Q&A: What retailers need to know about U.S., Canada tariffs
With trade tensions heating up between the United States and Canada, Chain Store Age spoke with Kevin Ford, foreign exchange and macro strategist at Convera, a global leader in cross-border payments.
When did the new U.S. tariffs on Canada begin?
The United States imposed an additional 50% tariff on selected Canadian goods effective Aug. 22 at 12:01 am ET, after negotiations collapsed following a three-day extension. The measures use Section 338 of the Tariff Act of 1930 and apply on top of ordinary customs duties. Goods already subject to specified Section 232 measures are excluded from the new Section 338 layer.
The tariffs were triggered by U.S. complaints involving Canadian treatment of motor vehicles, alcoholic beverages and dairy products. However, the tariff schedules extend well beyond those three headline categories.
Covered products include wine and other alcohol, dairy, furniture, cement, clothing, plastics, electrical machinery, wood products, fishing equipment, hockey equipment and other consumer and industrial goods. Exposure ultimately depends on the product’s eight-digit U.S. Harmonized Tariff Schedule classification.
How large is the affected trade?
According to USTR, the measures apply to nearly $20 billion of annual U.S. imports from Canada. Based on the latest monthly Canadian export pace, we estimate that the covered trade represents approximately 4.2% of annualized exports to the U.S.
The measures affect a relatively small part of the overall trade relationship, and more than 85% of Canadian exports should retain duty-free access under current CUSMA treatment. Their concentration, however, means the consequences for individual exporters could be much greater than the aggregate share suggests.
Do CUSMA-compliant goods receive an exemption?
No. The additional 50% Section 338 duty applies to listed Canadian products even when they qualify as originating goods under CUSMA. CUSMA treatment can still eliminate the ordinary base tariff, but it does not remove
the additional Section 338 charge.
This is an important departure from earlier tariff rounds, when CUSMA compliance protected most Canadian exports from blanket US measures. The new tariffs further reduce the practical value of preferential market access for affected industries, even though CUSMA remains legally in force for wider trade.
Which businesses face the greatest pressure?
The tariffs reach across several manufacturing and consumer-goods industries, including plastics, electrical equipment, furniture, wood products, clothing, chemicals, dairy, alcohol, cement and recreational goods. Exposure varies by tariff classification, U.S. revenue dependence and the availability of replacement suppliers.
At 50%, the additional duty could price some Canadian goods out of the U.S. market. The risk is greatest for exporters with narrow margins, limited bargaining power and few practical destinations outside the U.S. American customers may seek discounts, postpone orders or source comparable products elsewhere.
The effects could also move through Canadian supply chains. Companies supplying materials, components or services to affected exporters may face weaker demand even when their own products are not directly tariffed.
How much will the effective tariff rate increase?
Our trade-weighted calculations suggest that the average effective U.S. tariff rate on Canadian imports could rise from approximately 3% to above 5% once the new measures enter the data. Based on our trade-weighted calculations, that would place Canada above Mexico’s latest effective rate, although still below the roughly 7% average across all US import sources.
The recorded increase may be smaller than the mechanical estimate. A 50% duty is likely to stop or redirect some covered shipments, reducing the value of trade on which the tariff is collected. The statutory tariff, the estimated trade-weighted rate and the rate ultimately observed after companies adjust will therefore differ. Canadian countermeasures will also raise Canada’s effective tariff rate on US imports. That calculation will depend on the final product coverage, rates, exemptions and trade values.
What about Canadian retaliation?
Canada has announced “dollar-for-dollar” counter-tariffs beginning Sept. 8. The government has identified U.S. steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics as the principal targets. Ottawa has not yet published the final product-by-product schedule, tariff rates or full set of exemptions.
The period before implementation offers another opportunity for negotiations and allows Ottawa to refine the scope of its response. Canadian companies can also assess their reliance on U.S. inputs and prepare remission requests where practical alternatives are unavailable. Precise firm-level exposure cannot be calculated until Finance Canada publishes the tariff classifications, rates and exemptions.
Canada has released a list of 893 items subject to retaliatory tariffs on Sept. 8.
What does the list say about Canada’s strategy
Canada is matching U.S. tariffs dollar for dollar and rate for rate, applying duties of 15%, 25% or 50% to comparable products. Tariffs on food, appliances, furniture, clothing, and electronics will affect retail prices, while duties on metals, machinery, tools, and agricultural equipment will raise production and investment costs. That combination creates a stagflationary risk, with slower growth and higher prices.
The tariffs apply only to qualifying U.S.-origin goods, exclude shipments already in transit, and allow firms to seek remission when practical alternatives are unavailable. These safeguards reduce disruption but cannot eliminate higher costs, administrative delays, or uncertainty.
What could happen after Sept. 8?
If negotiations resume quickly, companies may absorb costs, use existing inventories and postpone major sourcing changes. Ottawa could remove the tariffs before the full effect reaches households.
If the measures last several quarters, firms will change suppliers, renegotiate contracts, seek remission, and pass through more of the cost. Some Canadian producers could gain domestic market share, while import-dependent businesses face weaker margins and higher investment costs.
The largest risk is retaliation against Canada’s retaliation. A wider U.S. response could push Canada to expand its own measures, turning a targeted dispute into a broader shock to prices, investment and confidence.
