which it is structured. However, it is important for importers and exporters to investigate all options to not leave any relief opportunities on the table.

Practical Next Steps

The renewed threat of tariffs underscores the importance of proactive planning and robust compliance measures. By drawing on the lessons of 2018–2019, Canadian businesses can better anticipate US actions and effectively respond to any Canadian countermeasures. Whether through supply chain diversification, contract adjustments or seeking relief through duty and tax relief and deferral programs, it is never too late to start taking steps that mitigate long-term damage.

Key Action Items

• Watch for announcements from the Office of the US Trade Representative (USTR) regarding the final tariff list and effective dates. Monitor Canadian government responses and public consultation timelines.
• Conduct a thorough review of your supply chain and customs documentation.
• Revisit commercial contracts, ensuring they address potential changes in tariffs.
• Consider cost mitigation strategies such as the CBSA's Duty Deferral Program to defer, relieve or recover customs duties and certain taxes under specific conditions.
• Consider whether tariff and tax relief mechanisms apply to imported goods, such as GST exemptions, special tariff provisions, Canadian goods returned or temporary importations.
• Review your supply chains and customer markets and consider the trade risks associated with these relationships. Diversifying your suppliers and markets can mitigate the impact of new tariffs or other trade measures.

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