What Are Tariffs, and How Do They Affect Businesses and Consumers?

Tariffs on international goods have long impacted consumers and businesses alike. We dive into “What exactly are tariffs? so you can be informed and prepared.

Tariffs have become a major topic for Canadian businesses, especially those selling products to customers in the United States. But what exactly are tariffs, how do they work and what do they mean for your business? Whether you’re running a small online store, importing products from overseas or shipping orders across the Canada-U.S. border, understanding tariffs can help you make smarter decisions about pricing, shipping and managing your expenses.

With significant changes to U.S. trade policies since 2025, Canadian businesses are navigating new customs duties, additional import requirements and changing tariff rates. Understanding how tariffs work and preparing for potential costs can help you protect your profits and keep your business competitive.

Let’s break down everything you need to know about tariffs, how they affect Canadian businesses and what you can do to stay one step ahead!

What Are Tariffs?

Simply put, tariffs are taxes imposed by governments on goods imported from other countries. When a product crosses an international border, the importing country may charge customs duties based on factors such as the product’s value, classification and country of origin.

Governments use tariffs for several reasons, including:

• Protecting domestic industries: Making certain imported products more expensive can encourage consumers to purchase locally manufactured alternatives.
• Generating government revenue: Tariffs provide an additional source of revenue through import taxes.
• Influencing international trade: Governments may introduce tariffs in response to trade disputes or practices they consider unfair.
• Supporting trade policy objectives: Tariffs can be used during trade negotiations or to address national economic priorities.

While tariffs may benefit certain domestic industries, they can also increase costs for businesses that rely on imported products or materials. For Canadian businesses selling internationally, these additional expenses can affect product pricing, shipping costs and overall profitability.

Who Pays Tariffs?

One of the most common questions businesses ask is: Who actually pays tariffs?

Tariffs are generally paid by the importer of record, which is the individual or business legally responsible for importing the goods into a country. For example, when a Canadian business ships products to customers in the United States, the applicable customs duties must be paid to U.S. customs authorities.

However, who ultimately covers those costs depends on the shipping arrangement.

• The seller pays: The business may cover applicable duties upfront and include those costs in its product prices or shipping charges.
• The customer pays: Depending on the shipping arrangement, the recipient may be responsible for paying duties and taxes before receiving the shipment.
• The costs are shared: A business may absorb part of the additional expenses while adjusting its pricing to recover the remainder.

Businesses that absorb tariffs may experience smaller profit margins, while those that pass the costs along to customers risk making their products less competitive.

Finding the right balance is essential!

How Do Tariffs Work?

Tariffs are generally calculated using a percentage of the customs value of imported goods, although some products may be subject to fixed duties or more complex calculations.

For example, imagine you’re importing a product valued at $100 USD and an applicable tariff rate of 10% applies.

Item	Amount
Declared customs value	$100 USD
Applicable tariff rate	10%
Tariff amount	$10 USD
Product value + tariff	$110 USD

This is a simplified example for illustration purposes. Additional customs duties, taxes, brokerage charges or other fees may apply.

While an additional $10 might not seem significant, these expenses can quickly add up when you’re importing or exporting hundreds of products.

It’s also important to remember that multiple tariff measures can sometimes apply to the same product. That’s why understanding the rules associated with your products is just as important as knowing their declared value.

Understanding U.S. Tariffs on Canadian Goods

U.S. tariffs have changed significantly since early 2025, creating new challenges for Canadian businesses that depend on cross-border trade.

During 2025, the U.S. government introduced several new tariff measures affecting goods imported from Canada and other trading partners.

Some of those measures were later modified or invalidated through legal decisions. In February 2026, the U.S. Supreme Court ruled against the use of the International Emergency Economic Powers Act (IEEPA) to impose certain tariffs. The administration subsequently relied on other trade authorities to introduce or maintain additional import duties.

As of October 2026, several tariff categories remain particularly relevant to Canadian businesses, including Section 301, Section 232 and Section 338 tariffs. Understanding the differences can help you determine which charges may apply to your products.

Section 301 Tariffs

Section 301 of the Trade Act of 1974 allows the United States to introduce tariffs in response to foreign trade practices it considers unfair or discriminatory. In July 2026, the U.S. introduced additional Section 301 tariffs affecting imports from numerous trading partners, including Canada.

For many non-exempt Canadian-origin products that do not qualify for preferential treatment under the Canada-United States-Mexico Agreement (CUSMA), an additional 10% Section 301 tariff may apply. However, rates and exemptions vary depending on the country of origin and the product.

This is particularly important for Canadian businesses selling products manufactured outside North America. For example, an item manufactured in China and shipped from a Canadian warehouse does not automatically become Canadian-origin merchandise simply because it was sold or shipped by a Canadian business.

