Key Takeaways:
- The United States pauses 25% tariffs on Canada and Mexico, but only for goods qualifying under USMCA origin rules, and most imports remain subject to duties.
- China and Canada respond with new tariffs on U.S. agricultural and industrial goods — and Canada’s tariffs could rise to C$125 billion.
- U.S. businesses must verify USMCA compliance in order to maintain their tariff-free status and avoid costly penalties tied to incorrect certifications.
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In another week of unprecedented tariff announcements and activity, President Trump issued two Executive Orders (EOs) (on Canada and Mexico) on March 6, 2025 that suspended implementation of the 25% tariffs on goods imported into the U.S. from Canada and Mexico, two days after the tariffs went into effect on March 4 pursuant to the International Emergency Economic Powers Act (IEEPA). A Fact Sheet accompanied the EOs.
However, the suspension only applies to merchandise that qualifies as “North American-originating” under USMCA (the free trade agreement between the U.S., Canada, and Mexico). Officials said roughly 62% of imports from Canada are not covered by USMCA and would still be subject to tariffs, while 50% of imports from Mexico are not USMCA-compliant.
No action was taken with respect to the additional 10% duties imposed on goods of Chinese origin that became effective on March 4 and remain in place (as well as the first round of 10% duties that went into effect on February 4). In response, China’s finance ministry announced that duties of 15% would be imposed on U.S. imports of chicken, corn, cotton, and wheat, and that a 10% tariff would apply to imports of aquatic products, beef, dairy products, fruits, sorghum, soybeans, and vegetables—all produced mostly in “farm states” represented in Congress mainly by Republican Senators.
This announcement was preceded by the announcement that the 25% tariffs on Canadian and Mexican goods originally paused until March 4 were back “on” again (for prior coverage, see the alert published February 28, 2025). Canada immediately retaliated with an announcement that it would impose tariffs of 25% on C$30 billion worth of unspecified American goods that would be increased to C$125 billion in 21 days.
After the U.S. stock market plunged on March 5, President Trump announced that the “Big 3” U.S. automakers would receive a reprieve until April 2 from paying the 25% tariff on imports of vehicles and parts used in vehicle production (but not after-market parts). On March 6, President Trump extended the reprieve to all imported products originating in Mexico and later included all Canadian-originating goods. The reprieve is expected to expire on April 2 (to coincide with the announcement of reciprocal tariffs that the Administration is currently in the process of finalizing). Should the IEEPA tariffs resume after that date, the duty on Canadian potash (a key ingredient of fertilizer) would drop from 25% to 10%.
In a related development, another EO was signed on March 1 to increase U.S. lumber production. The EO also ordered an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether additional tariffs were warranted on imports of lumber as a threat to U.S. national security. Almost half of U.S. imports are sourced from Canada, and these imports been the subject of long-running U.S. antidumping and countervailing duty disputes since the 1980s. The latest dispute is the subject of a pending USMCA binational panel case.
Insight
As President Trump continues to inject uncertainty into the global trade landscape, the focus over the next month remains on imports from Canada and Mexico, the two largest trading partners of the U.S. Because the new pause only applies to goods which are USMCA-originating, companies should be proactively reviewing their qualification processes (or their vendors’ qualification processes) for preparation of Certifications of Origin, which are required to claim duty-free entry into the U.S.
These processes involve complicated calculations of regional value content and manufacturing steps based on countries of origin and tariff codes of raw materials and tariff codes of finished goods (“tariff shift”). Any errors (or lack of processes altogether) can result in denial of duty-free entry claims and assessment not only of the Normal Trade Relations duties but the new 25% IEEPA tariffs as well—on top of any of the existing IEEPA steel and aluminum tariffs of 25% or antidumping and countervailing duties that might apply.
The overriding question still facing U.S. companies (and nonresident companies, which include many Canadian entities that import into the U.S.) is whether the cost of any new tariffs that might ultimately be paid by the U.S. importer of record can be passed on to U.S. consumers in whole or in part. Canada, Mexico, and China account for more than 40% of all U.S. imports and include motor vehicles, pharmaceuticals, shoes, electronics, lumber, steel and aluminum, and a host of other products ultimately purchased by American retail consumers.
Lurking in the background is the April 2 deadline on which new “reciprocal” tariffs are expected to be announced on all imports from many of the U.S.’ major trading partners – including the EU. President Trump recently noted that not only will the U.S. factor in the foreign duty rate on imports of U.S. goods, but VAT will also be added into the mix to determine an appropriate new “reciprocal” tariff rate via which the current U.S. duty rate will be increased the match the foreign duty and VAT rate for goods imported from each of the targeted countries.
President Trump has also noted that sector-specific tariffs will be imposed in the coming weeks on auto imports, semiconductors, pharmaceuticals, and certain other materials.
In sum, many view these potential new tariffs as the escalation of a new global trade war in which all major trading nations will ultimately become enmeshed. Multinational companies trading in goods should consider mitigation strategies to lessen or eliminate the impact of these significant new tariffs for merchandise imported into the U.S.
Written by Damon V. Pike, Mathew Mermigousis and James Pai. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com
Protecting Your Cross-Border Trade Advantage
As trade uncertainty grows and tariff rules evolve, verifying USMCA compliance and understanding the cost impact of IEEPA tariffs is critical. MGO helps importers and manufacturers navigate U.S. trade policy, supply chain strategy, and customs compliance — especially when origin certification or tariff shift rules are in question. Our professionals provide proactive support to help you manage risk, reduce costs, and maintain operational continuity. Contact us and learn more at mgocpa.com.