On July 31, 2025, the President issued an Executive Order raising additional ad valorem duties on specified Canadian products from 25% to 35%. Effective at 12:01 a.m. Eastern Daylight Time on August 1, 2025, this adjustment aims to reinforce national security and compel more robust cooperative enforcement against illicit drug trafficking across the northern border.
WHAT CONCERNS CONTRIBUTED TO THE CANADA IEEPA TARIFF INCREASE?
In February 2025, Executive Order 14193 declared a national emergency under IEEPA and the National Emergencies Act, citing fentanyl and other illicit drugs as significant threats sourced, in substantial part, from across the Canadian border. The original measure imposed a 25% surcharge on certain Canadian goods and a 10% duty on energy resources. A subsequent March amendment exempted USMCA-originating articles and reduced potash duties from 25% to 10%. Section 2(d) of the February order authorized further tariff increases should Canada retaliate or fail to cooperate on border enforcement. New recommendations from senior officials have now triggered an expansion of duties to 35% to maintain policy efficacy.
HOW WILL TARIFF RATES ON CANADIAN PRODUCTS CHANGE?
This new executive order mandates the following adjustments under HTSUS subchapter III, chapter 99:
- All headings and U.S. Note 2 subdivision references previously subject to a 25% surcharge will reflect a 35% rate.
- A new HTSUS heading 9903.01.16 codifies a 40% duty on Canadian goods transshipped to evade applicable rates, accompanied by appropriate penalties under 19 U.S.C. 1592.
- USMCA-originating articles remain duty-free under existing provisions, and stacking rules from the April 29 Section 232 tariff order continue to apply.
WHITE HOUSE FACT SHEET: President Donald J. Trump Further Modifies the Reciprocal Tariff Rates
EXECUTIVE ORDER: Further Modifying the Reciprocal Tariff Rates
WHAT ARE IMPLEMENTATION TIMELINE AND COMPLIANCE STEPS?
Duty increases take effect on goods entered for consumption or withdrawn from warehouse on or after August 1, 2025, at 12:01 a.m. EDT.
Supply network and customs teams should review HTSUS classifications for all impacted Canadian-origin products, update internal tariff matrices and pricing models to reflect the new 35% surcharge, and communicate changes to procurement and finance stakeholders to adjust landed-cost forecasts.
WHAT ARE THE TRANSSHIPMENT RULES AND ENFORCEMENT MEASURES?
To deter circumvention, CBP will impose:
- A 40% ad valorem duty on non-USMCA Canadian goods determined to be transshipped
- Full penalties under Section 1592 and denial of mitigation for evasion attempts
- Semiannual publications of identified transshipment facilities and countries to aid due diligence, public procurement, and national security reviews
HOW SHOULD DECISION MAKERS PREPARE FOR THE TARIFF UPDATE?
With broader duties and stricter enforcement, organizations face heightened cost exposure and compliance complexity.
Importers should begin to:
- Reassess sourcing strategies for high-duty product lines, exploring alternative markets or material substitutions
- Enhance end-to-end visibility to detect potential transshipment vulnerabilities
- Strengthen collaboration with trusted freight forwarders to ensure tariff classification accuracy and duty optimization
- Implement enhanced audit controls for incoming shipments to verify country-of-origin claims
By proactively adapting processes and leveraging compliance frameworks, Canadian product importers can mitigate cost increases, maintain supply network continuity, and reinforce national security objectives.
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