The product’s actual country of origin and applicable tariff classification determine which customs rules apply.

Section 232 Tariffs

Section 232 tariffs are imposed under the Trade Expansion Act of 1962 and are generally associated with national security considerations.

These tariffs affect specific industries and product categories, which can include:

• Steel and aluminum
• Automobiles and certain automotive parts
• Copper products
• Certain wood products
• Other designated industrial goods

The applicable tariff rate depends on the product, its classification and the measures in effect. Some products may qualify for special treatment under CUSMA, but the agreement does not automatically exempt all goods from Section 232 tariffs.

Section 338 Tariffs

Section 338 tariffs are another important development affecting Canadian exporters. Introduced in August 2026, these measures impose an additional 50% tariff on certain Canadian-origin products, including goods in categories such as plastics, furniture, electronics, paper products, textiles and other manufactured items.

Unlike certain other tariff categories, CUSMA preferential treatment does not exempt affected Canadian-origin products from Section 338 tariffs.

The list of affected products can also change over time. In fact, updates scheduled to take effect on October 30, 2026, will remove 77 HTS codes and add 166 new codes to the list of products subject to Section 338 tariffs.

Since tariff measures may apply in addition to other customs duties, it’s important to review your product classifications and stay informed about changes.

What Happened to the $800 U.S. Duty-Free Exemption?

Another major change affecting Canadian e-commerce businesses is the suspension of the U.S. de minimis duty-free exemption. Previously, many shipments valued at $800 USD or less could enter the United States without paying import duties under this exemption.

However, the U.S. suspended this duty-free treatment for qualifying low-value imports from all countries effective August 29, 2025. This means that small shipments no longer automatically qualify for duty-free entry simply because their value is below $800 USD.

Instead, applicable duties, tariffs and customs fees must be determined based on the product’s classification, origin, value and any available exemptions. Certain products may still qualify for other duty-free provisions, but the former general $800 threshold no longer provides the same exemption.

For Canadian small businesses, this change is particularly significant because many online orders fall below that value. A relatively inexpensive product may now require additional customs information and incur charges that were not previously applicable.

You can learn more about the suspension of the exemption through U.S. Customs and Border Protection.

Can CUSMA Help Canadian Businesses Reduce Tariffs?

Here’s some good news for Canadian businesses! The Canada-United States-Mexico Agreement (CUSMA) provides preferential tariff treatment for eligible goods originating in Canada, the United States or Mexico.

Eligibility depends on several factors, including:

• Country of origin: Where the product was manufactured or produced.
• Rules of origin: Whether the product meets the requirements established under CUSMA.
• Product classification: The Harmonized System (HS) code used to identify the product.
• Certification of origin: The documentation required to claim preferential tariff treatment.

It’s also important to distinguish between a product being shipped from Canada and a product being of Canadian origin. For instance, importing a finished product from another country and reselling it from Canada does not automatically make it eligible for CUSMA benefits.

And remember, CUSMA does not provide an exemption from U.S. Section 338 tariffs on affected Canadian-origin goods.

Before claiming preferential treatment, make sure your products meet the applicable requirements and that the necessary certification is available.

Learn more about CUSMA compliance and eligibility.

Canada’s Response: Counter-Tariffs on U.S. Goods

Tariff changes haven’t only affected Canadian businesses exporting to the United States. Canada has also introduced counter-tariffs on certain American products in response to U.S. trade measures.

In September 2026, Canada implemented additional counter-tariffs ranging from 15% to 50% on selected U.S.-origin products. Affected categories include certain steel and aluminum products, dairy products, agricultural equipment, furniture, electronics and other manufactured goods.

These counter-tariffs can increase costs for Canadian businesses importing products or manufacturing materials from the United States. For example, a Canadian retailer importing American-made products may face higher purchasing costs, while a manufacturer relying on U.S. components could experience increased production expenses.

Not every product imported from the United States is subject to these additional charges. The applicable tariffs depend on the product’s classification, origin and current trade measures.

To determine whether your products are affected, consult the Government of Canada’s complete list of U.S. products subject to counter-tariffs.

How Tariffs Affect Canadian Small Businesses and E-Commerce Sellers

For businesses that regularly ship across the border, tariffs can have an impact beyond the customs fees themselves.

Let’s look at some of the biggest challenges.

1. Higher Product and Shipping Costs

When goods become subject to additional tariffs, importing or exporting them can become more expensive.

Businesses that absorb those charges may see their profit margins shrink, while businesses that increase prices could face greater competition from sellers whose products are subject to lower duties.

And tariffs aren’t the only expenses to consider!

Depending on your shipping arrangements, you may also need to account for postage, customs brokerage, processing fees and insurance.

2. Changes in Customer Buying Behaviour

Customers are often sensitive to unexpected costs, especially when shopping online.

