Canadian Businesses and Tariffs: Key Contractual Considerations for Cross-Border Trade

The Tariffs

The United States is Canada’s largest trade partner. The countries represent one of the world’s most comprehensive trading relationships^.[1] Cross-border trade is a key element of a long-standing and mutually beneficial business relationship between the two nations, a relationship that many individuals and companies on both sides of the border heavily rely on. Overall, the total goods traded by the U.S. with Canada in 2024 was an estimated $762.1 billion Canadian dollars. U.S. goods exports to Canada in 2024 were $349.4 billion Canadian dollars, down 1.4 percent ($5.0 billion Canadian dollars) from 2023. U.S. goods imports from Canada in 2024 totaled $412.7 billion Canadian dollars.^[2]

As of the date of this blog post, certain Canadian goods remain subject to U.S. tariffs. The U.S. implemented a 25% tariff on non-Canada-United States-Mexico Agreement (“CUSMA”) compliant vehicles and auto parts, as well as all steel and aluminum products. Additionally, a 10% tariff was applied to non-CUSMA compliant potash and energy products. On June 4, 2025, President Trump announced tariffs on imports of steel and aluminum to the U.S. increased to 50%, an escalation which Canadian Prime Minister Mark Carney has noted is unlawful and unjustified.^[3]

More recently, following the conclusion of a U.S. national security investigation under Section 232 of the 1962 Trade Expansion Act, President Trump imposed new tariffs on imports of wood products, effective October 14, 2025.^[4] These tariffs include a 10% duty on softwood timber and lumber, a 25% duty on certain upholstered wooden furniture (which will increase to 30% on January 1, 2026), and a 25% duty on kitchen cabinets and vanities (which will increase to 50% on January 1, 2026).^[5] The newly issued lumber tariff seemingly serves as a reminder and clear signal that the trade war between the neighbouring nations is far from over.

In response to the measures described above, the Canadian government imposed a range of counter-tariffs on U.S. products, many of which have since been lifted, as hereinafter described.

The Counter-Tariffs

In response to the U.S. tariffs, Canada imposed its own retaliatory counter-tariffs on March 4, 2025, referred to as “surtax”. This surtax includes 25% tariffs on a list of goods worth $30 billion, specifically targeting consumer goods such as: orange juice, motorcycles, clothing and shoes, coffee, cosmetics, and alcohol.  

On March 12, 2025, the U.S. added a 25% tariff on all steel and aluminum products, which was stacked on top of existing levies on Canadian goods. Canada’s response a day later was 25% reciprocal tariffs on another $29.8 billion of U.S. goods, including steel and aluminum, tools, computers, and sports equipment.

On April 9, 2025, in response to another round of U.S. tariffs this time targeting the Canadian auto industry the Canadian federal government imposed 25% duties on “non-CUSMA compliant vehicles” from the U.S. and 25 per cent tariffs on the content of CUSMA-compliant vehicles from the U.S.

Originally, the Canadian Government indicated that these tariffs would remain in place until the U.S. trade action was withdrawn.[6] However, as of September 1, 2025, the surtax imposed on U.S. goods as of March 4, 2025, was removed by the Canadian Government. In addition, the Canadian duties enacted as of March 13, 2025, on various U.S. consumer products was similarly eliminated as of September 1, 2025.

Nonetheless, Canada's counter tariffs on steel, aluminum and autos remain in effect as intensive negotiations with the U.S. continue, in recognition that the U.S. maintains tariffs in these sectors (amongst others), without providing an exemption for CUSMA-compliant goods.

For comprehensive and current tariff information, please consult this Government of Canada bulletin.

Synopsis

This blog post aims to provide a brief overview of legal considerations for Canadian business with respect to their cross-border contractual agreements.

With the current political and economic instability and the continued uncertainty surrounding Canada’s future relationship with its neighbour to the South, many businesses, especially those with cross-border ties, should be reviewing any contractual agreements currently in place and making concerted efforts to plan and consider the impact(s) on their operations as it relates to any future agreements.

Key Contractual Considerations

1. Review Your Active Agreement(s)!

While it may seem like an obvious first step, your contract is the bedrock of an existing business relationship. As such, understanding the agreement and its key terms is crucial to assessing the business’ options and obligations generally, especially in relation to the growing challenges posed by the tariffs.

