The recent escalation of Canada-US tariffs is materially reshaping supply chains and business relationships. Canadian companies—and multinational enterprises with Canadian supply chains—now face heightened legal and operational uncertainty, prompting a reassessment of cost structures, supply‑chain models, and customs‑compliance strategies.
In this bulletin, we provide an overview of Canada's current retaliatory tariff regime, including Canada's retaliatory tariff lists of March 4th, March 13th, and April 9th, as well as what companies can do to mitigate the impact of duties. We further explore the announced remission opportunities for those businesses importing US-origin goods. Lastly, we outline Canadian provinces' efforts to reduce inter-provincial barriers to trade.1
Current Status of US Tariffs
The US Government continues to shift its approach to tariffs on Canadian goods, creating ongoing uncertainty for cross-border trade. While a 90-day reprieve has been granted on many of the Trump Administration's "reciprocal tariffs" imposed against more countries, Canadian exports to the US that do not qualify as USMCA goods remain subject to a blanket 25% tariff imposed for "national emergency" reasons. US tariffs on steel and aluminum also remain in effect, and these tariffs are not subject to exemptions even if they meet the preferential rules under the USMCA.
Canada's Response to US Tariffs – Recapping the Three Stages of Retaliation
Surtax on various US products including steel and aluminum
On March 4, 2025, Canada imposed a 25% surtax on a wide range of US goods in the United States Surtax Order (2025-1) ("March 4 Surtax Order") in response to the US national security tariffs. Canada's retaliatory tariffs were imposed on products such as meat, dairy, alcohol, coffee, apparel, cosmetics, tires, and paper products, among others.2 For the full list of tariff codes subject to this surtax, see the Schedule to the March 4 Surtax Order.
Canada subsequently implemented "dollar-for-dollar" retaliation against US steel and aluminum tariffs, imposing 25% tariffs on steel (valued at $12.6 billion), aluminum (valued at $3 billion), and other US goods (over $14 billion in value). The United States Surtax Order (Steel and Aluminum 2025) came into effect on March 13, 2025 ("March 13 Steel and Aluminum Order").3 For the full list of tariff codes subject to this surtax, see Schedule 1 to the March 13 Steel and Aluminum Order.4
Canada's retaliatory tariffs only cover goods that "originate in the United States" pursuant to Canada's CUSMA marking rules.5 Accordingly, the mere fact that goods are physically shipped from the United States or owned by US entities is not sufficient to trigger Canadian tariffs. The term "US-origin" has a specific legal definition in this context, and companies should carefully assess whether their imported goods meet the criteria for US origin under the applicable rules.
Unlike the United States, Canada has not exempted from these two lists the products that meet the preferential rules of origin under the CUSMA/USMCA.
The March 4 Surtax Order and March 13 Steel and Aluminum Order do not apply to goods that were in transit to Canada on or before March 4, 2025 or March 13, 2025, respectively. The tariffs similarly do not apply to goods classified under Chapters 98 or 99 of Canada's Customs Tariff, which are specific exclusions for end use (such as for disability-related goods, or goods for use in agricultural machinery). Specific rules for certain temporary importations apply.6
Furthermore, unlike the United States, Canada allows for duty drawbacks, meaning refunds for goods that are exported out of Canada (either in the same form they were imported or after they were integrated into other goods).
Surtax on US Automobiles
In response to the US tariffs on imports of Canadian automobiles and parts, Canada imposed the United States Surtax Order (Motor Vehicles 2025) ("Auto Surtax Order") which came into effect on April 9, 2025.7 A list of the tariff codes for vehicles is set out in Schedules 1 and 2 of the Auto Surtax Order.8
In broad terms, the Auto Surtax Order applies a 25% surtax on new and used fully assembled motor vehicles originating from the United States and imported into Canada, whether for personal or commercial use. This surtax typically applies regardless of whether the vehicle qualifies for the United States Preferential Tariff Rate ("US Preferential Rate") under CUSMA. Whether a vehicle originates in the United States is determined according to the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations.
The Auto Surtax Order specifically provides that:
- Motor vehicles from the US that do not qualify for the US Preferential Rate are subject to a 25% surtax on the full value for duty.
