U.S. to Impose 35% Tariff on Canada Aug. 1 (Updated)

Trade Update • Updated August 5, 2025

Key Points:

• Most Canadian imports now face a 35% tariff, up from 25%, effective August 1, 2025.

• A new 40% duty targets goods transshipped to evade U.S. tariffs, with limited exemptions.

• USMCA-origin goods remain exempt from duties, preserving duty-free access.

• Canadian energy and potash exports continue to face a lower 10% tariff rate.

• The U.S. may escalate tariffs further if Canada imposes retaliatory measures.

• CBP Guidance now available.

n July 31, 2025, former President Donald J. Trump issued a Executive Order: Amendment to Duties to Address the Flow of Illicit Drugs Across Our Northern Border increasing the tariff on most Canadian imports from 25% to 35%, effective August 1. The move builds on earlier duties imposed under Executive Order 14193 and reflects continued frustration with Canada’s response to the U.S. fentanyl crisis and alleged retaliatory trade actions.

CBP Guidance: Additional Duties on Imports from Canada

📄 View the Trump letter (posted July 10)

Amended EO Changes

Tariff Increase to from 25% to 35%:
The ad valorem rate on most Canadian goods rises to 35% (under Heading 9903.01.10) from the prior 25%, citing Canada’s alleged failure to take sufficient steps to curb fentanyl trafficking and its retaliatory measures.

• Applies to goods entered for consumption or withdrawn from warehouse for consumption on or after 12:01 a.m. EDT, August 1, 2025
• HTSUS classification: 9903.01.10
• Exclusions:
  • Products under HTSUS 9903.01.11–.15
  • Personal-use goods included in accompanied baggage
• All goods previously subject to 25% now reclassified to 35% under the same HTSUS heading

Retaliation Clause Reaffirmed:
Should Canada impose countermeasures, the United States may “increase or expand in scope” its tariffs in response, per Section 2(d) of EO 14193.

USMCA-Origin Goods Remain Exempt:
Products that meet USMCA rules of origin continue to qualify for duty-free treatment under existing exemptions.

Energy Products Hold at 10%:
Canadian energy and potash exports remain subject to a lower 10% tariff, consistent with earlier amendments.

Transshipment Duty Introduced:
Products transshipped to evade U.S. duties will now be hit with a 40% tariff (under Heading 9903.01.16), along with potential penalties under 19 U.S.C. § 1592. CBP determines the goods were transshipped to evade duties under 9903.01.10, 9903.01.13, or 9903.01.15 and that do not qualify as originating under USMCA.

CBP will direct the importer when it determines a product was transshipped. These goods will be classified under HTSUS 9903.01.16 and assessed an additional ad valorem rate of 40%, in lieu of the 35% rate.

Exceptions to 40% Transhipped Duty:

• Goods described in headings 9903.01.11, .12, or .14
• Goods for personal use included in accompanied baggage
• Proper entries under most provisions of Chapter 98, except as detailed below –
  • 9802.00.40 / .50 / .60: Duty applies to the value of repairs, alterations, or processing done in Canada
  • 9802.00.80: Duty applies to the assembled value, excluding the cost or value of U.S.-origin components

Impact on Duty-Free and Temporary Exemptions:

• Goods entered under Subchapter II of Chapter 99 (temporary exemptions or reductions) remain eligible, but still subject to the 40% transshipment duty if applicable.
• Products under 9903.01.16 remain subject to all applicable antidumping, countervailing, and other duties or fees.

De Minimis Exemption May Be Revoked

• Section 321 ($800) threshold still applies—for now
• Can be revoked at any time by Commerce/Treasury if collection systems improve

Manufacturing Incentive Stays:
Canadian firms can avoid tariffs by relocating production to the U.S. Trump reiterated:

“There will be no Tariff if Canada, or companies within your Country, decide to build or manufacture product within the United States.”

White House Fact Sheet

The July 31 fact sheet reiterates the original rationale for Executive Order 14193, citing:

• Over 20,000 pounds of fentanyl and precursors seized at the northern border since EO 14193’s issuance
• Canada-based “super labs” producing 44–66 pounds of fentanyl per week
• Transnational criminal organizations (TCOs) like CJNG and Sinaloa Cartel shifting operations into Canada

Retaliation Clause Still in Force

Section 2(d) of EO 14193 remains operative. The U.S. reserves the right to:

• Impose further increases
• Extend duties to additional HTSUS chapters or headings
• Respond proportionally to retaliatory actions by Canada

Monitoring and Next Steps

The Secretary of Homeland Security, in coordination with senior officials, will:

• Monitor Canadian enforcement progress
• Recommend further actions
• Maintain biannual lists of entities circumventing trade enforcement

Importers are encouraged to assess sourcing structures, ensure proper classification under HTSUS, and comply with CBP directives to avoid transshipment penalties or misclassification errors.

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! Booking a Meeting, email consult@ghy.com, or call +1 (800) 667-0771.