US-CANADA TARIFFS IMPACT ON BUSINESS AVIATION: WHAT WE KNOW AND DON’T KNOW?
WHAT HAPPENED?
February 1, 2025: US announced 25% tariff on all Canadian goods imported to US, excluding energy products which are subject to only 10% – effective February 4, 2025. Canada responded with a list of retaliatory tariffs equal to only $30bn and consultations for additional tariff measures on the remaining $125bn in US Imports following a dollar-for-dollar response strategy.
February 3, 2025: US suspended the implementation of 25% tariff in Canada for 30 days, moving back the implementation to March 3, 2025. Canada also suspended the implementation of retaliatory measures for the same period.
February 10, 2025: US announced 10% tariff on aluminium and 25% on steel import from all countries, including Canada effective March 12, 2025. Later in the day, the 10% tariff was also increased to 25% on aluminium as well. The tariffs were set to take effect on March 12, 2025.
March 4, 2025: The suspension period ended, and the 25% tariff on Canadian origin goods officially took effect. Canada’s retaliatory measures also took effect; however, these don’t apply to civil aircraft.
March 7, 2025: US exempted goods qualifying under the US-Mexico-Canada Agreement (USMCA, known as CUSMA in Canada) from the 25% tariff – while non-qualifying goods remained subject to tariff. Canada’s retaliatory measures on the initial $30bn response remains intact.
March 11, 2025: Province of Ontario in Canada announces 25% surcharge on electricity exports to US. In response, US threatens to increase tariffs on steel and aluminium from 25% to 50% on Canada.
March 12, 2025: Following negotiations, Ontario suspended its planned surcharge on electricity export and US maintained it’s tariff on aluminum and steel products to 25% for Canada and other countries. US 25% tariffs on steel and aluminium took effect.
March 13, 2025 (9 am ET): Canada’s retaliatory tariffs relating to the imposition of tariffs on aluminium and steel imports from Canada kicks in, applying to an additional $30bn worth of US goods imported to Canada.
WHAT WE KNOW!
This implementation has caused significant disruptions and turmoiled the trade relationship between the two countries. Below we’ve addressed some of the ambiguities relating to aviation, with the goal of providing some clarification to the industry on the treatment tariff:
The tariffs apply to both new and used aircrafts. The criteria to determine tariff application is solely based on the country of manufacturer.
The tariff also applies to aircraft parts, including engines. The criteria remain the country of manufacturer.
The registration of the aircraft has no role to play in tariff determination. Whether a Canadian manufactured aircraft is US registered or Canada; the application of tariff will trigger only upon importation into the US for consumption purposes.
The tariff does not apply to services. The tariff applies only to goods. However, for the clarity, Canadian companies providing services such as maintenance, repair and overhaul, pilot training are not subject to this tariff.
Goods qualifying under USMCA, includes aircrafts. However, a proof indicating Canadian manufacture will be necessary to qualify the goods for tariff exemption.
Post-importation claim: As per 19 Code of Federal Regulation (CFR), if an importer did not claim preferential tariff treatment at the time of import, but the good qualified for it (in this case, USMCA), request for refund of excess customs duties within one year of importation can be made. If all requirements are met, US Customs and Border Protection will issue refund by adjusting the entry.
Commercial Operations: The tariffs do not concern the routine flight operations between US and Canada as the tariff only applies when the aircraft is imported into US for consumption purposes (planned sale or maintenance and repair).
WHAT WE DON’T KNOW!
Tariff treatment to substantially transformed aircrafts. It is unclear whether US manufactured aircraft sent to Canada for modifications would be subject to the tariff upon return to the US. However, it is important to note that substantial transformation will apply after the USMCA exemption.
Supply chain of aircraft parts: Aircraft parts are sourced from various parts of the world, which are then assembled at a single location. This is also the case for Canadian aircraft manufacturers. However, it remains to be seen how these parts will be tariffed when imported into the US from a Canadian manufacturer that sourced the aircraft part from another state.
Tariff Exemption: An industry led letter was sent to Secretary – US Department of Transportation, Secretary – US Department of Commerce and US Trade Representative requesting exemption for aerospace industry from the tariffs. The letter also requested for a meeting to discuss the challenges and complexities of the aviation supply chain industry. In the current turmoil, a positive response to this letter would provide significant support to the industry.
Market impacts: The proposed trade restrictions are expected to cause imbalance in the supply and demand of aircraft, engines and parts that are within the US market, and those that are external to it. Depending on how long this trade action subsists, there could be significant impacts on aircraft valuations, relating to increased costs for obtaining parts, and prospects for future resale.
April 2, 2025: US is considering imposing reciprocal tariffs on countries imposing duties on US exports.
