In his latest flip-flop on tariffs, U.S. President Donald Trump signed a pair of executive orders on Thursday that temporarily lifted levies on a range of Canadian and Mexican goods that he had imposed only two days earlier.
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The month-long reprieve applies to imports to the U.S that are compliant with the United States-Mexico-Canada Agreement. The free-trade agreement covers a significant proportion of trade that happens between the three countries. But the coverage is far from universal, meaning many Canadian goods will still be subject to the 25-per-cent tariff – or lower 10-per-cent tariff on energy, critical minerals and potash – that came into force earlier this week.
Here’s a look at what companies need to do to be eligible for the month-long pause.
U.S. President Donald Trump delivers remarks on the jobs report from the Oval Office at the White House on March 7.Anna Moneymaker/Getty Images
What’s getting a reprieve?
Under the USMCA (or CUSMA, as the Canadian government calls it), which Mr. Trump negotiated during his first term to replace the North American Free Trade Agreement, most goods can cross the border duty-free if they adhere to certain rules-of-origin. These rules differ product-by-product, but are generally designed to ensure the products trading under the free-trade agreement are made in Canada, the United States or Mexico, using parts sourced, to varying degrees, from within the three countries.
To claim a USMCA exemption, an importer makes a customs declaration certifying their products meet the origin rules, and they need to have the documentation to back this up. The certification process was streamlined under USMCA compared to NAFTA, allowing companies to self-certify rather than fill out a standardized form.
According to U.S. data, around 38 per cent of imports from Canada to the United States, and 50 per cent of imports from Mexico, were certified under the USMCA in 2024. These products will be covered by the month-long reprieve.
Many other Canadian exports are technically compliant with USMCA rules-of-origin, but companies have chosen not to make a formal USMCA declaration. For these products, companies will need to pull together the right paperwork if they want to get the month-long reprieve.
There are several reasons why companies may have chosen not to make USMCA claims. For many products, the most-favoured-nation tariff rate – which the U.S. offers to all countries – is already zero or close to zero. And in the case of goods that cross the border multiple times, such as auto parts, drawbacks are available, meaning the tariff rate is effectively zero.
A truck takes the exit to the Ambassador Bridge border crossing in Windsor, Ont. on March 1. Under the USMCA, most goods can cross the border duty-free if they adhere to certain rules-of-origin.GEOFF ROBINS/AFP/Getty Images
“If the MFN rate is zero and the USMCA rate is zero, why claim the tariff preference and all of the record keeping and potential audit and verification headaches that may ensue as a result?” said Jesse Goldman, partner at law firm Osler, Hoskin & Harcourt LLP who specializes in trade law.
According to Canadian government data, around 40.5 per cent of Canadian exports to the U.S. in 2020 entered the country duty-free under MFN rules.
Just how much trade could be USMCA compliant, if Canadian companies fill out the right paperwork, is not clear. Royal Bank of Canada economists Nathan Janzen and Claire Fan said in a note to clients that the number could be 90 per cent or more.
Stephen Brown, deputy chief North America economist at Capital Economics, said in a note to clients that there’s no firm way of knowing what percentage of Canadian exports will ultimately face these tariffs but that it would probably be less than 25 per cent, and mostly manufactured goods. He pointed to oil exports as an example of the complexity of the situation.
“Only 24 per cent of Canada’s oil & mineral fuel exports to the US were classed as USMCA-compliant last year, which might seem to suggest that the remaining 76 per cent will be subject to the new 10 per cent US tariff on energy imports. But Canadian oil is, by definition, USMCA-compliant because it is sourced entirely from within Canada,” Mr. Brown wrote.
“What complicates the situation is that the oil needs to be diluted to be transported via pipeline, and at least 60 per cent of that dilutant must be sourced from within the USMCA countries to be compliant. As there were previously no tariffs, it used to be easier to export the oil without declaring it USMCA-compliant. With a 10 per cent tariff in place, we would assume that the dilutants will be mostly sourced from within the three countries and most oil exports will still be tariff free.”
What isn’t getting a reprieve?
Many companies that were previously trading duty-free under MFN rules should be able to start making USMCA claims. However, some may have difficulty complying with USMCA and may have a tough time dodging the tariffs Mr. Trump imposed earlier this week. These would likely be companies that source components from outside of North America, but whose finished good is still considered Canadian for trade law purposes, said Mr. Goldman.
“Let’s say you took Korean control panels and put them into some type of machine in Canada, and the machine parts came from Germany, and you had some minor fabrication done in Canada,” Mr. Goldman said.
“You would go through the exercise and determine whether those were Canadian origin goods. If the answer is no, then they’re not subject to tariffs in the U.S. If the answer is yes, then the question is, are they USMCA compliant? If the answer is yes, then you can export them without the tariff. If the answer is no, they’re Canadian origin goods but you can’t qualify them as USMCA, then you’ve got a problem.”
He said that industries such as textiles and apparel, furniture, and processed foods may be the most exposed.
Even for companies whose products are likely compliant with the USMCA, it may take a considerable amount of work to pull together all the documentation and do the calculations needed to make the customs claim.
