This article was originally published in Angella MacEwen’s substack. It is republished here with permission.

Donald Trump called April 2 “Liberation Day”, announcing a 10 per cent import tariff on all imports to the United States. There is a list of about 60 other countries that he called the ‘worst offenders’ that will face higher rates.

Canada is (kind of) exempt from these tariffs. Good news, right?

Not really!

News agencies were reporting that Canada and Mexico were exempt from the April 2 tariff announcement, but it would be more accurate to say that it doesn’t stack on top of the previously announced “National Emergency” tariffs.

National Emergency tariffs and CUSMA rules of origin

The “National Emergency” tariffs against Canada and Mexico are still in effect. These tariffs were set at 25 per cent for most imports that are not CUSMA rules of origin compliant, with a lower rate of 10 per cent on energy, energy resources, and potash that are not CUSMA rules of origin compliant.

The April 2 order specifies that if the previous order outlining those “National Emergency” tariffs is terminated or suspended, then imports from Canada and Mexico will face 12 per cent tariffs on everything that is not compliant with CUSMA rules of origin, except for energy, energy resources, and potash, which will have no tariffs, even if they’re not compliant with CUSMA rules of origin.

Only 38 per cent of Canada’s exports to the United States currently claim preferential tariff treatment under CUSMA’s rules of origin, and a large proportion of Canada’s energy exports do not claim this preferential tariff treatment. This may be because there were no, or very low tariffs on energy under CUSMA and other trade deals, and so there was no need to undertake the administrative burden of verifying and applying for the preferential tariff treatment.

What does it mean to be compliant with CUSMA rules of origin? Take a look at this 136 page Harmonized Tariff Schedule General Note 11. Generally, it means something that is obtained or produced entirely in one or more of Canada, Mexico, or the United States, but there are special rules for specific types of goods, like textiles, auto, food, and chemicals. Trade agreements also commonly have a de minimis threshold for the proportion of a good that can come from a non-participating country and still qualify under rules of origin. De minimis is a legal term meaning something that is too small to be meaningful or taken into consideration. For CUSMA this threshold is 10 per cent.

There are two methods for calculating the proportion of a good that is from a non-originating country—the transaction value method and the net cost method. As an example of how complex these rules can be, in order to qualify under CUSMA rules of origin, cranberry juice mixtures must have at least 60 per cent regional content under the transaction value method, or 50 per cent under the net cost method, and juice ingredients from a single non-CUSMA nation cannot constitute more than 60 per cent of the volume of the good.

For another example of the complexity, when Trump amended executive order implementing the “National Emergency” tariffs in March, he said that energy and energy resources from Canada would be subject to a lower tariff rate of 10 per cent. Following that announcement, US Customs put out a list of 800 products that fell into that category, most of them fossil fuels or critical minerals and related products. To add to the confusion, some of these products are now subject to the 25 per cent steel and aluminum tariffs that came into effect under Section 232 on March 12, 2025.

Especially for smaller companies, if they hadn’t faced tariffs before, they probably hadn’t even looked into figuring out how to prove where their product comes from, or if they meet the rules of origin.

Section 232 Steel, Aluminum, and Auto tariffs in place, more likely to come

Trump has relied on two pieces of legislation to implement his global economic tariff war. The April 2 announcement fell under the 1977 International Emergency Economic Powers Act (IEEPA), as did the “National Emergency” tariffs on Canada and Mexico. Steel and Aluminum tariffs that came into effect on March 12, fell under Section 232 of the 1962 Trade Expansion Act.

There are additional Section 232 auto tariffs of 25 per cent that came into effect on April 3, 2025. That rate will only apply to the non-US share of the final import for cars and light duty trucks. Estimates are that could reduce the effective tariff rate for Canada’s finished vehicle exports to around 12 per cent, but that’s still high enough that Canadian auto and parts manufacturers and the union representing auto workers are saying it would kill the industry. Related tariffs on auto parts will be even more complicated to calculate, and are set to come into effect on May 3.

The April 2 order also hints that there are more sector-specific Section 232 tariff announcements to come, saying that there is an exclusion for “all articles that may become subject to duties pursuant to future actions under section 232 of the Trade Expansion Act of 1962”. Speculation of affected sectors includes pharmaceuticals, copper, semiconductors, wood products, but as we’ve seen with Trump, everything is always subject to change, and no sector is safe from his whims.

Carney’s response

On April 3, Prime Minister Mark Carney announced that Canada will also place a 25 per cent tariff on auto imports from the US. The tariff will apply fully to vehicle imports that do not qualify under CUSMA’s rules of origin. For vehicles that do qualify under CUSMA’s rules of origin, the 25 per cent tariff will only apply to non-Canadian and non-Mexican components, in a welcome show of solidarity with our other North American trading partner. Canada will not put a tariff on auto parts. 

Duty free de minimus treatment

Goods can also be exempt from duties and tariffs if they fall under a duty free de minimus threshold. For Canadian businesses shipping into the U.S., that threshold is US$800. The executive order on April 2 maintained this exemption but says that as soon as there are adequate systems in place to efficiently collect this revenue, that exemption will be lifted. This would make exporting to the U.S. much more complicated for smaller Canadian based businesses that ship directly to customers in the U.S.

Uncertainty reigns

How bad today’s announcement is for Canada depends on an analysis of what proportion of exports will be able to qualify for USMCA rules of origin. Workers and business owners will be scrambling to figure out what today’s announcement means for them in the days to come. Carney said Trump’s announcement today will “fundamentally change the international trading system.” That’s an understatement.

What’s certain is that this issue isn’t going away, and we need to fight even harder to make sure that Canada’s response preserves our values.