It has been a few months of discussion in the news and media about tariffs, but what are they? How do they work? Will the US get rich imposing them? Let’s break down how tariffs work and their impacts on nations; this is your 101 on tariffs.
How Tariffs Work
When countries wish to start business with one another, it is in their best interests to sign a trade agreement. Trade agreements act like contracts, establishing what can be bargained, the conditions of business, and holding both nations accountable to a set of quality standards. Therefore, countries sign onto trade to support domestic markets and protect national values. Agreements are designed to be as specific as possible to reduce the risk of inferior trade practices and promote fair relationships. For example, Canada has all-encompassing different goods and conditions of trade. These conditions, depending on the agreement, can include investment, regulation, quantity/quality restrictions, and tariffs.
A tariff is a tax imposed by a country on goods and services imported from another country. If the US imposes a 25% tariff on Canadian goods, that means that Canadian goods sold in the US now cost 25% more. There are two main types of tariffs, a specific and ad valorem tariff. Specific tariffs have a fixed fee per unit of the imported good, an example being a $10 per tonne of steel imposed. Whereas, with an ad valoerem, the tariff President Trump has been suggesting, a percentage of the value of the imported good.
Does a Nation Profit from Tariffs?
A nation sure can profit from imposing a tariff. This is because a tariff is imposed on imports , meaning that the importer pays the tariff to their nation for bring in a tariffed good. So, if a US construction firm is importing steel from Canada, that US firm will pay the tariff fee to the US Customs and Border Protection (CBP). These funds go into the CBP US General Funds. According to the Tax Foundation, tariffs in the US “on steel, aluminum, and derivative goods currently account for $2.7 billion of the $79 billion in tariffs, based on initial import values”.
While this can be profitable for a nation , it can also be costly to that nation. A tariff could be imposed to protect a domestic industry by making imported goods more expensive, thereby encouraging consumers to buy domestically produced goods, potentially boosting local industries. But it can also cost the importing nation by imposing higher prices on consumers. A nation’s government may make more profits in tariff fees, but its citizens and industry are the ones paying these fees. If there isn’t enough steel produced and sold in the US, then industry and therefore its consumers will have to pay more money to import steel.
How Tariffs Hurt the Exporting Nation
An exporting nation facing a tariff is not a great place trade-wise or economically. Not trying to get too economical here, but if suddenly a good is going to cost your buyers more, like 25% in the above example, it might mean that you sell less of that product. If your trading partner has a limited amount they can afford, a 25% tariff will reduce how much they can purchase. Staying on the steel example, let us say steel is coming out of Canada for $800/metric ton (USD), and the US company has only 1 million in funds available, they could buy 1,250 metric tons. Now if a 25% tariff is imposed, one metric ton suddenly costs the US company $1,000, which reduces the firm’s total tons by 20%. This means that the exporting steel firm in Canada is only selling 80% of what they would have sold in goods had there not been a tariff.
Tariffs often mean two things: either looking for business elsewhere and having to incur the cost of pivoting, or it could mean retaliation. The latter situation then creates a trade war which can hurt both participating economies. And it looks like we are currently headed towards retaliation here in Canada if we impose tariffs on US goods. It also gives our industry a chance to support domestic sources and potentially pivot, looking to trade with other nations other than our big neighbour to the south.
What is the 101 on tariffs?
Tariffs are very nationalistic. And for some cases that is fine, but for many instances, it isn’t a great model in the world of global trade. If the US is to impose tariffs on Canadian goods, it will likely mean we see fewer goods flowing south, and when Canada imposes its own retaliatory tariffs, the domestic cost of goods increases.
Yes, we will gladly do our best to buy Canadian goods, but also, this isn’t fair to those who don’t have the means to. As pointed out by my officemate, if you want cauliflower, you are going to have to pay more, as we don’t grow a lot of cauliflower here in Canada during the winter, and the same with orange juice and many other foods.
Tariffs are effective, and they often do their part to help support a domestic industry or to show your trading partner you are open to a tariff war to win your point. But what they often end up doing is hurting consumers and industry, as really what is imposed is a domestic tax. Taxes are not bad, but it is how they get used which is important. So, really, if we are facing a future tariff war with the US, how is each nation going to use its tariff tax to benefit its citizens?
Imposed Tariffs
Canada Strikes Back with Retaliatory Tariffs on U.S. Imports
In a bold response to U.S. trade actions, Prime Minister Justin Trudeau announced a sweeping 25% tariff on USD $105 billion worth of American imports. These tariffs, formalized under the United States Surtax Order (2025), were implemented under subsection 53(2) and paragraph 79(a) of the Customs Tariff, thanks to the Trump Administration.
