US-Canada trade war: How Canada’s retaliatory tariffs affect e-commerce

However, the headline tariff rate is only part of the equation. Canada’s latest schedule depends on product classification and country of origin. That means two similar products may face different landed costs depending on how and where they are sourced or manufactured. 

The broader U.S.-Canada trade relationship is also evolving. The rapid increase in tension between the two countries underscores how quickly the trade environment can shift.

For e-commerce brands, the key considerations are:

• Monitoring trade rules
• Revisiting landed costs
• Protecting the customer experience
• Understanding tariff exposure at the SKU level
• Evaluating sourcing and fulfillment strategies

As Passport explains below, the central challenge for e-commerce operators isn’t just calculating new tariff rates. It’s understanding how changes in the trade relationship affect product economics and future growth.

Key Takeaways for Sellers

• The most important update is that Canadian tariff exposure needs to be understood at the product level. Classification, country of origin, customs value, and the specific tariff measures in effect all influence landed costs. 
• Canada’s latest counter-tariffs apply to a wide range of U.S.-origin products. Rates are set at 15%, 25%, or 50%, depending on the product.
• Accurate compliance procedures are increasingly important. Trade wars create a complex regulatory environment with little room for error.
• Brands may find that in-country fulfillment or other localized strategies become more attractive. The right approach depends on demand, margins, inventory requirements, shipping costs, tariff exposure, and customer expectations.

The North American Trade War: How Did We Get Here?

The recent volley of tariffs between the United States and Canada is part of a broader shift in American trade policy.  

Reporting from the Associated Press outlines several developments that have shaped the trade relationship over the past two years:

• February-March 2025: The U.S. imposed a 25% tariff on most Canadian goods and a 10% tariff on Canadian energy. After a brief pause, many of those tariffs were reinstated with exemptions for USMCA-compliant goods. Canada responded with retaliatory tariffs on more than $20 billion of imported goods.
• April-October 2025: The U.S. expanded tariffs to additional product categories, including steel, aluminum, automobiles, and copper. Canada adjusted some of its retaliatory measures to align with U.S. exemptions for goods covered by the USMCA.
• February 2026: After legal challenges questioned whether the administration could use emergency powers to impose tariffs, the Supreme Court ruled that the International Emergency Economic Powers Act did not authorize them. The administration then introduced a temporary 10% import surcharge under Section 122 of the Trade Act of 1974. The surcharge applied broadly, including to Canadian imports.
• July 2026: The Section 122 surcharge expired and was replaced by a similarly broad 10% tariff under Section 301, with Canada among the affected countries.

For e-commerce merchants, the significance of these changes extends beyond the individual tariff announcements. They have made it more difficult to predict the cost of importing and selling products across the U.S.-Canada border, especially for goods that do not qualify for preferential treatment under the USMCA. 

The recent history of U.S.-Canada trade also helps explain why the agreement’s future has become an important consideration. In 2020, the United States, Canada, and Mexico replaced the North American Free Trade Agreement with the United States-Mexico-Canada Agreement, or USMCA. The agreement updated rules covering labor, automotive trade, digital commerce, and country of origin.

Unlike NAFTA, the USMCA includes a mandatory joint review every six years. Under the agreement’s review mechanism, the parties must consider whether to extend it for another six-year term.

The USMCA’s first review took place on July 1, 2026. Mexico and Canada agreed to continue working toward an extension, while the U.S. did not confirm one. As a result, the agreement entered a process of annual reviews.

This process adds another layer of uncertainty for businesses. North American supply chains have developed around decades of integrated commerce, so changes to tariffs or rules of origin can affect sourcing, pricing, and fulfillment decisions.

The Latest Exchange: U.S. Action, Canadian Retaliation

The new round of the U.S.-Canada tariff escalation adds another layer of uncertainty for businesses moving goods across the border. 

In late August, the United States imposed 50% tariffs on a range of Canadian imports. The targeted goods included certain food products, alcoholic beverages, electronics, toys, sports equipment, and other household items.

Rather than making concessions, Canada responded with matching countermeasures on U.S. imports of equivalent value, with the new regulations taking effect in early September.

USMCA-compliant products, which were previously exempt from the trade war, are notably impacted by the latest tariffs. 

Canada’s latest measures impose surtaxes of 15%, 25%, or 50%, with the rate for a particular product generally corresponding to the current U.S. tariff treatment. The measures cover nearly 900 tariff items, including apparel, cosmetics and fragrances, toys and sports equipment, electrical equipment and electronics, furniture and lighting, machinery and appliances, carpets, and agricultural machinery parts.

The Canada Border Services Agency (CBSA) confirms that the new tariffs are calculated as surtaxes that apply to goods originating in the United States and are measured as a percentage of the value for duty. In other words, these tariffs can increase the amount on which other taxes, such as GST and HST, are calculated. 

That distinction between origin and shipping location is important for e-commerce. A product shipped from a U.S. fulfillment center is not automatically U.S.-origin, while U.S.-origin goods shipped from foreign warehouses may still be subject to Canada’s counter-tariffs.

