Making Sense of the US-Canada Trade Chaos: What Businesses Need to Know

Making Sense of the US-Canada Trade Chaos: What Businesses Need to Know

The recent wave of headlines about tariffs, surtaxes, and reciprocal trade policies has left many businesses confused about what applies to them and what doesn’t. The most consequential changes have affected the relationship between the United States and Canada, each other’s largest trade partners, which exchanged more than $762 billion in goods last year.

On March 4, Canada implemented a 25% surtax on certain U.S. goods, and companies that export north of the border are scrambling to understand what it means for their bottom line. Here’s what has happened since then — and what you need to do now.

On March 13, the Canadian government added 539 harmonized system (HS) codes to its list of U.S. goods subject to the 25% surtax. This came in response to U.S. tariffs on Canadian steel, aluminum, and related products. On April 2, the list is set to expand by another 4,416 HS codes. New categories, including books, toys, and printed materials, will soon face the additional charge. Businesses that thought they were exempt may suddenly find themselves paying 25% more overnight.

The surtax applies only to goods of U.S. origin, meaning it does not necessarily impact all shipments from U.S. companies. If a product was manufactured in China or another country and simply sold through a U.S. business, it is not subject to the surtax — but only if the correct country of origin is properly declared.

Canada defines the country of origin as the country in which:
The goods are wholly obtained or producedThe goods are produced exclusively from domestic materialsEach of the foreign materials incorporated into the goods undergoes an applicable change in tariff classification and satisfies any other applicable requirements of these regulations A good is considered to originate under a Chapter Note set out in Schedule III

This is where companies are running into trouble. Historically, many U.S. exporters defaulted to labeling their goods as U.S. origin to benefit from trade agreements like USMCA (formerly NAFTA). But with this new surtax, incorrect declarations could mean paying 25% more than necessary. 

Canada’s customs authorities assume that any shipment coming from the U.S. without a declared country of origin is American-made — automatically triggering the surtax.

Why the stakes are higher than ever

The surtax is not a minor cost increase — it’s a financial hit that could drive up prices for Canadian consumers and cut into the margins of U.S. businesses. This could be particularly devastating for small and midsized companies, as well as eCommerce sellers that rely on cross-border trade. Large businesses are also feeling the pressure, with some facing compliance audits that could lead to costly penalties if they’ve been mislabeling goods.

Further complicating the situation, the surtax applies to the full value of a product, starting at dollar one, regardless of existing duty exemptions under USMCA. Traditionally, goods made in the U.S. would be exempt from taxes if their value was under $40 CAD or duties if their value was under $150 CAD. The 25% surtax overrides these thresholds, meaning even a low-cost item that previously entered Canada duty-free will now face that extra charge. This is catching many businesses off guard and leading to unexpected costs for both sellers and buyers.

What you should do now

  • Double-check country of origin data: If your system automatically marks products as U.S. origin, verify that the designation is correct. This mistake is already costing businesses thousands.
  • Update HS codes and tariff classifications: The list of affected products is growing. Make sure your team is using the most up-to-date data to avoid unexpected costs and regularly monitor for any changes.
  • Educate your customers: Canadian buyers may assume that all U.S.-based companies’ products will cost more. If your products are actually made elsewhere, make that clear to avoid losing sales.

Stay ahead of the next trade shift

Businesses cannot afford to be reactive in this shifting trade environment. Governments worldwide are making rapid policy changes, and new tariffs or reciprocal trade measures — like those expected from the European Union — could be introduced with little warning. 

The best way to stay ahead is to ensure accurate country-of-origin declarations and updated HS codes. These are the primary factors determining whether your shipments will be subject to surtaxes or additional trade restrictions. A mistake in classification could mean paying tariffs that could have been avoided.

At ePost Global, we assist hundreds of retailers in navigating cross-border regulations so they can ship to their customers efficiently, regardless of where they live. With over 25 years of experience in cross-border logistics, we understand these international trade complexities and how to keep up with them. 

While policies may change, your shipping strategy doesn’t have to suffer. Reach out to our team to build a plan that keeps your business moving forward.

 

 

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