Despite U.S. Tariff Pause, Canadian Businesses should Consider Strategizing

Executive summary

After discussions with U.S. President Donald Trump, Prime Minister Justin Trudeau announced that both countries will delay implementing tariffs after Canada made additional border security commitments. Since the threat of 25 per cent tariffs on most Canadian goods and retaliatory measures remain viable, businesses will want to consider tariff mitigation strategies and lowering reliance on single markets.

Editor’s note: This article has been updated following news of the pause in implementing tariffs.

U.S. tariffs—and Canada’s retaliatory measures—are paused for at least 30 days following discussions between Prime Minister Justin Trudeau and U.S. President Donald Trump over border security commitments.

Trump’s executive order, which is still scheduled to take effect after the pause, imposes a 25 per cent tariff on all Canadian goods except for energy and energy resources. The tariff rate for energy and energy resources will be 10 per cent and includes crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water and critical minerals. There will be no de minimis exception applicable.

Despite the executive order warning of increased tariffs should Canada retaliate, Canada initially responded with a 25 per cent tariff on an array of products originating from the United States to be imposed in two steps.

The first phase targeted goods like orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, pulp and paper. The extended list would include products such as passenger vehicles and trucks, including electric vehicles, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles and recreational boats.

Trudeau further indicated the provincial and federal governments were considering non-tariff measures. Although specific measures were not announced, critical minerals, energy procurement and other partnerships were mentioned. The measures would attempt to distribute the impact evenly as possible across regions and industries.

All tariffs mentioned above are ad valorem, meaning calculated as a percentage of the value for duty.

While businesses may welcome this pause, the tariff threat remains viable — meaning now is an opportunity to strategize to avoid potential costs. The applicability of these strategies will depend on the circumstances of each business and the relevant country’s implementation of these tariffs. Guidance from an RSM tax or trade professional can assist with realizing the right strategies for your business.

1. Bonded warehouses – Goods which entered and stored in a bonded warehouse prior to export to another destination are not subject to tariffs in the country where the warehouse is located.
2. Transfer pricing – In related party transactions, transfer pricing ensures the price of the good is equivalent to the price in an arm’s length transaction. Companies should revisit their transfer pricing strategy to ensure the lowest defensible price is used.
3. First sale valuation – Utilizing a sale earlier in the supply chain (known as the first sale) to determine the value of the good typically results in a lower valuation and by extension, lower tariffs. Certain goods imported into the United States can use the first sale valuation method. Last year, the Canada Border Services Agency held a consultation on changes to the presumptive method to value imported goods to require use of the “last sale.”
4. Tariff engineering – Tariff engineering involves changes to the manufacturing process, manufacturing locations and supply chain to change the valuation, classification and/or origin of goods to qualify for lower tariffs.
5. Exclusion – The 2018 tariffs imposed by the U.S. on Canadian steel and aluminum contained an exclusion for goods “produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality.” While the Federal Register providing technical details on these tariffs has not yet been released at time of writing, similar language may be used to exclude goods which are deemed sufficiently American, allowing importers to have certain goods excluded.
6. Diversifying the supply chain and customers – The United States is the top export destination for a number of Canadian products. These tariffs underscore the importance of diversification to limit the negative impacts of tariffs.
7. Participate in the comment period – The federal government indicated there would be a public comment period prior to the extension of tariffs to the wider group of goods. Those operating in potentially impacted industries can consider participating in available opportunities to provide input directly to the government.

Since the signing of the Canada-United States Free Trade Agreement in 1989, Canada and the United States have generally worked together to eliminate tariffs between the two countries. These new measures and the upcoming review of the current Canada-United States-Mexico (CUSMA) agreement in 2026 have raised concerns about what the future of this economic partnership will look like.