Updates to Tariffs on Canada and Mexico

The last six weeks have witnessed a roller-coaster of developments regarding the tariffs imposed on imports from Canada and Mexico. As of last week, this policy appears to have come to a rest, at least through April 2, 2025, with a large portion – though not all – products from Canada and Mexico exempt from the additional tariffs imposed by President Trump. In this post, we discuss the background of the tariffs and this exemption, what this means for importers, and a review of current retaliation measures being taken by Canada and Mexico.

Background

Tariffs on Canada and Mexico were first threatened in President Trump's February 1, 2025 Executive Orders (EO) 14193 and 14194. A detailed overview and background of these EOs can be found in our earlier blog post, An Overview of President Trump's Executive Orders on Tariffs.

On March 4, 2025, President Trump announced that Canada and Mexico "failed to adequately address" the flow of illicit drugs from their borders, and implemented a 25 percent tariff on all US imports from Canada and Mexico (except Canadian energy imports, which were subject to 10 percent tariffs). After significant domestic political pressure, particularly from US automakers with extensive integrated manufacturing operations throughout North America, President Trump issued two Executive Orders that exempted imports from Canada and Mexico that complied with the rules of origin under the USMCA from these additional tariffs. Additionally, imports of potash not qualifying under the USMCA will be subject to 10 percent additional tariffs. These rates were effective as of March 7, 2025.

Nature of Exemption

Importers should pay particularly close attention to the nature of the exemption from these duties, to determine whether it applies to their imports.

Taking Canada as an example, any good that is "substantially transformed" in Canada will have a Canadian country of origin. But only goods meeting the rigorous rules of origin under the USMCA will be deemed to "originate in a USMCA country," in order to benefit from the preferential (i.e., lower) duty rates provided for under the USMCA. Goods with a Canadian country of origin that do not "originate in a USCMA country" will obtain a "standard" rate. These rules of origin are set out in General Note 11 of the United States Harmonized Tariff Schedule (HTSUS), which is the specific rule referenced in the March 6 Executive Orders.

After the enactment of the USMCA, some foreign producers declined to seek preferential treatment for their products. Many of the requirements to prove that a good originates in a USCMA country are complicated and onerous, and for many products, the difference between the "standard" and the "preferential" duty rates is trivial. But now, imports from USMCA countries that do not satisfy the "originating good" standard are subject to an additional 25 percent tariff.

Considering this substantial duty impact, businesses exporting from Canada and Mexico should carefully analyze the rules of origin requirements provided in General Note 11 of the HTSUS to determine whether or not their goods can meet the requirements for preferential treatment, and if applicable, gather the necessary data elements provided in Annex 5A of the USMCA to support a claim for preferential duty treatment.

Looking ahead, if foreign producers are currently not satisfying the "originating in a USMCA country" standard, but could through modifications to their own supply chain, it may be worthwhile examining that option. While this current exemption is scheduled to end on April 2, 2025, it is possible that this exemption or something like it will continue. If so, then meeting the standards under General Note 11 may be worthwhile.

Reaction by Canada and Mexico

Canada and Mexico have responded to President Trump's announcement by implementing (or proposing to implement) retaliatory tariffs on US goods. Below, we provide a brief summary on each country’s proposed retaliatory measures in response to the US tariffs:  

• Canada: On March 3, 2025, Prime Minister Justin Trudeau announced that Canada will implement 25 percent tariffs on US goods worth CAD $155 billion. Tariffs on approximately CAD $30 billion/USD $20.5 billion of US goods went into effect on March 4, with tariffs on the remaining goods (worth approximately CAD $125 billion/USD $86 billion) within 21 days should the US continue to apply tariffs on Canada. The first tranche of goods covered under Canada’s retaliatory tariffs, include:  butter, wine, spirits, beer, coffee, household appliances, motorcycles, cosmetics, paper and pulp products, and apparel. Canada has requested for public comments on the second tranche of goods that are expected to be implemented in 21 days, including: electric vehicles, fruits and vegetables, beef, pork, dairy, electronics, steel, aluminum, trucks, and buses. On March 6, 2025, Canada's Finance Minister Dominic LeBlanc indicated that the second tranche of tariffs will be delayed until April 2.                   
  
  In addition to Canada's federal measures, retaliatory measures have been proposed at the provincial level. Provinces of Ontario, Nova Scotia, Newfoundland and Labrador, and Manitoba have begun removing all US alcohol from liquor stores within each territory. Additionally, certain provinces have proposed or implemented additional trade measures, including:

• • Ontario: On March 10, 2025, Premier Doug Ford of Ontario implemented a 25 percent surcharge on electricity that is being supplied to Michigan, Minnesota, and New York, with threats to increase the surcharge or outright ban on energy exports to the United States if more tariffs are implemented by the United States. On March 11, Premier Ford agreed to temporarily suspend the electricity surcharge following a discussion with Secretary Howard Lutnick.    
  • Nova Scotia: Premier Tim Houston implemented an immediate ban on US companies’ bidding on provincial contracts, and doubled the toll cost for commercial vehicles using Cobequid Pass into Canada from the United States.
  • Alberta: Premier Danielle Smith announced that the Government of Alberta will be releasing its response to the US tariffs in the coming days. While the retaliatory measures are yet to be announced, Premier Smith has expressed that her government currently has no plans to impose tariffs on energy exports to the United States.
• Mexico: On March 4, 2025, President Claudia Sheinbaum announced that she will be releasing Mexico's retaliatory tariff and non-tariff measures on March 9, 2025. Following President Trump's exemption for USMCA-compliant Mexican imports until April 2, President Sheinbaum did not proceed with retaliatory tariffs against the United States on March 9, as announced.

Reciprocal Tariffs

Finally, regardless of any exemptions granted by President Trump for the March 4th tariffs, the Trump administration has confirmed its intention to proceed with separate reciprocal tariffs on April 2, 2025. Reciprocal tariffs, as articulated under President Trump's February 13, 2025 Presidential Memorandum, are expected to impact not only Canada and Mexico, but all trading partners that have "non-reciprocal trading arrangements" with the United States. Two products that President Trump has already singled out for retaliation are dairy and lumber, which the President has claimed are not being treated fairly by Canada. Given the fast-evolving trade actions by the United States, businesses should continue to proactively adapt their supply chains to a more dynamic trade environment, and consider government outreach efforts that might help minimize their exposure to potentially disruptive trade measures in the near future.