U.S. and Canadian tariff clash: Tariffs imposed by the U.S. and counter tariffs by Canada set to commence on February 4
The Canadian government has opposed the U.S. tariffs of 25 percent on imports worth $155 billion, which were issued by President Trump under his authority to address national emergencies under the International Emergency Economic Powers Act (IEEPA). The tariffs, effective from February 4, 2025, are intended to protect the U.S.'s own steel and aluminum industries, affecting Canada as a close trading partner and significant source of steel imports in the U.S.
In response, Canada has announced retaliatory tariffs of 25 percent on $155 billion of U.S. imports, starting with $30 billion worth of goods on February 4, and adding another $125 billion worth of goods 21 days later. The Canadian tariffs target U.S. goods including orange juice, peanut butter, wine, spirits, beer, coffee, motorcycles, appliances, apparel, footwear, cosmetics, pulp and paper, and more.
Notably, the tariffs on Canadian energy resources, such as crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, kinetic movement of flowing water, and critical minerals, are subject to a 10 percent tariff.
The use of IEEPA to impose universal tariffs on imports from a country in these circumstances is novel and there is a widespread assumption that the President's authority to issue these tariffs under IEEPA will be challenged in U.S. courts. The tariffs will not apply to goods that are in transit to Canada on the day that tariffs come into force, or to goods that were already loaded onto a vessel or in transit on the final mode of transport before 12:01 a.m. ET on February 1.
Prime Minister Trudeau has stated that Canada may take 'non-tariff measures' related to exports of energy and critical minerals, and that the provinces may take additional measures. Canadian and U.S. businesses are advised to review contractual clauses in current and upcoming supply or purchase contracts, re-evaluate whether goods being imported into the U.S. are truly of Canadian-origin, investigate alternate sources of supply, draw on free trade agreements with other regions, and engage sophisticated legal counsel and customs brokers.
It is important to note that the tariffs do not include personal communications, donations of food, clothing or medicine, informational materials, and personal baggage when traveling. The Order provides clarity that no drawback shall be available with respect to the duties imposed pursuant to this order.
The White House has stated that the primary rationale for the tariffs against Canada is the flow of drugs (particularly fentanyl) and illegal immigration across the Canada-U.S. border, which it has stated constitutes a national emergency under IEEPA. However, the Order does not mention a process to request exclusions from the tariff for particular goods.
This trade dispute between the two neighbouring nations could have significant implications for both economies and may impact bilateral relations in the coming months.
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