Accurate as of April 3, 2025, 10:30am EST
As the U.S. administration advances a robust reciprocal trade agenda under the International Emergency Economic Powers Act (IEEPA), global trade dynamics are undergoing substantial recalibration. While recent measures primarily target countries with large trade surpluses, Canadian exporters must closely examine their potential exposure and take steps to mitigate those risks. Canada currently benefits from conditional relief; however, this relief does not apply across the board—it is narrowly defined and may be revoked or revised depending on U.S. policy decisions.
Canadian exporters must now navigate a complex U.S. trade environment shaped by two primary legal frameworks with overlapping Executive Orders—each carrying distinct compliance requirements and economic consequences.
IEEPA-based tariff measures
The U.S. has imposed tariff measures under the IEEPA through two executive actions:
February 4, 2025 – Executive Order - Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border
This order establishes Canada’s current exemption, subject to the following terms:
- Canadian-origin goods that comply with the USMCA/CUSMA rules of origin qualify for 0% tariff treatment
- Non-USMCA/CUSMA compliant goods other than Canadian energy and potash are subject to a 25% tariff
- Non-USMCA/CUSMA compliant Canadian energy and potash incur a 10% tariff
This treatment remains valid while the fentanyl/migration emergency orders remain in effect. If withdrawn, non-compliant goods would default to a 12% reciprocal tariff under the April 2, 2025, Executive Order.
April 2, 2025 - Executive Order – Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits
This new executive order expands IEEPA-based measures by introducing:
- A 10% baseline reciprocal tariff on most imports, effective April 5, 2025
- Individually tailored higher tariffs for countries with significant trade imbalances, effective April 9, 2025
Section 232 Tariffs (national security-based measures )
Separate from IEEPA, Section 232 grants the U.S. authority to impose tariffs on imports that pose a perceived threat to its national security. For goods of Canadian origin, this includes:
- 25% tariffs on steel and aluminum products
- 25% tariff on automobiles and certain auto parts, effective April 3, 2025
These tariffs are not affected by Canada's IEEPA-related exemptions. Exporters must ensure proper product classification and supporting documentation to prevent misapplication or overlap with other trade measures.
Risks for Canadian exporters
Even within the current relief framework, Canadian exporters should be aware of risks in the following areas that can cause goods to not qualify for the conditional relief resulting in higher tariffs:
- inadequate or incorrect USMCA/CUSMA origin documentation;
- insufficient transformation of goods or not meeting USMCA/CUSMA content thresholds;
- heavy dependence on non-North American inputs;
- errors in tariff classification(s) (HTS codes); and
- goods being potentially included in future Section 232 investigations, particularly for sensitive sectors such as semiconductors, electric vehicle components, and dual-use goods.
Example:
A Canadian manufacturer of electrical control panels to the U.S. sources circuit components from Taiwan. Although final assembly occurs in Ontario, the non-North American content exceeds USMCA thresholds, and the origin documentation lacks a valid certification. As a result, these panels could be deemed non-compliant for USMCA/CUSMA and become subject to a 25% tariff under the February IEEPA order—or a 12% tariff if the relief lapses. This scenario highlights the importance of origin tracing, supplier declarations, and accurate classification.
Risk outlook by business sector
Depending on your industry, there are specific risk factors to which your business should pay close attention.
Canada’s retaliatory measures remain active
Canada continues to impose countermeasures in response to U.S. actions under the IEEPA and Section 232 framework. As outlined in Canada Border Services Agency’s (CBSA) Customs Notices 25-10 and 25-11, these measures apply to a specific list of U.S. origin goods and are not determined by USMCA/CUSMA compliance status. The retaliatory tariffs include:
- 25% surtax on select U.S.-origin goods, including industrial products, consumer goods, and food items; and
- 10% surtax on certain U.S. petroleum and chemical products.
These countermeasures are targeted and based on the product’s origin and apply despite USMCA/CUSMA eligibility. The surtax applies at the time of importation into Canada and is administered under the customs tariff.
Following the imposition of new U.S. auto tariffs under Section 232, Canadian officials have indicated that additional response measures may be considered to protect Canada’s economic interests.
In addition to the above, Canada responded to the April 2, 2025 U.S. Administration announcement with matching 25% tariffs on vehicles imported from the U.S. that are not USMCA/CUSMA compliant along with tariffs on non-Canadian content of any USMCA/CUSMA-compliant vehicles imported from the U.S. and excluding Mexico.
Strategic considerations for Canadian importers and exporters
In view of multiple overlapping enforcement regimes, Canadian exporters should take action to mitigate risks with priority on these strategic measures.
- USMCA/CUSMA origin audits: Verify your eligibility through regional value content calculations and complete documentation
- HTS classification accuracy: Validate that you are using the correct tariff codes to avoid misclassification that may result in compounded duties
- Tariff exposure forecasting: Assess your tariff costs under multiple duty rates (12%, 25%, Section 232)
- Contract review and risk allocation: Confirm trade terms and clarify tariff responsibility
- Policy monitoring frameworks: Stay abreast of updates from CBSA, U.S Customs and Border Patrol, U.S. Trade Representative, and relevant Canadian trade bodies
BDO can help you stay vigilant
While Canadian exports currently benefit from limited relief, the overall framework reflects an aggressive evolving U.S. trade posture. With three legal instruments simultaneously in force—and new auto tariffs now in effect—even minor lapses in compliance could result in significant duty exposure.
Reach out to a BDO advisor to better understand your options in this new trade environment.
The information in this publication is current as of April 3, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.