February 2025 was not an ordinary month by any account. On Feb 4, U.S. President Donald Trump announced significant tariffs on Canadian imports, including a 25% duty on general goods and a 10% duty on energy resources. With the false claim to pressure Canada to enhance border security and curb illegal drug flows into the U.S., the tariffs have since witnessed multiple delays and a cycle of threats and counter-threats between Canadian and U.S. officials has followed since their implementation on March 4.
In response to concerns from CEOs of major U.S. automakers, including Ford, General Motors, and Stellantis, who warned the President about the potential harm to the sector, Trump announced a delay in tariffs on goods covered by the Canada-United States-Mexico Agreement (CUSMA) until April 2. With economic turbulence of this magnitude, no industry can remain immune—at least not for long.
On a recent episode of Tech Uncensored, we spoke with Brigitte LeBlanc-Lapointe about the ripples that can already be felt throughout the Canadian business sector. LeBlanc-Lapointe is an expert in cross-border mergers and acquisitions (M&A) and venture capital financing and a partner at Norton Rose Fulbright, a global law firm specializing in a variety of industries such as finance, energy, infrastructure, and transport. In a recent Tech Uncensored LinkedIn Live, she shared the potential roadblocks businesses can expect to face in the coming months and the tools at their disposal to weather some of this uncertainty.
Customs tariffs are duties applied to goods when they are imported, typically expressed as a percentage of the goods’ value, based on their classification, origin, and the country of importation. Generally, the importer is responsible for paying the duties at the border. For goods coming into the U.S., the importer (usually an American business) pays the tariffs to U.S. Customs and Border Protection and similarly for goods entering Canada, the Canadian business typically pays the duties to the Canadian Border Services Agency.
“Of course, that begs the question of what constitutes ‘goods’ and whether software qualifies,” says Lapointe. “With very few exceptions, when the duties briefly came into effect in March, they applied to all tangible goods of Canadian origin entering U.S. customs. That order did not appear to cover tangible goods or services, such as the transfer of digital software or other electronic transmission of technical data. That being said, software companies should be mindful of how the software is delivered. Physical software delivery such as on a USB stick or a CD ROM may change the analysis. In general, I think it is helpful to think of goods in this context as something physically crossing a border.”
The highest impact is expected to be felt by the consumers. To offset additional costs, importers will eventually have to increase the prices of the goods they sell to retailers or directly to consumers, effectively passing the cost down the supply chain. Domestic producers are also likely to increase their prices due to reduced competition, leading to higher prices for both imported and domestically produced goods.
While there is a case to be made about how these tariffs violate the spirit of and regulations set by CUSMA, Lapointe notes the practicalities of addressing these concerns on a world forum. She shares, “As I understand it, Canada can challenge this under CUSMA, but the reality is that it will be a lengthy process and a faster remedy available is retaliatory tariffs, which are already in place. Canada has also challenged the U.S. tariffs at the World Trade Organization level, as a separate resolution than under CUSMA. Again, that process will take time and likely have a similar result.”
In the meantime, Canada’s federal and provincial governments are introducing and expanding various support programs and initiatives to help businesses navigate the ongoing trade tensions and shifting political dynamics. These include:
There is no clear or economically practical path for individual Canadian businesses to legally challenge U.S. tariffs. However, in practice, businesses can benefit from reassessing whether the goods they import into the U.S. are accurately classified as Canadian origin, and vice versa for U.S. goods imported into Canada. If goods are correctly categorized, businesses can consider adjustments to the manufacturing process to optimize costs and tariffs.
For Canadian companies facing issues with vendors or partners unable to fulfill obligations due to tariffs, the legal recourse is largely dependent on the contract. Lapointe explains, “The legal liability for tariffs rests with the importer of a good. However, this legal obligation is different from the question of the ultimate liability for customs tariffs. Contracting parties can determine ultimate liability for customs tariffs between themselves via contractual provisions. Companies should review existing contracts to see who bears the risk of increased tariffs, if that is even addressed, and identify contractual carve-outs for such significant changes by reviewing what we call ‘change of law’ provisions or force majeure.”
A force majeure clause is a contractual provision in which a party is excused from liability or obligation when an extraordinary event beyond their control (a natural disaster, war, pandemic, etc.) prevents them from fulfilling their obligation. If a contract has a force majeure clause, depending on how the provision is drafted, turmoil resulting from the tariff situation may be addressed. In the absence of a contractual clause that states otherwise, the legal liability for tariffs will rest with the importer of a good. In cases where a party can no longer fulfill its obligations, businesses should examine their termination rights and determination rights of their counterparts under their material contracts to determine when, how and why a contract can be terminated before its stated term.
