The Cross-Border Business Owner

By Bryant Andrus

Profile: The Cross-Border Business Owner

TL;DR

The US declined to renew the USMCA on July 1, so the agreement now faces annual reviews and expires in 2036 unless all three countries agree to extend it.
Since August 22, a 50% Section 338 duty has applied to roughly US$20 billion of Canadian goods whether or not they qualify under USMCA, Canada has matched it, and some goods are now banned outright.
Re-screen your products against both lists every month, rebuild landed costs at the 50% rate, and make sure your intercompany pricing and customs values tell the same story.

If you sell Canadian-made products into the United States, buy US-made inputs for a Canadian plant, or run a company with operations on both sides of the border, September was the month the trade picture got harder to read, not easier. A fight many owners hoped had settled into a manageable routine escalated twice in a matter of weeks.

Start with the foundation. On July 1, the United States declined to renew the USMCA (CUSMA) at its mandatory six-year joint review. The agreement is not dead: it remains in force, and preferential tariff treatment still applies to most goods. But the three countries will now review it every year, and it will expire on July 1, 2036 unless all three confirm an extension. The long, automatic runway that businesses planned around has been replaced by an annual negotiation.

Three Weeks That Changed the Math

Trade talks between Ottawa and Washington broke down in August. On August 22, the US began collecting a 50% tariff under Section 338 of the Tariff Act of 1930, a rarely used Depression-era law, on roughly US$20 billion (C$27.6 billion) of Canadian goods. On September 8, Canada answered dollar for dollar, imposing 15%, 25%, and 50% counter-tariffs on C$27.6 billion of US goods, including steel, aluminum, dairy, appliances, agricultural equipment, pulp and paper, electronics, furniture, and clothing. Counter-tariffs on most steel and aluminum products doubled from 25% to 50%.

The same day, Washington escalated again. President Trump signed five new Section 338 proclamations on September 8. Changes to the product list took effect September 15, adding about US$1.8 billion of goods and removing about US$1.7 billion, and Section 232 tariffs, such as those on steel, aluminum, and autos, can now stack on top of the Section 338 duty. On September 29, outright import bans took effect on roughly US$1 billion of Canadian goods, including certain packaged alcoholic beverages, whey and other dairy products, and motorcycles over 800cc.

Why “We’re USMCA-Compliant” Is No Longer a Complete Answer

For the past eighteen months, the standard advice to cross-border businesses was to document USMCA origin, because qualifying goods generally entered duty-free. That advice still matters for ordinary duties, but it does not protect a product that appears on the Section 338 list. The 50% duty applies whether or not the good qualifies under USMCA, so a product can be fully compliant and still face a 50% tariff. The same logic runs in reverse for Canadian importers of US goods on Canada’s counter-tariff list.

There is also a tax dimension that is easy to miss. When related companies on either side of the border trade with each other, the price they set does double duty: it drives each country’s income tax result, and it sets the customs value on which duty is calculated. A 50% duty can quickly make last year’s intercompany pricing hard to defend to one agency or the other. The pricing, the customs valuation, and the transfer pricing file need to tell the same story.

What to Do This Month

First, re-screen every product you ship in either direction against the current Section 338 list and Canada’s counter-tariff list. The lists have already been revised once and are likely to change again, so make this a standing monthly task rather than a one-time review. Second, rebuild your landed-cost model at the full 50% rate for exposed product lines, then decide with your advisor where to absorb the cost, where to pass it on, and where to restructure. Third, ask whoever prepares your related-party pricing documentation to confirm that it reflects who actually bears the duties.

Fourth, if you are weighing a restructuring, an estate freeze, or the sale of a business, build the annual CUSMA review cycle into your timeline. Do not assume the next twelve months will be quieter than the last twelve.

Ready to Talk?

Cross-border planning is time-sensitive and highly fact-specific. If any of the topics in this issue apply to your situation, we would welcome the conversation. State Bird Corp specializes in US–Canada cross-border tax, estate, and immigration planning for families and businesses on both sides of the border. Our team works with clients across the US and Canada — wherever your cross-border life takes you.

Sources

Sincerely,

The State Bird Corp Team

State Bird Corp

P: (602) 641-5996 · E: Info@statebirdcorp.com · W: statebirdcorp.com

To schedule your initial consultation, please contact us at info@statebirdcorp.com so that we can help you create a plan as unique as your fingerprint.

State Bird Corp is a management and financial consulting firm. State Bird Corp is not an accounting, legal or investment advisory firm. Cross-border planning is highly fact-specific. The strategies and topics described are general in nature, and readers should consult qualified specialists before taking any action. Any recommendation, inferences, or other guidance contained herein is meant for educational or general purposes and should not be relayed upon as specific advice for any person or business. Consult your legal, tax, and investment advisor for specific recommendation to your situation.