Importantly, most commercial agreements should account for payment and/or pricing terms (including tax and import obligations in certain instances) as well as setting out the conditions in which a party may terminate the contract and/or may be legally excused from performance.

Key considerations related to agreement terms which may be particularly relevant to tariff related considerations will be discussed in greater detail below.  

a. Payment and Pricing Terms

As noted above, parties must look to their contractual agreements and the terms contained therein to assess the businesses rights and obligations under a particular arrangement.

Specifically, in relation to tariffs and the impacts flowing from their implementation, parties should pay particular attention to the agreements pricing provisions, as these terms may speak directly to tariffs/related taxes and how they are to be addressed.

Going forward, parties executing contracts with cross-border considerations should pay extra attention to pricing terms and ensuring tariff-related obligations are carefully considered and clearly addressed within the agreement. 

b. Termination Clauses

In weighing your obligations under an agreement, the ability to end a contractual relationship is an important consideration. This is especially true in today’s ever changing and volatile business environment. The terms and conditions governing the termination of a contract should be expressly delineated in the agreement.

When you are looking to terminate an agreement, in ideal circumstances the contract would include a clause permitting parties to terminate the contract for convenience. This provision may call for specific notice requirements (timing, method, etc.,) to terminate the agreement, however, it otherwise effectively allows for a business to terminate an agreement at will. It is important to note, however, that the terminating party is usually still obligated to pay the other party for work that has been completed and accepted up to the termination date. While intended to be a simple exit mechanism, disputes may still arise regarding the interpretation of the clause, or the amounts owed for completed work relating to services or the production of goods. Careful review and interpretation of these clauses by your legal counsel is strongly recommended.

More commonly, contracts will contain a provision permitting termination upon the occurrence of certain triggering events and/or for cause by way of breach of contract. In these instances, parties will need to consider whether occurrences, such as the imposition of tariffs or changing market conditions, may satisfy the enumerated grounds for termination. 

c. Force Majeure Clauses

In the most basic sense, force majeure clauses are provisions which can excuse one or both parties from performance of their obligations under a contract, following the occurrence of an event satisfying the definition prescribed in the agreement. 

These events are usually defined as certain acts, events, or circumstances beyond the control of the parties. Generally referring to extreme or unexpected occurrences such as a natural disaster, war, or a global pandemic.

These clauses typically excuse or entitle a party to suspend performance of all or part of its obligations under an agreement. Subsequently, in accordance with the clause, the impacted party (or parties) will generally not be liable for its failure to perform its obligations.

Generally speaking, for tariff related considerations to satisfy a force majeure event, the contract must explicitly mention tariffs, governmental actions, increased costs, or similar provisions. If the contract is not specific as to include these considerations in the clause, a party will likely not be able to rely on force majeure to excuse performance based on the imposition/impact of tariffs.

Importantly, what classifies as a force majeure event is agreement specific and inherently flexible. As such, these provisions can be amended to account for events which are specific to a particular business relationship (including tariff related considerations).

2. Negotiate Agreement Terms

In cases where changed circumstances have impacted the viability of a business agreement and force majeure or termination clauses are not applicable, attempting to amend the contract by negotiation and mutual agreement should be top of mind.

Parties to an agreement that find themselves in difficult circumstances due to the impact of the tariffs may wish to consider attempting to restructure their agreement to better suit their needs through counsel-led renegotiation. This is especially true for businesses with long-standing relationships and goodwill built up amongst the parties. In order to ensure the health and continued success of the business relationship, parties may work with their lawyers to restructure their contract to better serve the parties needs in this changed environment.

In conclusion, the contract is the foundation of any business relationship. In the face of a challenging and unpredictable business environment, it is crucial you understand your rights and obligations related to any current or prospective contractual relationships.

Canadian businesses currently impacted by tariffs should pay special attention to provisions relating to payment and pricing, termination and force majeure terms in an effort to better understand how the agreement has (or has not) accounted for tariff-related considerations. These terms should also be carefully negotiated in prospective agreements, to ensure you and your business are not blindsided by the impact of tariffs on your obligations under the agreement.

If you have any questions related to a current or prospective contractual agreement or require assistance with a Business Law-related matter, please reach out to a member of SV Law’s Business Law Practice Group.