On February 1, 2025, the Trump administration released three executive orders and a fact sheet, President Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China, that threatened to impose a 25 percent tariff on goods imported from Canada and Mexico, excepting energy resources from Canada with a lower 10 percent tariff. The executive orders also impose a 10 percent additional tariff on goods imported from China.1 Declaring an emergency under the International Emergency Economic Powers Act, President Trump cites the threats to border security “posed by illegal aliens and drugs, including deadly fentanyl,” as the rationale for the implementation of the tariffs, and the fact sheet and executive orders provide that the tariffs will continue until the crisis is alleviated.
On February 3, 2025, President Trump paused the additional tariffs on Canada and Mexico until March 4, 2025, by issuing two additional executive orders but leaving the tariffs in place for China.2 The president determined that both Canada and Mexico took immediate steps designed to alleviate 6the illegal migration and illicit drug crises. The executive orders note that if these crises worsen and Canada or Mexico fail to sufficiently alleviate the crises, the United States may immediately implement tariffs as described in the executive orders issued on February 1.
Canadian businesses should be aware of executive order Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border, which proposes to levy an additional ad valorem duty of 25 percent on products from Canada.3 Although the tariffs are paused, the president may choose to implement these additional duties at any time. The products that will be affected are listed in the modifications to the Harmonized Tariff Schedule of the United States. Canadian businesses with imports to the United States should be aware of whether their products are included on the list of goods subject to tariffs and, if so, the country of origin of their products.
If a Canadian business sells products that are included on the Harmonized Tariff Schedule of the United States to US customers, then it should also determine the country of origin of the product. The determination of country of origin is completed on a factual basis, but the US Customs and Border Protection (CBP) has issued rulings to assist businesses with identifying whether their products are subject to a tariff.4
The country of origin of a product will be determined to be of a certain country if:
A. It is wholly grown, produced, or manufactured in that country; or
B. When the product consists of materials from another country, it has been substantially transformed in that certain country into a new and different product with a name, character, or use distinct from that of the product from which it was so transformed.5
In following this guidance, an importer to the United States must consider what it means for a product to undergo a “substantial transformation” in a certain country. The CBP has the authority to issue case-by-case rulings that analyze if a “substantial transformation” has occurred and, in doing so, will review the assembly and manufacturing of a product. In determining if the assembly of a product substantially transforms the product, the CBP will look to the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Furthermore, assembly operations that are minimal or simple, as opposed to complex or meaningful, will generally not result in a substantial transformation.6 For example, a food waste disposer containing Mexican, US, and Chinese origin component parts was determined to be of Mexican origin, because, although the disposer contained component parts from multiple countries, the disposer was assembled in Mexico where the original components were substantially transformed into a food disposer.7
When the CBP must analyze whether the manufacturing process changes the country of origin of a product, it notes that if the manufacturing or combining process is a minor one that leaves the identity of the product intact, a substantial transformation has not occurred.8 For example, aircraft engine parts that are forged and cast in the United States and sent to China for milling, drilling, and finishing were determined to be of US origin, as the parts cast in the United States already had a dedicated use and the finishing would not change the basic nature of the components.9
If these tariffs are implemented on March 4, 2025, or sooner, they will have a significant impact on Canadian businesses selling their products to US customers. Businesses should identify whether their products are subject to the tariffs by determining if their products are listed on the Harmonized Tariff Schedule and their country of origin. Businesses should also review their customer agreements for any applicable purchasing quotas and termination provisions to understand how these provisions apply to US customers. There are also potential restructuring options that Canadian businesses should consider to help navigate or alleviate the additional duty that may be imposed.
Attorneys at Barclay Damon will continue to monitor any executive updates and further guidance regarding this fact sheet and related executive orders.
If you have any questions regarding the content of this alert, please contact Gust Pullman, International Practice Area co-chair and Canada-US Cross-Border Team co-leader, at gpullman@barclaydamon.com; Andy Oppenheimer, Business Services Practice Group co-leader and Tax Practice Area co-chair, at aoppenheimer@barclaydamon.com; Jordan Kilijanski, associate, at jkilijanski@barclaydamon.com; or another member of the firm’s Corporate Practice Area or Canada-US Cross Border Team.
1https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/.
2See Exec. Order: Progress on the Situation at Our Northern Border (2025); Exec. Order: Progress on the Situation at Our Southern Border (2025).
3See Exec. Order: Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border (2025).
4See 19 C.F.R. Part 177.
5See 19 U.S.C. § 2518(4)(B); 19 C.F.R. § 177.22(a).
6See HQ H240199, dated March 10, 2015.
7See HQ H333319, dated May 15, 2024.
8See HQ H240199, dated March 10, 2015.
9See NY N312043, dated June 10, 2020.