“How quick or straightforward it is for you is utterly going to depend on the product we’re talking about because rules-of-origin are specific to the product,” said Sabrina Bandali, an international trade partner with law firm Bennett Jones LLP.
“Something that’s as close to a natural good as possible, like something that comes out of the ground or what have you, and there’s very little done to it, establishing its origin is very straightforward,” she said. “Where rules-of-origin get more complicated is where you have goods that have lots of different parts in them, lots of different components or inputs that might come from different places, or where you have to meet calculations of value that can be complex.”
Wolfgang Alschner, the Hyman Soloway Chair in Business and Trade Law at the University of Ottawa, said the back and forth on trade policy creates uncertainty and confusion for companies and border officials.
“I am pretty sure though that this entire thing will be a mess – for custom officials who suddenly have to process more certificates to companies that are frantically trying to make their supply chains USMCA compliant. I would not call that much of a ‘relief,’” Prof. Alschner said in an e-mail.
Automakers are among the most exposed to tariffs given the highly integrated North American auto sector, where car parts cross borders multiple times in the production and final manufacturing process. Honda employees work along the vehicle assembly line in Alliston, Ont., on April 25, 2024.Nathan Denette/The Canadian Press
What about the auto sector?
Mr. Trump told reporters on Thursday afternoon that he offered the month-long concession for USMCA compliant goods after speaking with the heads of the Big Three American automakers, Ford, General Motors and Stellantis.
Car companies are among the most exposed to tariffs given the highly integrated nature of the North American auto sector, where car parts cross borders multiple times in the production process and final manufacturing happens in all three countries for sale throughout the continent.
The auto sector has long been one of the most contentious parts of the free-trade system, given fears in both the United States and Canada of jobs moving to Mexico, as well as U.S. concerns about cars and auto parts from China entering the North American market through Canada and Mexico. When USMCA replaced NAFTA in 2020, the rules-of-origin for automobiles were tightened. The new trade agreement requires 75 per cent of a vehicle be made from parts sourced within North America, up from 62.5 per cent under NAFTA.
Many of the big automakers pushed back against these tighter rules, and were granted a phase-in period to give them time to adjust their supply chains.
U.S. data suggests a small but growing proportion of the auto trade has been happening outside of USMCA since the content rules were tightened. In practice, some companies are opting to pay the 2.5 per cent MFN rate applied to cars entering the U.S. instead of trading duty-free under the USMCA.
In 2019, only 0.5 per cent of auto imports to the U.S. from Mexico and Canada paid MFN tariffs. That rose to 8.2 per cent in 2023. For auto parts, the proportion has more than doubled from 9.3 per cent in 2019 to 20.5 per cent in 2023.
Most of these cars are coming from Mexico, according to U.S. data. According to the Canadian Vehicle Manufacturers’ Association, more than 98 per cent of passenger cars made in Canada enter the U.S. duty-free in compliance with USMCA content standards.
Part of this USMCA non-compliance might be explained by the shift toward electric vehicles, said Ms. Bandali of Bennett Jones.
“For the electric vehicle battery supply chain, we know very well that we need to build that infrastructure in North America and that those efforts are under way. But it takes time. And if consumers want more electric vehicles before there are the plants in place to produce all of those components in North America, well, then of course foreign components are going to be required until those changes happen,” she said.
Some U.S. officials have suggested raising the MFN rates for autos to force companies to meet the USMCA content requirements or face steep tariffs. Mr. Trump’s decision to place tariffs on all imports, then waive it for USMCA compliant goods, effectively does this.
What else is happening with tariffs?
Mr. Trump claims the tariffs that were imposed, and then partially lifted, this week are intended to get Ottawa and Mexico City to do more to address fentanyl trafficking and illegal migration. Ottawa has contested the scale of the problem and questioned Mr. Trump’s true motives. The President is relying on an emergency law – under the International Emergency Economic Powers Act – that allows him to impose the tariffs without congressional approval in the event of a national emergency.
In addition to Mr. Trump's other tariff announcements, 25-per-cent tariffs on steel and aluminum, including from Canada, are set to come into force on March 12. Rolls of steel at Stelco in Hamilton.Peter Power/The Canadian Press
These IEEPA tariffs are only one part of Mr. Trump’s multi-pronged assault on the free-trade system. Mr. Trump has signed an executive order putting 25-per-cent tariffs on steel and aluminum, including from Canada, which are set to come into force on March 12. He has also threatened to impose “reciprocal” tariffs on all other countries on April 2. It’s unclear what these tariffs will look like, and how they will interact with other levies. But Mr. Trump has said his goal is to match tariffs other countries put on U.S. goods as well as non-tariff rules that supposedly hurt U.S. companies.
The U.S is also targeting specific industries. The U.S. Department of Commerce has launched a national security probe into copper, which could result in similar tariffs to those on steel and aluminum. On Friday, Mr. Trump said he plans to put tariffs on Canadian dairy and lumber. The U.S. already imposes significant tariffs on Canadian lumber products, using anti-dumping and countervailing duty laws, as part of a long-standing trade dispute. Earlier this week, the Department of Commerce said it expects to raise anti-dumping duties for most Canadian lumber producers to 20.07 per cent, compared with the current 7.66 per cent. It’s not clear how any additional tariffs would interact with these levies.