U.S. Tariffs: What You Need To Know

Written by Jane Elise Bates, Joshua Pye, Carolle Fernando, Atosa Asadi, and Rose Klug.

Update as of March 6, 2025: The U.S. President has announced that some tariffs on Canadian goods would be postponed until April 2, 2025.

Background

On February 1, 2025, U.S. President Donald Trump issued Executive Order 14193 imposing an additional 25% tariff on goods and 10% tariff on energy resources exported from Canada into the U.S. These tariffs are now in effect and apply to goods and energy resources imported into the U.S. for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern time on March 4, 2025 (the “Goods and Energy Tariffs”).

On March 6, 2025, the U.S. Customs and Border Protection (“CBP”) published its Federal Register Notice regarding implementation of additional duties on products of Canada (the “CBP Federal Notice”); the Notice of Implementation Additional Duties on Products of Canada Pursuant to the President’s Executive Order 14193. The CBP Federal Notice brings the Goods and Energy Tariffs into effect by modifying subchapter III of Chapter 99 of the Harmonized Tariff Schedule of the United States (“HTSUS”).

Tariffs on Goods

A 25% tariff applies to “articles that are products of Canada”. As defined under the Rules of Origin set out in Part 102, Title 19 of the Code of Federal Regulations, “products of Canada” are goods that are: wholly produced or obtained in Canada; produced exclusively from domestic materials; or produced from foreign materials resulting in a change in tariff classification.

The tariffs also apply to “goods for which Canada was the last country of substantial transformation prior to importation into the U.S”. Although the CBP Federal Notice does not define “substantial transformation”, the U.S. International Trade Administration website indicates that “substantial transformation” means that the good has undergone a fundamental change in form, appearance, nature or character as a result of processing or manufacturing in the country claiming origin. Additionally, this change adds to the goods’ overall value at a percentage that is significant compared to the value which the goods had when exported from the country where they were first made or grown. Historically, substantial transformation is determined by CBP on a case-by-case basis.

Tariffs on Energy

A lower 10% tariff applies to “energy or energy resources”. This 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 (i.e. any non-fuel mineral, element, substance, or material designated as critical by the US Secretary of the Interior).

Calculation of Tariffs

The Goods and Energy Tariffs are calculated ad valorem – meaning the applicable tariff is calculated based on the value of the import. The HTSUS typically calculates the value of an item based on the transaction value, or the amount paid or payable to the vendor for the goods, subject to certain statutory adjustments.

The tariff will apply in addition to any other duties, fees, exactions and charges applicable to the imported goods or energy resources.

Exemptions

The existing limitations on the U.S. President’s authority under 50 U.S.C. 1702(b) give rise to the first category of items to which the tariffs cannot apply:

• Donations (including food, clothing, medicine) intended to relieve human suffering, subject to the U.S. President’s discretion;
• Transmission of information – commercial or otherwise – including publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds; and
• Products for personal use included in accompanied baggage of persons arriving in the United States.

Additionally, a category of exemptions arises from the Special Classification Provisions under the HTSUS Chapter 98. Some examples include:

• Articles exported and returned (including animals) that have not advanced or improved in condition;
• Articles exported and returned that were advanced or improved abroad;
• Substantial containers or holders;
• Personal exemptions extended to specified persons;
• Certain importations of the U.S. Government, foreign governments and international organizations;
• Importations of religious, educational, scientific and other institutions;
• Samples for soliciting orders;
• Articles admitted free of duty under bond for permanent exhibition or admitted temporarily free of duty under bond;
• Products of U.S. fisheries;
• Non-commercial importations of limited value;
• Vessel parts and repairs; and
• Goods entered under certain provisions of the United States-Mexico-Canada Agreement (“USMCA”).

The CBP Federal Notice states that the Goods and Energy Tariffs will not apply to goods properly claimed under HTSUS Chapter 98 on entry to the U.S., pursuant to applicable regulations and whenever CBP agrees that entry under such a provision is appropriate. Nevertheless, the CBP Federal Notice identifies a few caveats to the exemptions for Special Classification Provisions, where the additional tariffs will be applied to items based on the value of repairs, alterations, processing or assembly performed in Canada.

On March 5, 2025, the U.S. President granted automakers a 30-day exemption so long as they comply with the terms of existing North American production lines enshrined in the USMCA, however, this exemption has yet to be reflected formally.

Impact on Existing Concessions

In addition to the imposition of the tariffs, U.S. President Trump has removed or qualified existing trade concessions or exemptions. In particular:

• The ‘de minimis’ exemption, allowing businesses in Canada to export goods with an aggregate fair retail value of up to $800 USD, will be removed once adequate systems of implementation are in place to enforce such duties;
• The tariffs will apply even where a product of Canada is eligible for special tariff treatment under General Note 3(c)(i) to the HTSUS or temporary duty exemptions or reductions under subchapter II to chapter 99;
• Changes have been made to the application and calculation of tariffs on goods admitted to the U.S. for consumption through a Foreign Trade Zone; and
• A duty drawback (refund) cannot be claimed for tariffs paid on imported goods that are subsequently exported, destroyed or used in the production of exported goods.

Given that Canada has applied retaliatory tariffs to certain U.S. goods, there is the potential that U.S. President Trump will announce further increases to the tariffs, or expansion of their scope.

In the rapidly evolving landscape of U.S. tariffs, staying informed is key. Our team is here to provide you with tailored guidance so that your business can effectively navigate these changes. Let us help you understand the impact that U.S. tariffs may have on your operations and identify any exemptions you can leverage to your advantage.