As major U.S. corporations step up efforts to get tariff refunds from the U.S. government, Canadian companies face a longer and more confusing road as they try to get their money back.
“It’s going to be a hot mess for some time,” said Dan Kelly, CEO of the Canadian Federation of Independent Business.
Last Friday, the U.S. Supreme Court ruled tariffs issued by U.S. President Donald Trump under the International Emergency Economic Powers Act were illegal. The ruling didn’t specify how or if the more than $160 billion (U.S.) collected by the U.S. government in IEEPA tariffs should be refunded.
According to a report in Politico Thursday citing anonymous government sources, the Trump administration is trying to find a legal route to avoid paying refunds.
Since the ruling, hundreds of U.S. companies, including major firms such as Costco and FedEx, have filed lawsuits in an attempt to get refunds for the tariffs they’ve paid.
For most Canadian exporters who ship goods to the U.S., it’s not an issue, said Kelly, as anywhere between 80 and 90 per cent of Canadian goods enter the U.S. duty free because they qualify for exemptions under the Canada-U.S.-Mexico Agreement on trade.
For exports which aren’t exempt under CUSMA, it’s the American importer who actually pays the tariff, rather than the Canadian producers.
Many small businesses who export, however, “self import,” so pay the tariff directly, Kelly added. For those who don’t, many have had to cut prices to compensate American customers and importers for paying the tariff.
Getting their money back will mean either suing the U.S. government, suing their customer, or counting on their customer’s good will, said Kelly.
If an American importer paid the tariff and then gets a refund, they might end up pocketing it, rather than compensating their Canadian supplier for a lower initial price, Kelly said. But taking a customer to court isn’t exactly a long-term recipe for building a cordial relationship.
“If you’re a U.S. importer, you could end up getting the tariff money back that you forced your Canadian supplier to eat, and that doesn’t feel fair,” said Kelly. “Most businesses would say it’s not worth the risk of ruining your relationship with your U.S. customer.”
As for Canadian companies who self-import non-CUSMA goods to the U.S., Kelly suspects they’ll have a harder time getting their money back from the American government.
“The U.S. government has received this money from someone. They know exactly who,” Kelly said. “But I don’t think they’re going to care a bit about the Canadian company.”
Upsetting a long-standing relationship with an American customer just isn’t going to be worth it for most Canadian exporters, said Matthew Holmes, public policy chief for the Canadian Chamber of Commerce.
“Relationships matter in business, and competitive pricing is a real pressure,” said Holmes.
Eating the cost of tariffs is just one cost that’s hit Canadian exporters lately, said Holmes.
Even companies whose goods qualify for the CUSMA exemption have their own extra costs, including navigating the complex rules of origin under the continental trade agreement.
“Doing business with America has become more expensive,” Holmes said, “whether it’s paying a tariff or just formal CUSMA compliance, or constantly having to readjust your pricing.”
At the end of the day, some Canadian exporters might feel like they have no choice but to sue their U.S. importers to get a tariff refund. Most, however, will likely just hold their nose and look at a tariff payment as just a cost of doing cross-border business, said supply chain expert Fraser Johnson.
“For a Canadian company, I think you have to look at it as a sunk cost,” said Johnson, a professor at Western University’s Ivey Business School.
“Part of it is preserving the relationship with the customer. The other is the cost-benefit analysis. What’s the cost of litigation and the actual likelihood of success? The key word is confusing. And it’s also going to take several years to work its way through the courts.”