If companies need to review or renegotiate their supply contracts, there are a few key considerations to keep in mind to minimize their liability and insert new clauses that improve safety or reduce risk.
Lapointe notes, “Parties entering into contracts for the delivery of goods by the supplier or even businesses reviewing their existing contracts should pay particular attention to contractual clauses regarding import taxes, duties and fees, including any references to whether the delivery price is inclusive of all taxes, duties, tariffs or fees (being mindful of terms like Delivery Duty, Delivery Duty Paid, etc.).
Businesses may want to consider whether and how supply chains can be diversified. This will depend on their existing supply arrangements and the availability of alternate sources of supply, either domestically or in countries where Canada has a free trade agreement like the Canada-European Union Comprehensive Economic and Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”
The ability to renegotiate a supply contract will ultimately depend on several other factors, including the leverage held by the party seeking renegotiation. Amendments to existing contracts should also be formalized according to the procedure outlined in the original agreement and drafted in a way that provides a clear and mutual understanding of the revised terms.
When asked for her advice on what comes next for start-ups, Lapointe offers a glimmer of hope. She reassures that both VC financing and M&A deals are still happening every day, as not all businesses are directly impacted by tariffs and therefore remain attractive targets for investment or acquisition.
On a macro level, however, economic turbulence creates uncertainty in business valuations and deal-making in general, making M&A financing more challenging. This leaves acquirers and investors with two options to manage the risk: either introduce new deal structures with related protections or simply wait to see how things unfold.
Explaining the ways deals might be structured moving forward, she predicted, “Sellers can expect different deal structures that include things like earnouts, rollover equity and deferred payments. This is because buyers are looking to reduce financial risk in uncertain economic times.
In certain circumstances, deals may also be structured as asset sales, where buyers can pick and choose what they are buying rather than share sales where a whole company is bought. Start-ups taking on more investment will see more emphasis on due diligence as buyers or investors seek to mitigate any impact on investment returns. Buyers and investors will be seeking more financial and operational certainty, so deals might take longer to close.”
Referencing unexpected opportunities that arose following the economic uncertainties presented in 2020 by the pandemic, she added, “There is a buyer’s market and an opportunity for sellers as well so valuations may become more attractive for acquirers. A lower Canadian dollar against the U.S. dollar also means that Canadian companies may be more attractive targets. Sellers may consider divesting themselves of non-core assets or those that are most affected by U.S. tariffs and some Canadian companies may look to establish manufacturing facilities in the U.S. and vice versa by way of strategic acquisition.”
Businesses looking for foreign investors or acquirers, however, can expect to go through heightened scrutiny. On March 5, the Investment Canada Act guidelines relating to national security were updated to expressly include the potential of an investment to undermine Canada’s economic security by enhancing the integration of the target Canadian business with a foreign entity. In a statement posted on X, the Minister of Innovation, Science, and Industry also announced that Canada’s economic security is national security.
Lapointe noted a significant increase in the questions her firm was fielding about the interplay between various tariffs and whether those tariffs would be calculated in addition to the general 25% tariff. She said, “In early February, President Trump directed the various executive agencies to investigate broad-based reciprocal tariffs that would match either the value or the impact of any tariffs or trade measures put in place by other countries on U.S. products. These reciprocal tariffs would apply to all U.S. trading partners, which would include Canada. These tariffs are still under investigation, though the Trump administration has repeatedly stated that such tariffs could be imposed as soon as April 2. We’re going to have to wait to see what is proposed on that front and how these additional tariffs may interact with the impending general 25% tariff.”
The only thing we can predict for now is unpredictable changes, and all we can hope for is more government support to help businesses navigate these unchartered waters in addition to legislation that creates newer possibilities for supply chain optimization, both internationally and interprovincially.
Listen to the full conversation between Hessie Jones and Brigitte LeBlanc-Lapointe here as they discuss the nuances of legislative remedies for businesses and founders adjusting their operations to the evolving realities of trade.
For more information about what you, as a business can do to prepare for the impacts of tariffs, please access here for more information.
Note: The article above references a conversation we had with Brigitte LeBlanc-Lapointe, sharing her insights from her experience as a corporate transactional lawyer interacting with founders, investors and other stakeholders in the start-up ecosystem about their tariffs-related concerns. The recommendations shared above should not be construed as legal advice, and businesses are advised to consult with their legal counsel to get information tailored to their situation.
