President Trump’s latest Executive Order imposes tariffs on Canadian goods to curb drug smuggling. What does this mean for businesses? Let’s break it down.
Key Questions We Will Answer In This Blog:
What is this Executive Order about?
Why is the U.S. targeting Canada?
The Tariffs: What’s Changing in Summary?
How will the HTSUS change?
What will change for FTZ? What is the Privileged Foreign Status?
Will Duty drawback be available for Canadian Goods coming into the U.S. from 4th February 2025?
Will De-Minimis Treatment be available for Canadian Goods coming into the U.S. from 4th February 2025?
Can Canada retaliate? If if yes, what happens?
How will these tariffs impact trade? Our View
What should businesses do next? Expert's Recommendation
Understanding the Executive Order on Tariffs against Canada.
On February 1, 2025, President Donald J. Trump issued an Executive Order imposing tariffs on Canadian goods. The order, rooted in emergency economic powers, aims to address the flow of illicit drugs, particularly fentanyl, from Canada into the United States. The administration claims that Canadian authorities have not done enough to combat drug trafficking organizations (DTOs) and their role in the opioid crisis. This will come into force on Tuesday 4 February 2025.
Why Canada?
Although public discourse often focuses on the southern border, the northern border has increasingly become a conduit for illicit drug smuggling. The Executive Order cites Canada’s rising domestic fentanyl production, particularly in British Columbia, and accuses Canadian authorities of inadequate enforcement. According to the order, Mexican cartels are operating in Canada, exacerbating the issue. The administration’s decision to impose tariffs is a direct response to what it sees as Canada’s failure to take decisive action. More in the factsheet.
The Tariffs: What’s Changing in Summary?
The Executive Order introduces:
A 25% tariff on most Canadian goods entering the U.S.
A 10% tariff on Canadian energy products.
A requirement that goods subject to these tariffs be classified under privileged foreign status in U.S. foreign trade zones.
No possibility of drawback for the additional tariffs imposed.
The duties described in the order do not apply to articles covered under 50 U.S.C. 1702(b).
These measures take effect on February 4, 2025, and will apply to all Canadian imports except for goods already in transit before February 1, 2025.
To be more specific:
The executive order outlines that starting at 12:01 a.m. eastern time on February 4, 2025, products from Canada, as defined in a Federal Register Notice, will be subject to an additional 25% duty, except for certain products listed elsewhere.
However, products that are already on a vessel or in transit before 12:01 a.m. on February 1, 2025, and are entered into the U.S. after that date, will not face this extra duty, provided the importer submits a certification to U.S. Customs and Border Protection (CBP) as specified.
Moreover, starting at 12:01 a.m. eastern time on February 4, 2025, energy and energy resources from Canada, as defined in a specific Executive Order and included in the Federal Register notice, will be subject to an additional 10% duty.
However, products that are already loaded onto a vessel or in transit before 12:01 a.m. eastern time on February 1, 2025, and entered into the U.S. after that time, will not be subject to this duty, as long as the importer provides the required certification to U.S. Customs and Border Protection (CBP), as outlined in the Federal Register notice.
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How will the HTSUS change under the Trump Tariffs?
Starting February 4, 2025, the Harmonized Tariff Schedule of the United States (HTSUS) will be updated to reflect new duty rates for Canadian products entering U.S. Foreign Trade Zones (FTZs) under "privileged foreign status". These changes will apply to Canadian goods entering FTZs and will be based on the HTSUS classification at the time of entry, rather than benefiting from preferential duty rates under agreements like the USMCA. The Secretary of Homeland Security will oversee these modifications, ensuring that the new duty rates are implemented and maintained unless future adjustments or terminations are made. This means businesses will need to stay updated on the revised HTSUS to ensure compliance with the new duty structures.