Torys' Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.
As of September 1, Canada's retaliatory tariffs are no longer applied to U.S. goods that are compliant with CUSMA. At the same time, the Prime Minister announced that Canadian retaliatory tariffs on non-CUSMA-compliant U.S. goods will be raised to 35% and several tariffs will remain in place, particularly against U.S. steel, aluminum and auto parts products. Both steps appear to be taken to position Canada's response as more symmetrically mirroring the U.S. approach to tariffs on Canada. This may facilitate further discussions on the Canada-U.S. trade relationship.
On August 29, a U.S. Federal Appeals Court ruled that most of President Trump's IEEPA Tariffs (which includes the 35% tariff on non-CUSMA-compliant Canadian goods) are an overreach of his use of emergency powers as president, though they continue to remain in effect for now. An appeal is expected to head to the U.S. Supreme Court (SCOTUS), adding another chapter to the tariff saga.
We discuss the current state of play.
What U.S. tariffs are currently in place on Canadian goods?
President Trump has imposed general tariffs on Canada and worldwide sectoral tariffs, which include Canada. Those are:
- General tariffs. Canadian goods that are not CUSMA-compliant are subject to a 35% tariff. CUSMA-compliant goods are exempt (unless subject to one of several sectoral tariffs).
- Energy and potash. Canadian energy and potash that are not CUSMA-compliant are subject to a 10% tariff. CUSMA-compliant energy and potash are exempt (i.e., most energy and potash).
- Steel and aluminum. Steel and aluminum products and certain defined steel and aluminum derivative products are subject to a worldwide 50% tariff. The value of CUSMA-compliant materials in those products is exempt. Non-CUSMA-compliant materials in those products are subject to an additional 35% tariff.
- Copper. Semi-finished copper and intensive copper derivative products are subject to a 50% tariff on their copper content. Non-CUSMA-compliant materials in those products are also subject to a 35% tariff. Copper parts that are also subject to the auto parts tariffs will only have the auto parts tariffs applied at the lower rate of 25%.
- Autos and auto parts. Non-CUSMA-compliant autos and certain defined automotive parts are subject to a 25% tariff. CUSMA-compliant autos are subject to a 25% tariff on the non-U.S. content of the vehicle. CUSMA-compliant auto parts remain exempt from tariffs.
- Transshipment penalty. A 40% transshipment penalty applies to any goods rerouted through third countries in order to avoid tariffs.
How has Canada adjusted its response?
On August 22, Prime Minister Carney announced that Canada's retaliatory tariffs will not be applied to U.S. goods that are compliant with CUSMA. At the same time, Prime Minister Carney announced that Canadian retaliatory tariffs on non-CUSMA-compliant U.S. goods will be raised to 35%.
Canada is maintaining its retaliatory tariffs on U.S. steel products, aluminum products and on non-CUSMA-compliant vehicles imported into Canada from the U.S., and on the non-Canadian and non-Mexican content of CUSMA-compliant vehicles imported into Canada from the United States. A full list can be found here.
What does it mean to be CUSMA-compliant?
CUSMA-compliant goods qualify for preferential duty-free treatment under the treaty, which is being honoured by its parties for the time being. In order to be CUSMA-compliant, products must meet rules of origin under CUSMA (i.e., sufficient North American originating content as defined in the treaty).
In order to demonstrate CUSMA compliance, exporters typically provide a Certificate of Origin. There is no specific form that needs to be filled out, but required criteria include details of the exporter/producer/importer, a description and HS code for the good, the specific rules of origin criteria under CUSMA, and confirmation that those rules are met.
It is estimated that up to 90% of Canadian goods exported to the U.S. are currently CUSMA-compliant or are capable of being certified as CUSMA-compliant. In the past, CUSMA compliance had been less important as the U.S. imposed lower tariffs. But the approach of the current administration is to define areas of free trade and erect high tariff walls in respect of non-compliant goods, making careful supply chain planning and certification more important than it has been for many years.
Federal Appeals Court rules against IEEPA tariffs
On August 29, a Federal Appeals Court ruled that most of President Trump's IEEPA Tariffs are an overreach of his use of emergency powers as president. The ruling upholds a May decision by the Court of International Trade and is now likely headed to SCOTUS. The court has held that the tariffs will remain in effect until October 14, after which they will be unenforceable; however, SCOTUS may grant a stay of the decision until it hears the case.
How does this fit into the broader context?
Under the terms of CUSMA, a joint review of the treaty by Canada, the U.S. and Mexico is set to commence in July 2026. In parallel, Canada and the U.S. are in ongoing discussions on a "comprehensive economic and security arrangement". The outcome of both discussions is uncertain and may affect the rules of origin under CUSMA and the basket of goods subject to free trade under CUSMA, both of which could impact the basket of goods that may be exempt from tariffs under the treaty.
While the long-term trade relationship between Canada and the U.S. remains uncertain, at this time, Canada and Mexico continue to be the only countries in the world that enjoy free trade access to the U.S. market (for many, but not all, goods). Many major trading partners of the U.S. have agreed to new trade deals, including the European Union, Japan and the United Kingdom, which set higher average tariff rates.
Read more Tariffs and trade briefs.
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