Trump Raises Tariffs on Canada to 35% Amid Trade and Border Disputes

On July 31, President Trump signed an executive order increasing tariffs on Canadian goods from 25% to 35%, effective August 1, 2025.

The administration links the tariff hike to national security, arguing that insufficient Canadian enforcement against illicit drug smuggling – particularly fentanyl – poses “an unusual and extraordinary threat” to the U.S. While Canadian officials dispute this characterization, President Trump emphasized that Ottawa’s alleged inaction, coupled with its retaliatory tariffs on U.S. goods, necessitated “decisive action.”

Markets reacted sharply: S&P 500 futures dipped 0.6%, reflecting concern over tensions with the U.S.’s third-largest import source and second-largest overall trading partner.

The executive order also pressures Canadian manufacturers by signaling that companies shifting production to the U.S. could avoid the higher duties – part of Trump’s push to incentivize domestic investment.

Trade Analysis and Implications

Trade analysts note that Canada exported $349 billion in goods to the U.S. in 2024, while the U.S. shipped $413 billion northbound, underscoring the deep integration of the two economies. Despite USMCA providing duty-free treatment for most Canadian goods, the new tariff primarily affects sectors outside its scope – such as lumber, steel, aluminum, energy, and auto parts.

The order builds on a pattern seen with recent U.S. deals with the EU and Japan, which accepted 15% across-the-board tariffs coupled with investment pledges. For Canada, however, the 35% rate marks the steepest yet among U.S. allies, suggesting a harder line aimed at forcing compliance rather than compromise.

Economists warn of supply chain disruptions, especially in manufacturing and automotive, where Canadian parts flow directly into U.S. assembly lines.

Canada’s Reaction

Prime Minister Mark Carney expressed “disappointment” and reiterated Canada’s commitment to USMCA, noting that roughly 90% of Canadian exports remain tariff-free. Carney highlighted “historic investments” in border security, including new personnel, surveillance tools, and intelligence operations targeting drug and gang activity.

The trade talks are ongoing – Canada’s negotiating team remains in Washington, though officials have downplayed prospects for a near-term breakthrough. Trump indicated he was open to talks but has shown no sign of delaying implementation.

What It Means for U.S. Importers

Legal challenges to Trump’s use of IEEPA for tariffs are advancing in U.S. courts, though prior cases suggest a high bar for overturning presidential authority in this context.

For U.S. importers, the 35% tariff represents a significant cost increase on goods that fall outside USMCA duty-free eligibility. Importers should take immediate steps to:

• Review Product Classifications: Ensure that affected items are correctly classified in the Harmonized Tariff Schedule (HTS) to confirm applicability of the new tariff.
• Understand Tariff Stacking: Stacking rules are subject to change. Importers should be aware that of stacking rules change, the cumulative impact may be affected with other duties, including Section 232 tariffs on steel/aluminum and other IEEPA-based measures.
• Assess USMCA Eligibility: Verify whether goods qualify for USMCA’s preferential treatment, which remains unaffected by this order and could exempt products from the 35% rate.
• Prepare for Compliance Scrutiny: The executive order explicitly targets transshipment schemes, with CBP authorized to impose 40% penalties and additional fines on violators. Robust documentation and origin verification are essential.
• Explore Duty Mitigation and Recovery: Importers may wish to evaluate strategies such as First Sale valuation, Foreign Trade Zones (FTZs), and Post Summary Corrections (PSCs) for recovering duties where misapplication occurs.
• Monitor Negotiations and Legal Challenges: While Canada has pledged to fight the tariff politically and legally, importers should plan for prolonged uncertainty as talks continue and litigation advances in U.S. courts.

At Allyn International, we are committed to supporting the global trade community with strategic, forward-thinking solutions to help navigate today’s complex tariff landscape. Whether you have questions about tariffs, trade agreements, or would like to explore strategies to reduce their impact on your business operations, our team is here to help. Contact us today for a consultation at sales@allynintl.com, call 239-489-9900, or reach out here. 

Contributor: Rebecca Anderson