With the trade environment changing rapidly, planning for the future has become increasingly challenging. At Export Development Canada (EDC), we understand the concerns of Canadian businesses and are here to provide the support and information needed to navigate these uncertainties.
On March 7, the Government of Canada announced $6.5 billion in support of businesses impacted by the current trade uncertainty, including the launch of EDC’s Trade Impact Program (TIP). With this newly launched program, EDC is prepared to facilitate an additional $5 billion over two years in support to eligible companies across a range of products to help them navigate economic challenges.
Market uncertainty and the impact on Canadian exporters
On March 6, after imposing a 25% tariff on most goods from Canada (10% on energy) and Mexico, and an additional 10% on Chinese goods, on top of the initial 10% imposed in February, the U.S. administration suspended many of the tariffs for Canada and Mexico until April 2. However, on March 11, the U.S. announced a 25% worldwide tariff on steel and aluminum on all trading partners, prompting Canada to impose 25% counter-tariffs on $30 billion worth of steel and aluminum-related products, effective March 13. The European Union has retaliated with tariffs on a range of U.S. exports.
In early March, the Canadian government imposed tariffs on $30 billion worth of U.S. goods. However, following a pause by the U.S., Canada announced it would delay a second round of retaliatory tariffs, worth $125 billion, until April 2.
Why this matters to Canadian exporters
The repercussions of these unpredictable trade policies are being felt on all sides, with the disruption of trade flows and a broad-based slowdown that could lead to job losses, higher inflation and increased costs. The uncertainty adds another layer of complexity to importing goods from China and Mexico that transit through the U.S.
China has reacted by imposing 15% retaliatory tariffs against the U.S., and along with Canada, has filed requests for trade consultations with the World Trade Organization (WTO). Meanwhile, China announced retaliatory tariffs on some Canadian farm and food imports, after Canada imposed tariffs in October 2024 on Chinese-made electric vehicles and steel and aluminum products.
Stay informed about mitigation strategies
In an ever-evolving news landscape, companies should stay informed on trade policy changes, explore tariff mitigation strategies and work with EDC to explore other potential global markets for diversification.
To help Canadian exporters better understand these issues and their impacts on the Canadian economy, we’ve compiled a list of our customers’ and prospects’ most frequently asked questions. This article aims to provide clarity and guidance for companies to help them stay informed.
1. What’s a tariff?
Tariffs are taxes that governments impose on goods coming from another country. Similar to a sales tax, tariffs are paid on imported items and can affect both the cost of goods you import and the price competitiveness of your exports. Unlike import duties determined by the U.S. Harmonized Tariff Schedule (HTS), tariffs aren’t based on specific product factors, like country of origin, product purpose, weight, or value. They’re often used to protect domestic industries from foreign competition.
How can EDC help?
EDC is increasing our support for Canadian exporters by launching the EDC Trade Impact Program. This program, announced March 7, anticipates increased demand for our financing and insurance solutions, including working capital support, loans and guarantees. EDC is prepared to facilitate an additional $5 billion over the next two years to support eligible companies facing economic challenges and to help exporters reach new markets.
Our insurance and financing solutions help:
· Protect shipments of goods
· Manage currency fluctuations
· Access more working capital
· Enable global expansion
Given the fast-moving situation, we encourage current EDC customers conducting business in the U.S. to contact their relationship manager to discuss their specific situation.
Learn more about EDC’s knowledge resources on our U.S. tariff support page, send a question to our Export Help Hub, or tell us how we can help by filling in an inquiry form. For more information on how EDC can support your business, visit www.edc.ca, or contact us at 1-800-229-0575.
EDC works closely with government partners, including the Business Development Bank of Canada (BDC), Farm Credit Canada (FCC), Global Affairs Canada (GAC) and Canada’s Trade Commissioner Service (TCS), to prepare for all potential scenarios that could impact Canadian companies.
2. What’s the Government of Canada doing in response to the trade uncertainty?
The Canadian government has imposed 25% tariffs on $30 billion worth of U.S. goods and is pursuing non-tariff measures. The government announced additional 25% reciprocal tariffs on a list of U.S. steel and aluminum products on March 12. To protect Canadian businesses from takeover, it has also updated the Investment Canada Act guidelines.
Efforts are being co-ordinated with provincial and territorial governments, businesses and partners. In addition, a series of measures to prioritize the well-being of Canadians and the economy were announced on March 7, including $6.5 billion to help businesses navigate the unpredictable trade environment. Some of these initiatives include:
- EDC's $5-billion Trade Impact Program (TIP)
- The Business Development Bank of Canada—$500 million in favourably priced loans
- Farm Credit Canada—$1 billion in new financing
Canadian government officials have repeatedly highlighted Canada’s relentless anti-drug measures, including a $1.3-billion border plan. These programs include:
- the appointment of a fentanyl czar;
- the creation of a joint Canada-United States task force on organized crime; and
- an increase in defence spending.
The Canadian government is challenging the U.S. tariffs by filing a dispute resolution claim at the WTO and under the rules of the Canada-United States-Mexico Agreement (CUSMA).
3. Why do governments use tariffs?
- Revenue generation: Tariffs provide income for the government.
- Protection of domestic industries: Tariffs make imported goods more expensive, helping local businesses compete.
- Diplomatic tools: Tariffs can be used to influence non-economic matters such as human rights or treaty violations.
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4. How could tariffs impact my business?
