Non-CUSMA compliant goods subject to 35% tariffs effective August 1, 2025

Previously, on February 1, 2025, the U.S. issued an Executive Order (EO) under the International Emergency Economic Powers Act (IEEPA), imposing a 25 % tariff on Canadian exports not compliant with the Canada-United States-Mexico Agreement (CUSMA)/United States-Mexico-Canada Agreement (USMCA) rules, and 10 % on energy and potash. These became effective February 4, 2025. In parallel, Section 232 tariffs 25 % remained in force on Canadian steel, aluminum, and certain automobiles and automobile parts. The tariff rate on Canadian steel and aluminum has since been increased to 50%.

On July 31, 2025, a new EO increased the IEEPA based tariff rate for non-CUSMA/USMCA qualifying Canadian goods from 25 % to 35 %, effective August 1, 2025. A 40 % transshipment levy was also introduced to penalize goods rerouted through third countries to circumvent duties. 

The U.S. justified this escalation by citing Canada’s alleged failure to curb fentanyl trafficking across the border and its implementation of retaliatory trade measures.

Current U.S. tariff regime facing Canadian exporters

As of August 1, 2025, the following measures apply:

• A 35 % IEEPA reciprocal tariff on CUSMA/USMCA compliant.
• The 10 % tariff remains on energy and potash not qualifying under CUSMA/USMCA. 
• The standard 50 % Section 232 duties remain on Canadian steel and aluminum. 
• The 25% tariff remains on automobiles or automotive parts not qualifying under CUSMA/USMCA.
• A 40 % transshipment penalty applies to goods re-routed through other jurisdictions to circumvent duties. 

Approximately 90 % of Canadian goods remain exempt if they satisfy CUSMA/USMCA origin criteria.

Implications for Canadian exporters

With U.S. trade measures tightening rapidly, Canadian exporters must act now to address these critical compliance and cost considerations:

1. CUSMA/USMCA origin documentation: Rigorous verification is more important than ever. Exporters must ensure that tariff shift or regional value content thresholds for their specific goods are met and properly documented to qualify for the 0 % tariff exemption.
2. HTS code accuracy: Proper classification under the Harmonized Tariff Schedule remains critical to avoid unexpected duties or tariff stacking.
3. Tariff cost forecasting: Scenario modelling should now account for the 35 % rate, in addition to potential 40% transshipment penalties.
4. Contract and pricing terms: Export contracts and Incoterms need revision to explicitly allocate tariff liability and assess cost implications.
5. Policy monitoring: Given the evolving nature of U.S. trade actions and possible judicial challenges to the executive orders, export compliance and customs teams must stay alert for updates.

In response to the latest U.S. tariff escalation, Canada is reinforcing its countermeasures under CBSA Notices 2510 and 2511, which include 25 % surtaxes on select U.S. goods, such as steel, aluminum, petroleum, and chemical products, as well as 10 % duties on additional U.S. imports. The federal government has also signaled that further retaliatory measures may be considered as trade tensions intensify.