If tariffs increase the total price of an order, some customers may look for alternatives, purchase fewer items or abandon their carts altogether.

This makes clear, upfront pricing especially important.

Where possible, helping customers understand the total cost of their purchases before checkout can reduce surprises and create a better shopping experience.

3. Pressure on Profit Margins

Small businesses generally have less flexibility to absorb unexpected expenses than larger companies.

For example, a business operating with relatively narrow profit margins may struggle to cover additional tariffs without adjusting its prices.

Over time, these costs can affect profitability, inventory planning and expansion into new markets.

4. Supply Chain and Inventory Challenges

Tariffs can also influence where businesses source their products.

Companies that rely heavily on imported materials may need to evaluate alternative suppliers, adjust their inventory or reconsider their manufacturing arrangements.

However, switching suppliers isn’t always straightforward. Product quality, manufacturing capacity, transportation costs and country-of-origin rules must all be taken into account.

How to Calculate Tariffs on Products Shipped to the U.S.

Before shipping products across the border, understanding how customs duties are calculated can help you avoid unexpected expenses.

Here are the key pieces of information you’ll generally need:

1. Your product’s HTS code

The Harmonized Tariff Schedule (HTS) identifies products imported into the United States.

U.S. import classifications generally use a 10-digit HTS code, which helps determine the applicable customs duties and additional tariff measures.

2. Your product’s country of origin

The country of origin is generally where a product was manufactured, produced or substantially transformed, according to the applicable customs rules.

This is not necessarily the country where the seller is located or where the product is shipped from.

3. The customs value of your product

The declared customs value is used to determine applicable duties.

4. The applicable tariffs and exemptions

Depending on the product, regular customs duties and additional tariff measures may apply.

You should also determine whether your product qualifies for preferential treatment under CUSMA or another applicable exemption.

Where Can You Find U.S. Tariff Rates?

The official Harmonized Tariff Schedule of the United States is an important resource for reviewing tariff classifications and duty rates.

You can also use shipping and customs calculation tools to estimate your expenses before purchasing postage.

For example, the Chit Chats shipping calculator allows Canadian businesses to estimate shipping costs, including applicable U.S. tariffs when the relevant product information is provided.

Keep in mind that customs charges may change and final assessments are determined by the appropriate customs authorities.

How Can Canadian Businesses Reduce the Impact of Tariffs?

While businesses cannot control government trade policies, there are practical steps they can take to manage their expenses.

1. Review Your Product Classifications

Make sure your products are assigned accurate HTS codes.

Incorrect classifications can lead to inaccurate duty calculations, customs delays or additional charges.

2. Check Whether Your Products Qualify for CUSMA

If your products originate in Canada, the United States or Mexico, determine whether they meet the agreement’s rules of origin.

Claiming preferential treatment where available could help reduce some of your customs expenses.

3. Review Your Pricing Strategy

If tariffs increase your costs, consider whether you need to adjust your product prices or shipping fees.

Rather than automatically passing every additional expense to customers, evaluate your profit margins, competitors’ pricing and overall shipping expenses.

4. Communicate Shipping Costs Clearly

Unexpected customs charges can create a frustrating delivery experience.

Make sure customers understand whether duties and taxes are included in their purchase or may be collected separately.

Providing clear shipping policies and realistic delivery expectations can help maintain customer trust.

5. Explore Alternative Markets and Suppliers

Depending on your business, diversifying your suppliers or expanding into new international markets could help reduce your exposure to specific tariff measures.

However, any changes should account for product quality, transportation expenses, customs rules and potential new costs.

6. Compare Shipping Options

Shipping costs can add up quickly, especially when customs duties and tariffs are involved.

Comparing shipping services, delivery speeds and total landed costs can help you identify opportunities to save.

For Canadian e-commerce businesses, working with a shipping provider that offers clear pricing and useful customs resources can make cross-border shipping easier to manage.

Stay Informed About Tariff Changes

Tariff policies and product classifications can change over time. Regularly reviewing official government resources and reliable shipping updates can help you adjust your business strategy before changes affect your orders.

Tariffs can create challenges for Canadian businesses, but understanding how they work is an important step toward managing their impact.

From identifying the right HTS codes to reviewing CUSMA eligibility and adjusting your pricing strategy, a little preparation can make a big difference.

The key is to look beyond your basic postage costs and understand the full cost of getting your products to customers.

As trade policies continue to evolve, staying informed and using the right tools can help your business remain competitive.

Looking for a simpler way to manage your cross-border shipping?

Chit Chats offers affordable shipping solutions designed for Canadian businesses, with tools to help you estimate shipping costs, prepare shipments and navigate customs requirements.

Explore our shipping services and see how we can help your business ship with confidence!