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Trade Turmoil: United States tariffs and Canada’s next moves

Updated: February 04, 2025

On February 3, 2025, the Canadian Federal Government, under Prime Minister Justin Trudeau, reached a deal with the White House to pause the implementation of the tariffs described in this article for at least 30 days.

On February 1, 2025, U.S. President Donald Trump signed an Executive Order imposing sweeping tariffs on imports from Canada, Mexico, and China under the International Emergency Economic Powers Act (IEEPA). With this move, the administration imposed a devastating additional 25% tariff on imports of Canadian and Mexican goods into the U.S., along with a 10% levy on Canadian oil and energy products, such as natural gas, electricity, and critical minerals. Imports from China are also subject to a 10% tariff.

The White House claims these tariffs are necessary to curb border security threats, fentanyl trafficking, and ongoing trade imbalances. By invoking the IEEPA, the administration did not require congressional approval, fast-tracking these measures and adding new layers of uncertainty for businesses.

Canada also announced its countermeasures to address the U.S.'s actions. It will levy 25% tariffs on approximately $30 billion of products of the United States to take effect on the same day the U.S. tariffs come into effect. In addition, to allow Canadian importers to explore options, in 21 days 25% tariffs will be imposed on more than $155 billion of goods from the U.S. Canada also announced plans to consider other measures regarding critical minerals, materials, and partnerships.  The list of impacted goods can be found here.

Understanding the Executive Order

To aid in understanding the details of the Executive Order, key points include:

  • The tariffs take effect for products of Canada imported into the U.S. on or after 12:01 AM EST on Tuesday, February 4, 2025.
  • Products of Canada already in transit before 12:01 AM EST on Saturday, February 1, will be exempt.
  • No exceptions are available except for national security-related goods.
  • The "de minimis" exemption, which allows duty-free entry for small shipments under $800, is revoked for products of Canada.
  • No duty drawbacks will be permitted, meaning businesses cannot seek refunds of import tariffs paid even if the goods are subsequently exported from the U.S.
  • The potential for increased tariff rates in response to counter tariffs from Canada remains. 
  • Products of Canada entering U.S. Foreign Trade Zone restrictions must be classified as privileged foreign status, meaning they cannot later be reclassified to avoid tariffs.

What Qualifies as a product of Canada?

The EO signed by President Trump indicates that the process for determining what constitutes a “product of Canada” will be described in a Federal Notice, set to be released early in the week.

Next steps for Canadian exporters

With a potential trade war brewing, Canadian businesses need to pivot quickly. Here are five strategies to minimize disruption:

It’s time to reduce dependence on the U.S. by exploring opportunities within Canada as well as Europe, Asia, and Latin America. Agreements like CETA (Comprehensive Economic and Trade Agreement) and CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) offer pathways for tariff-free trade.

Canadian businesses should explore whether they can focus on domestic production and sourcing to reduce reliance on cross-border trade. Strengthening local supply chains can help mitigate disruptions and improve cost stability. Key actions include:

  • Sourcing raw materials and components locally to reduce tariff exposure; 
  • Investing in Canadian manufacturers and suppliers to build resilience; and
  • Improving logistics and automation to lower operational costs.

By prioritizing local supply chains, businesses can enhance stability and long-term competitiveness in a shifting trade environment.

Despite the tariffs, USMCA still provides some relief. Companies should explore strategic exemptions and restructuring options to minimize exposure.

Competing on price against non-tariffed competitors becomes a difficult option. Businesses should shift toward advanced manufacturing, technology, and niche consumer products that are less sensitive to price fluctuations.

Canadian industry leaders must continue work with U.S. trade groups, lobby policymakers, and push for tariff relief.

The road ahead

Businesses that move quickly—whether by diversifying, optimizing supply chains, or advocating for change—will be in the best position to weather this new trade landscape.

Visit our Tariff Hub for the latest insights on navigating ongoing trade challenges.

Let’s discuss how we can help you navigate ongoing trade challenges. Reach out to our tariff readiness team of advisors today.

Brian Morcombe
Partner, Indirect Tax Leader
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Charmaine Goddeeris
Director, Indirect Tax
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Jesus Ballesteros
Partner, Advisory
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John Asher
Partner, Risk Advisory
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Mike Abbott
Partner, Technology & Regulatory Advisory
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Simon Hutton
National Sustainability Leader
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The information in this publication is current as of February 2, 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.