Trump Threatens 25% Tariffs on Canada for Feb. 1

Trade Update • Jan 20, 2025

.S. President Donald Trump announced plans to impose 25% across-the-board tariffs on Canadian imports starting February 1, citing concerns about migration and fentanyl crossing the border. The announcement came during an Oval Office signing ceremony Monday evening, where Trump outlined his intention to overhaul the trade system to prioritize American workers and families.

Trade Agenda

The tariffs, which also target Mexico, mark a significant shift in North American trade relations. Trump’s inauguration speech earlier that day emphasized his plan to tax foreign countries to “enrich American citizens,” though Canada was not specifically mentioned.

Prior to the announcement, Trump administration officials, speaking anonymously, suggested the president might sign only a memorandum directing federal agencies to study trade issues, including alleged unfair practices by Canada, Mexico, and China. However, Trump’s signing of executive orders indicates a more immediate and direct approach to implementing his trade agenda.

Canada Remains Ready

Canada remains ready to respond swiftly with retaliatory measures if tariffs are imposed. However, such measures would hurt Canadian exporters’ competitiveness and ripple across the economy. TD Economics forecasts a 10% tariff could reduce Canadian exports to the U.S. by 5% by 2027. Retaliatory actions from Canada, similar to the 2017 steel and aluminum dispute, could further strain trade, driving up costs for companies dependent on U.S. goods and inflating consumer prices.

USMCA/CUSMA

While Trump’s inaugural address briefly mentioned overhauling trade systems to benefit American workers, his immediate focus appears to be on executive actions targeting broader trade policies, including a review of the Canada-U.S.-Mexico Agreement (CUSMA) and an exploration of future tariff-collection mechanisms.

The hope is that USMCA will offer some protection from sweeping tariffs. While this free trade agreement was designed to preserve trade relationships, making outright trade wars more complex, Canada’s growing trade deficit with the U.S. could work against it. While many American companies have shifted production to Canada and Mexico to avoid tariffs on Chinese goods, USMCA’s review is slated for 2026 and contentious issues like Canada’s supply-managed dairy sector may serve as leverage during renegotiations.

Additionally Canada’s political landscape, shaped by federal elections scheduled for October 2025 and a Conservative Party leading in the polls, could play a pivotal role in setting the tone for future trade negotiations.

How Canadian Businesses Can Prepare

To navigate this uncertain environment, Canadian importers/exporters must adopt proactive strategies:

Leverage Tariff Engineering: Explore options with your Customs Broker to reclassify goods or adjust sourcing to mitigate tariff impacts.

Build Resilient Supply Chains: To minimize reliance on U.S. suppliers, businesses should explore alternative markets in Asia, Europe, and beyond, creating opportunities for growth while mitigating trade risks. Establishing multiple suppliers for the same product or component can provide the flexibility to scale production and pivot when one supplier is unable to meet demand. Having a backup supplier outside the U.S. ensures a reliable contingency plan to maintain operations smoothly.

Keep Perspective: Tariffs are a well-known possibility, but their impact depends heavily on how they’re implemented—broadly or in specific sectors. Tariffs were used as a negotiation tool, often yielding less dramatic results than anticipated. Even universal tariffs don’t necessarily equate to lost sales. U.S. buyers have shown resilience, continuing to import hundreds of billion worth of goods (25% duties) from China in 2024.

Charting a Path Forward

While uncertainty defines Trump’s second term, Canadian businesses can navigate these challenges through preparation, adaptability, and strategic diversification. The road ahead may be turbulent, but it also presents opportunities for companies to strengthen resilience and explore new markets beyond their southern neighbour.

By staying proactive and flexible, Canadian businesses can not only weather potential disruptions but also thrive in an evolving trade environment.

How GHY Can Help?

GHY specializes in helping businesses navigate and reduce the impacts of tariffs through strategic solutions tailored to their needs. Our experts can audit your supply chain to identify inefficiencies, uncover cost-saving opportunities, and ensure compliance with evolving trade regulations. We also employ tariff engineering techniques to optimize product classification and sourcing strategies, minimizing duty exposure and maximizing profitability.

By partnering with GHY, your business gains access to the tools and expertise needed to streamline operations and stay competitive in a challenging trade environment.

Contact Us Today! gts@ghy.com, or call +1 (800) 667-0771.