- For motor vehicles from the US that qualify for the US Preferential Rate, the value of all goods that originate in Canada or Mexico that are used in the production of the motor vehicle are excluded from the value for duty of the motor vehicle for the purposes of calculating the surtax. The Auto Surtax Order assumes the value of the components originating in Canada or Mexico to be 15% of the total value for duty of the vehicle, which means 15% of the value for duty will be excluded from the surtax calculation (i.e., the value for duty for the surtax is calculated at 85% of the total value for duty of the goods). Importers seeking to claim a higher exclusion amount from the 25% auto surtax can do so by providing evidence of the value of Canadian or Mexican-origin components used in the vehicle's production.9
Recent Updates on Remission Orders
To minimize the negative impacts of these retaliatory tariffs, the Department of Finance announced two remission orders in the last few days, one for autos and one for other goods.10
United States Surtax Remission Order (Motor Vehicles 2025)
The Government of Canada issued a surtax remission order for imports of US autos affected by Canada's retaliatory tariffs. A schedule to the Order specifies which importers are eligible for remission. To be eligible for remission of surtaxes paid or payable under the Auto Surtax Order, importers must manufacture motor vehicles in Canada and import them from the US for sale in Canada.
The eligible importers will be granted remission only for a specified number of vehicles, imported between April 9, 2025, and April 8, 2026, and will have two years from the date of importation to apply for remission. Each automobile company was provided with a confidential quota. The Auto Surtax Remission Order entered into effect April 15, 2025.
United States Surtax Remission Order (2025)
The Government of Canada introduced a separate remission order for relief from surtaxes imposed under the March 4 Surtax Order, the March 13 Steel and Aluminum Order, and the Auto Surtax Order. The Order came into effect on April 16, 2025.
Under this Order, remission is available:
- For goods imported by or on behalf of various organizations and government agencies, including: government health or clinical research organizations or institutions; organizations producing or storing medical devices or pharmaceuticals; offices of certain public health officials; organizations providing ambulance or other emergency response services; among other agencies;
- For goods imported for use in various medical services, or by or on behalf of certain health service authorities; and
- For goods imported for use, in Canada, in the manufacture or processing of any good or the packaging of a food product or beverage.11
Additionally, remission applies to a defined list of specialized medical and nutritional products such as certain infant formulas, nutrition formulas, metabolic products, formulated liquid diet or human milk fortifiers, and sterile barrier film or pouches for use in medical manufacturing, among other products. The specific tariff classification numbers are listed in the Schedule to the United States Surtax Remission Order (2025).
To qualify, the goods must be imported before October 16, 2025, no other form of surtax relief may have been granted, and a remission claim must be submitted within two years after the date of importation. CBSA has clarified in Customs Notice 25-19 that importers may apply for this relief at the time of import using special authorization codes on their Commercial Accounting Declaration.12 The specific code to be used will depend on the goods imported, and is set out in the Customs Notice.
Remission requests for tariffs paid on goods not covered by the United States Surtax Remission Order or the Auto Surtax Remission Order
Companies may apply for a "remission", being an exemption, from any tariffs currently applicable. Remissions may be granted prospectively and retroactively, to cover duties already paid.
The Government of Canada released a formal framework to assess remission requests related to retaliatory tariffs on certain US origin goods. Under the framework, remission will be considered only in exceptional circumstances and must be supported by a compelling public policy rationale. Specifically, applicants must demonstrate either:
- No viable alternative sources of the imported goods are available in Canada or from non-US countries; or
- The imposition of tariffs would result in serious adverse impacts on the Canadian industry.
To be considered by the Department of Finance, remission requests must be complete and adhere to the submission template proposed by the Department of Finance.13 Only Canadian-registered entities are eligible to apply, and all requests must be submitted electronically to the Department of Finance.
Each application will be evaluated on a case-by-case basis and could be subject to consultation with other interested parties such as domestic producers. The decision to recommend remission ultimately rests with the Minister of Finance, subject to approval by the Governor in Council under section 115 of the Customs Tariff.
What We Are Seeing from Clients
McMillan's international trade team is assisting clients with a wide range of tariff mitigation strategies, in relation to both the legal obligation to pay at the border and with contractual negotiations. For example, we are helping assess risks and assisting companies with their contract terminations or renegotiations and with scenario planning based on the relative strengths of each party's business and legal positions. We are also assisting with remission applications and helping companies minimize their tariff exposure through valuation for duty strategies. We are also assisting clients with trade investigations to address the flood of unfairly traded goods from various jurisdictions due to rapidly shifting supply chains and with opportunities to export to and import from other markets.
Removal of Inter-Provincial Trade Barriers
Canadian provinces have been working energetically to reduce inter-provincial trade barriers since the imposition of US tariffs on Canadian products.
Ontario recently announced that it will introduce the Protect Ontario through Free Trade within Canada Act (the "Act") as part of its efforts to reduce internal trade barriers.14 The proposed Act is designed to boost domestic trade and help offset some of the effects of US tariffs.
