Happy Tariff Day
or, what the heck even just happened!
Donald Trump called today “Liberation Day”, announcing a 10% import tariff on all imports to the United States. There is a list of about 60 other countries that he called the ‘worst offenders’ that will face higher rates.
Canada is (kind of) exempt from these tariffs. Good news, right?
Nope!
News agencies were reporting that Canada and Mexico were exempt from today’s tariffs, but it would be more accurate to say that today’s announcement doesn’t stack on top of the previously announced, but temporarily paused, “National Emergency” tariffs.
The “National Emergency” tariffs against Canada and Mexico are still in effect. These tariffs were set at 25% for most imports that are not CUSMA rules of origin compliant, and a lower rate of 10% on energy, energy resources, and potash that are not CUSMA rules of origin compliant.
Today’s order specifies that if the previous order outlining those tariffs is terminated or suspended, then imports from Canada and Mexico will face 12% tariffs on everything that is not compliant with CUSMA rules of origin, except for energy, energy resources, and potash, which will have no tariffs, even if they’re not compliant with CUSMA rules of origin.
More Section 232 tariffs to come
Trump has largely relied on two pieces of legislation to implement his global economic tariff war. Today’s announcement fell under the 1977 International Emergency Economic Powers Act (IEEPA), as do the “National Emergency” tariffs on Canada and Mexico. Steel and Aluminum tariffs that came into effect on March 12, fell under Section 232 of the 1962 Trade Expansion Act.
There are additional Section 232 auto tariffs of 25% that will come into effect on April 3, 2025. That rate will only apply to the non-US share of the final import for cars and light duty trucks, but it’s not clear how that will be calculated yet. That could reduce the effective tariff rate for Canada’s exports to around 12%, but that’s still high enough that Canadian auto and parts manufacturers and the union representing auto workers are saying it would kill the industry.
Today’s order hints that there are more sector-specific Section 232 tariff announcements to come, by including a clause excluding “all articles that may become subject to duties pursuant to future actions under section 232 of the Trade Expansion Act of 1962”. Speculation of affected sectors includes pharmaceuticals, copper, semiconductors, wood products, but as we’ve seen with Trump, everything is always subject to change, and no sector is safe from his whims.
Duty free de minimus treatment
Goods can be exempt from duties and tariffs if they fall under a duty free de minimus threshold. For Canadian businesses shipping into the the US, that threshold is $800 USD. Today’s announcement maintains this exemption, but says that as soon as there are adequate systems in place to collect this revenue, that exemption will be lifted.
(h) Duty-free de minimis treatment under 19 U.S.C. 1321(a)(2)(A)-(B) shall remain available for the articles described in subsection (a) of this section. Duty-free de minimis treatment under 19 U.S.C. 1321(a)(2)(C) shall remain available for the articles described in subsection (a) of this section until notification by the Secretary of Commerce to the President that adequate systems are in place to fully and expeditiously process and collect duty revenue applicable pursuant to this subsection for articles otherwise eligible for de minimis treatment. After such notification, duty-free de minimis treatment under 19 U.S.C. 1321(a)(2)(C) shall not be available for the articles described in subsection (a) of this section.
Good news for trade lawyers and consultants!
What does it mean to be compliant with CUSMA rules of origin? Take a look at this 136 page Harmonized Tariff Schedule General Note 11. Generally, it means something that is obtained or produced entirely in one or more of Canada, Mexico, or the United States, but there are special rules for specific types of goods, like textiles, auto, steel, and aluminum. If a company hadn’t faced tariffs before, they probably haven’t even looked into figuring out how to prove where their product comes from, or if they meet the rules of origin.
To give a sense of how complex this whole operation is, when Trump amended executive order implementing the “National Emergency” tariffs in March, he said that energy and energy resources from Canada would be subject to a lower tariff rate of 10%. Following that announcement, US Customs put out a list of 800 products that fell into that category, most of them fossil fuels or critical minerals and related products. To add to the confusion, some of these products are now subject to the 25% steel and aluminum tariffs that came into effect under Section 232 on March 12, 2025.
Uncertainty reigns
How bad today’s announcement is for Canada depends on an analysis of what proportion of exports will be able to qualify for USMCA rules of origin. Currently, only 38% of Canada’s exports to the US claim the preferential tariff rate. That may be because those exports hadn’t faced a tariff before, and the administrative burden of establishing rules of origin compliance was unnecessary. A large portion of Canada’s energy exports to the US do not currently claim the rules of origin preferential tariff rate.
The only thing that is certain in Trump’s trade war, is that nothing is clear, and everything could change at the drop of a hat. Workers and business owners will be scrambling to figure out what today’s announcement means for them in the days to come. Carney said Trump’s announcement today will “fundamentally change the international trading system”. That’s an understatement.
What’s certain is that this issue isn’t going away, and we need to fight even harder to make sure that Canada’s response preserves our values - along those lines, I’m just going to plug something that the union I work for put out, the Montreal Declaration.