- Increased costs: Tariffs can increase the cost of goods you import, affecting your production costs, pricing and profit margins.
- Reduced competitiveness: For exporters, tariffs can make your products more expensive in foreign markets, reducing your competitiveness.
5. How do I know if I’ll have to pay tariffs?
Canadian exporters can use tools, like the Canada Tariff Finder and the Canadian Chamber of Commerce Business Data Lab’s Canada-U.S. Trade Tracker, to get information on tariffs for specific products and countries.
Understanding the rules of origin and the Harmonized System (HS) classification is also crucial in determining how tariffs will apply to your goods. Typically, the importer of record pays the tariff. But the increased cost could be borne by either the supplier or the buyer, depending on the contractual provisions.
6. How’s this situation causing uncertainty in Canada-U.S. trade?
In 2023, trade between Canada and the U.S. exceeded $1.3 trillion, with $3.5 billion worth of goods and services crossing the Canada-U.S. border every day. Since 2015, bilateral trade has increased by more than $400 billion, thanks to mutual efforts to deepen this relationship.
The current Canada-U.S. trade situation is creating significant uncertainty for companies on both sides of the border. Businesses are unsure about future costs and market conditions, which complicates planning and investment decisions. This uncertainty is disrupting supply chains, affecting pricing strategies and leading to a cautious approach to cross-border trade activities.
7. What sectors will be affected by the market uncertainty?
The tariffs could impact several sectors and lead to increased prices for Canadian and American consumers. According to EDC Economics, these tariffs will disrupt Canada’s economy, affecting trade volumes, the value of the Canadian dollar and total Canadian employment. They could also impact the highly integrated supply chains between Canada, Mexico and the United States. The following sectors could be impacted:
- Automotive: Highly integrated with the U.S. market, the automotive sector relies on cross-border supply chains for parts and components. The tariffs could increase production costs and disrupt the flow of goods, impacting both manufacturers and consumers. The Trump administration exempted automotive goods from the 25% tariffs imposed on Canada and Mexico on March 5, after meeting with top U.S. automakers.
- Construction: The construction industry depends on a steady supply of materials and equipment from Canada. The Trump administration’s 25% tariffs on steel and aluminum imports from trading partners came into effect March 11, including Canada, which will lead to higher project costs and delays.
- Manufacturing: Sectors, including machinery, electronics and consumer goods, are deeply connected to the U.S. market. Tariffs could increase the cost of raw materials and components, affecting production efficiency and pricing.
- Critical minerals: Vital for producing clean energy technologies and various high-tech applications, tariffs on critical minerals could disrupt supply chains and increase costs for industries reliant on these materials.
Canada, with its rich deposits of cobalt, lithium, nickel, uranium and rare earth elements, plays a crucial role in the global supply of critical minerals. Tariffs could impact the competitiveness of Canadian exports and lead to supply shortages in the U.S. market. - Agriculture and agri-food: Canada’s agri-food sector, including grains, meat, dairy products, potash and fertilizer, is highly integrated with the U.S. market. Tariffs will impact the cost of these goods, affecting both Canadian producers and American consumers. Increased costs could lead to higher prices for food products and disrupt the supply chain, impacting the profitability of Canadian farmers and exporters.
8. Do I need to register with a foreign government if a tariff is implemented?
This depends on the specific regulations of the foreign government. It’s advisable to consult with legal and trade experts to ensure compliance with any new requirements.
9. Can an exporter circumvent tariffs?
Circumventing tariffs through illegal means can lead to severe penalties. Exploring legal avenues such as renegotiating contracts, or shifting supply chains, may help mitigate the impact. Increasing your existing production in the United States, or other markets, may also prove helpful.
Canada has 15 free trade agreements (FTAs) with 51 countries, which reduce or eliminate tariffs, providing Canadian companies with preferential access to global markets. These agreements, including the Comprehensive Economic and Trade Agreement (CETA) with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 10 countries in the Indo-Pacific region, can help simplify operations abroad and offer better predictability and protection in international markets.
Leveraging FTAs with countries in Europe, the Indo-Pacific, or elsewhere in the Americas can provide new opportunities for growth and diversification. Despite these benefits, FTAs don’t eliminate all tariffs on all goods. Even with preferential market access, your products or services may be subject to duties.
Another strategic tool worth exploring to give your company a competitive edge is mergers and acquisitions—the process of buying another company or combining operations.
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10. What are the rules of origin?
Rules of origin are the criteria used to determine the national source of the materials used to make a product. They’re important for applying tariffs, quotas and trade statistics. Rules of origin are negotiated as part of every free trade agreement (FTA). When no FTAs are in place, the World Trade Organization’s (WTO) rules apply. Create a free MyEDC account to read more about rules of origin, or to ask a question of your own.
11. What happens to my outstanding contracts?
If prices were already negotiated in an active contract, it might be difficult for the exporter to pass on the increased costs without renegotiation. According to the International Chamber of Commerce (ICC), under the delivered duty paid (DDP) Incoterm, the price must include all costs such as transportation, brokerage, duties, taxes and tariffs, which affect the landed cost.
For goods repudiated at the border due to the buyer refusing to arrange tariff payment, please reach out to EDC and read our article on Incoterms for additional information.
12. How long will the current Canada-U.S. trade uncertainty last?
We can’t say for sure, but EDC will be working diligently with our partners to ensure that Canadian companies have the support they need to overcome the challenges and to succeed.