The Act proposes four main changes:
- The Act will establish reciprocating recognition of goods, services, and professionals between provinces: where a good, service, or registered worker is permitted in a reciprocating province, the same good, service, or worker will be permitted for sale, use, or work in Ontario.
- The Act will remove most of Ontario's party-specific exceptions in the Canadian Free Trade Agreement ("CFTA"), which include the removal of measures such as limiting market access in a large number of energy-related sub-sectors and mandating the use of locally grown grapes in wine production.
- The Act also aims to enhance labour mobility by allowing certified workers from other provinces to begin working in Ontario immediately upon arrival while contemporaneously completing a simplified registration process to obtain requisite Ontario credentials for their profession. This process would include streamlining labour mobility for regulated health professionals from other jurisdictions.
- Finally, the Act seeks to enable direct-to-consumer alcohol sales. This would allow consumers to purchase alcohol directly from Canadian producers, as consumers in Ontario may currently only buy directly from the Liquor Control Board of Ontario ("LCBO") or retailers supplied by the LCBO.
Ontario's Act comes on the heels of Nova Scotia's recently passed Free Trade and Mobility within Canada Act.15 The Nova Scotia legislation also removes a number of inter-provincial trade barriers for Nova Scotia, including ceasing to apply party-specific exceptions in the CFTA and recognizing licenses and certifications from reciprocating provinces.
As part of the provinces' combined efforts to reduce barriers to inter-provincial trade, Ontario signed economic cooperation memoranda of understanding with Nova Scotia and New Brunswick to support the reciprocal removal of trade barriers between the provinces on April 16, 2025.16
British Columbia has also introduced the Economic Stabilization (Tariff Response) Act that removes barriers on the sale of other provinces' goods and services in British Columbia.17 The proposed legislation also gives the government broad powers to support reducing inter-provincial trade barriers between Canadian provinces.
These actions may facilitate opportunities for Canadian businesses to expand into other Canadian markets in the face of rising trade barriers from the US.
Next Steps and Opportunities for Canadian Businesses to Expand to New Markets
Canada is well-positioned for tariff-free access to Europe under the CETA and to many Asian countries under the CPTPP as well as its bilateral trade agreements with South Korea and numerous South American countries.18 As Canadian businesses look at diversifying their markets away from the US, there may be significant opportunities to take advantage of Canada's free trade access to Europe, Asia, and South America under its numerous trade agreements. We also expect that suppliers in these regions will be incentivized to look for opportunities to sell into Canada as US exporters face retaliatory Canadian tariffs and even more so to the extent that such exporters face challenges in selling their products into the US.
Ultimately, Canadian businesses and businesses operating in Canada should ensure they understand their exposure to potential tariffs. Becoming familiar with your company's trade flows and contracts can help mitigate unexpected tariffs at the border.
Footnotes
1. We have been regularly reporting on critical tariff-related updates. See our previous publications: The Pause on the Tariff War: How Businesses Can Use the Reprieve Wisely; Preparing for Potential US Tariffs: Key Dates and Strategic Considerations.
2. United States Surtax Order (2025-1), online. The Department of Finance Canada ("Finance") has also summarized the list in a searchable Backgrounder, online.
3. United States Surtax Order (Steel and Aluminum 2025), online.
4. Finance has similarly released a full list of products subject to the March 13 Steel and Aluminum Order, online.
5. Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations.
6. Including tariff items 9804.30, 9825, 9826, 9897.00.00, 9898.00.00, 9899.00.00 (Chapter 98) and 9966.00.00, 9971.00.00, 9989.00.00 (Chapter 99), which remain subject to the surtax.
7. United States Surtax Order (Motor Vehicles 2025), online.
8. Finance released a full list of products subject to the Auto Surtax Order, online.
9. Customs Notice 25-15, online.
10. United States Surtax Remission Order (Motor Vehicles 2025), online; and United States Surtax Remission Order (2025), online.
11. United States Surtax Remission Order (2025), online.
12. Customs Notice 25-19: United States Surtax Remission Order (2025), online.
13. Department of Finance Canada, Process for requesting remission of tariffs that apply on certain goods from the U.S., online.
14. Office of the Premier of Ontario, Ontario Unlocking Free Trade Within Canada, online. See also: Ministry of Economic Development, Job Creation and Trade, Technical Briefing: The Protect Ontario through Free Trade within Canada Act, 2025, online.
15. Free Trade and Mobility within Canada Act, online.
16. Economic cooperation memorandum of understanding: Ontario and New Brunswick, online.
17. Economic Stabilization (Tariff Response) Act, online.
18. Canada's Trade and Investment Agreements, online.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