In practical terms, “goods originating in the U.S.” refers to where a product was produced or substantially transformed, not where it was stored or shipped. Fulfillment location alone does not determine whether a product qualifies for an exemption.

Canada’s tariff schedule is granular. Businesses must evaluate products at the Harmonized System (HS) level rather than using broad industry categories. A brand selling affected products therefore needs to determine the origin and HS classification of each SKU to calculate its exposure. 

The rapid timing of these latest measures also illustrates how quickly the economics of a cross-border order can change. For e-commerce brands, the significance of the current dispute is ultimately less about the political disagreement itself than about its practical effect on market economics. 

As negotiations wear on and trade rules change at a rapid pace, brands selling between the United States and Canada cannot count on current conditions remaining the same in the coming months.

Long-Term Implications of Canada’s Retaliatory Tariffs

With both sides of the U.S.-Canada trade war digging in their heels, tariffs in both directions are currently at elevated levels. Further escalation from the Trump admin is already taking effect. 

The immediate challenge for e-commerce brands is identifying which products are affected and recalculating their economics. The longer-term challenge will be to maintain accurate tariff, compliance, and landed-cost data as policies continue to change.  

These fast-paced changes place greater emphasis on the customs data used to clear an order, especially product classification and country-of-origin documentation. For brands selling hundreds or thousands of SKUs, these requirements can create a serious operational burden. 

The current measures must be accounted for, yet can’t be treated as a permanent rulebook. If the last two years have proven anything about the U.S.-Canada trade relationship, it’s that conditions can change at the drop of a hat. 

While cross-border shipping remains a useful way for brands to test demand, impacted products will need their financial models reevaluated to confirm their profitability.

Some businesses may find that in-country fulfillment can reduce shipping costs or delivery times, but inventory positioning does not eliminate tariff exposure outright.  

Brands that currently depend heavily on the U.S.-Canada trade lane may need to consider market diversification to gain more flexibility during periods of trade tension. 

Tariffs are also a customer experience issue. Deciding how much of the costs to absorb versus build into pricing can be a challenging equation. That may mean testing market-specific pricing, adjusting shipping options, reviewing promotional strategies, or changing the balance between product price and shipping charges.

Leaders need visibility into the economics of different approaches in order to decide how those costs should be distributed.

E-commerce teams can protect themselves by maintaining accurate product data, monitoring tariff changes, and modeling landed costs across fulfillment options. The most durable response to tariff volatility may be operational flexibility rather than a single permanent solution. 

For brands selling between the United States and Canada, responding to the latest tariffs is only part of the solution. The broader goal is to build an international model that can adapt to changing trade policies while maintaining a predictable customer experience.

U.S.-Canada Trade War FAQs

The U.S.-Canada trade environment can change quickly, and the tariff treatment for a particular product depends on the applicable tariff classification, origin, and other customs considerations. The following answers provide a high-level overview. 

What tariffs between the U.S. and Canada are currently in effect?

Canada’s counter-tariffs apply to approximately $27.6 billion worth of U.S. imports. Rates are set at 15%, 25%, or 50%, depending on the tariff item and the corresponding U.S. tariff treatment. You can find the latest rates using tools like TrumpTradeTracker.com.  

What should e-commerce brands do about the U.S.-Canada tariff escalations?

Start by mapping exposure at the tariff item level. Broad product categories may contain SKUs with different tariff classifications.

Other smart measures include:

• Reviewing landed costs
• Confirming product data
• Modeling alternative fulfillment scenarios
• Partnering with compliance experts
• Monitoring trade policy

What does the USMCA review mean for e-commerce?

The USMCA remains in full effect but will be subject to annual reviews after the parties did not confirm a six-year extension in 2026. For e-commerce, the review introduces another variable into the North American trade environment. 

Brands that source, manufacture, or sell across North America may want to model how potential changes to tariff treatment or rules of origin could affect product economics.

How do tariffs on U.S. and Canadian goods affect e-commerce brands?

Tariffs generally increase the landed cost of products entering the country where the tariff applies. Depending on the financial model, a brand may absorb the additional cost, pass some or all of it to customers, adjust its product or shipping strategy, or reconsider where inventory is held.

The actual impact varies by product. Classification, country of origin, value for duty, and the fulfillment model can all influence the final cost of an order. This is why tariff management is best viewed as part of a broader international commerce strategy. 

Do Canadian tariffs apply to products shipped from a U.S. fulfillment center?

Not necessarily. Tariff treatment is based on a product’s country of origin, not simply where it ships from. A product shipped from a U.S. warehouse may not be considered U.S.-origin, while a U.S.-origin product shipped from another country may still be subject to Canadian counter-tariffs.

Are USMCA-compliant products exempt from the latest tariffs?

Not automatically. Some of the latest U.S. and Canadian tariff measures apply even to products that qualify under USMCA. Brands should review the specific tariff measure, product classification, and country of origin for each SKU rather than assuming USMCA compliance eliminates tariff exposure. 

This story was produced by Passport and reviewed and distributed by Stacker.