Escalating trade tensions: Implementation of American tariffs and Canadian counter-tariffs set for February 4
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The White House has imposed tariffs on imports from Canada, citing the flow of drugs and illegal immigration as a national emergency. This move, made by President Donald J. Trump, has sparked a series of responses from Canada.
The tariffs have been imposed under the 1957 Trade Expansion Act, specifically Section 232, which allows the president to impose tariffs on imports threatening national security. However, for many tariffs, the 1977 National Emergency Act was invoked, an act a U.S. appeals court ruled did not legally authorize the president to impose tariffs without congressional approval.
In response, Canada may take "non-tariff measures" related to exports of energy and critical minerals, with provinces taking additional measures. The United States Surtax Order (2025) is related to these tariffs.
The specific details on potential Canadian drawbacks or other relief have not yet been announced. However, it's worth noting that the US Order indicates no drawback will be available for duties imposed by the tariffs.
There is an exception in Article 32.2 of CUSMA (the Canada-US-Mexico Agreement) for "Essential Security". If the Trump Administration invokes this exemption, it could allow the tariffs to be justified. A challenge under CUSMA's state-to-state dispute resolution provisions would take months and result in Canada being authorized to take retaliatory measures.
The tariffs run contrary to the CUSMA, as they go against Article 2.4 Treatment of Customs Duties. This could significantly impact cross-border supply chains and the Canadian economy, particularly the auto sector.
In light of these developments, Canadian businesses are advised to review contractual clauses, re-evaluate the origin of goods, consider diversifying supply chains, and engage legal counsel and customs brokers.
As the situation unfolds, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) could be considered for alternate markets for Canadian products. The authors of this article would like to thank Ian Chesney and Jonah Secreti for their contribution to preparing the legal update.
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