The First Wave of Tariffs
The initial round of surtaxes took effect on February 4, 2025, hitting a wide range of U.S. goods. While some of these tariffs were put on hold for a month, when announced they included:
- Food & Beverage: Orange juice, peanut butter, wine, spirits, beer, and coffee.
- Consumer Goods: Household appliances, apparel, footwear, and cosmetics.
- Vehicles & Paper Products: Motorcycles, pulp, and paper.
- Extensive Coverage: A total of 1,256 Harmonized System (HS) codes fall under this surtax, accounting for USD $20.3 billion of the total announced tariffs.
For a complete breakdown of the affected goods, check out the official government list: Canadian Department of Finance – Tariff List.
What’s Next? A Second Round of Tariffs
A second wave of tariffs is on the horizon following a 21-day public comment period, giving Canadian businesses time to adjust supply chains. Expected to be included in this next round are:
- Automobiles & Transport: Passenger vehicles, trucks (including EVs), buses, recreational vehicles, and boats.
- Metals & Manufacturing: Steel and aluminum products.
- Agricultural Products: Beef, pork, dairy, and select fruits and vegetables.
- Aerospace Components.
Provincial-Level Pushback
Beyond federal action, several provinces are adding their countermeasures:
- Procurement Restrictions: Limiting contracts with U.S. suppliers.
- Trade Barriers: Rejecting U.S. business bids and canceling deals.
- Infrastructure Costs: Doubling tolls for U.S. commercial trucks entering via Cobequid Pass.
- Liquor Sales: Pulling U.S. alcohol from provincial liquor stores.
Provinces like Ontario, who sell electricity directly to the US grid have already announced they will be imposing their own measures, despite wanting to keep trading with the USA, as shown in their recent commercial aired in the USA.
Seeking Exemptions?
Businesses feeling the squeeze can apply for a remission order through the Department of Finance to request exclusions on specific products. However, approvals aren’t guaranteed, and the process is likely to be stringent.
As Canada tightens its trade policies, businesses on both sides of the border will need to adapt quickly to a shifting economic landscape.
Effective March 4, 2025, Canada imposed a 25% tariff on $30 billion worth of goods imported from the United States. These measures are in response to U.S. tariffs on Canadian products and will remain until the U.S. removes its tariffs.
The affected U.S. products include:
Poultry and Meat Products: Live poultry such as chickens, ducks, geese, turkeys, and guinea fowls; various cuts and offal of these birds, both fresh and frozen.
Dairy Items: Milk and cream, concentrated or containing added sugar.
Vegetables: Fresh or chilled potatoes, tomatoes, onions, and shallots.
Fruits and Nuts: Fresh apples, grapes, cranberries, and almonds.
Beverages: Certain types of wines and spirits.
Paper Products: Various types of paper and paperboard.
Textiles: Specific woven fabrics and apparel items.
Metal Products: Certain aluminum and steel products.
Consumer Goods: Items like washing machines and refrigerators.
These tariffs apply exclusively to goods originating from the U.S., as defined by the Determination of Country of Origin for the Purposes of Marking Goods (CUSMA Countries) Regulations. Goods in transit to Canada before the enforcement date are exempt.
For a comprehensive list of the specific products and their tariff classifications, refer to the official announcement by the Department of Finance Canada.
Effective March 4, 2025, the United States has imposed additional duties on products imported from Canada, as outlined in Executive Order 14193, "Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border," and its subsequent amendments. These measures are in response to concerns over drug trafficking and related security issues.
Key Points:
Additional Duties: An extra 25% ad valorem duty is applied to all Canadian products, excluding energy and energy resources. For energy-related imports, an additional 10% ad valorem duty is imposed.
Effective Date: These duties apply to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Standard Time on March 4, 2025.
Scope: The tariffs encompass a wide range of products, including but not limited to:
Agricultural Products: Certain dairy items, meats, and grains.
Manufactured Goods: Automobiles, machinery, and electronics.
Raw Materials: Specific minerals and metals.
For a detailed list of affected products and their respective tariff classifications, please refer to the official notice by the Department of Homeland Security.
Importers and stakeholders are advised to consult the Harmonized Tariff Schedule of the United States (HTSUS) and coordinate with U.S. Customs and Border Protection to ensure compliance with the new duties.
