Impacts of Trump’s Tariffs on North American Energy Markets

On February 1, 2025, however, President Trump announced a series of Executive Orders¹ through which he invoked authority granted under the International Emergency Economic Powers Act (“IEEPA”) to impose broad-sweeping tariffs on goods imported from Canada, Mexico, and China. With respect to Canadian goods, specifically, these Executive Orders cited the “extraordinary threat” presented by fentanyl and illegal immigration to impose an additional twenty-five percent (25%) ad valorem rate of duty on all imported products, except for Canadian “energy” or “energy resources” which are subject to a ten percent (10%) ad valorem rate of duty. The February 1 Executive Orders represent both a novel interpretation of IEEPA — which has never been used to impose tariffs on the import of foreign goods² — and a marked shift in the country’s energy policy. To the extent the February 1 Executive Orders (or the ways in which they are implemented) are challenged, litigation is most likely to occur in the U.S. Court of International Trade, which is a federal court with nationwide jurisdiction over trade-related disputes.

On February 3, 2025, Trump paused the implementation of the February 1, 2025 tariffs on Canadian and Mexican goods until March 4, 2025.³ Negotiations are presumably ongoing, and there is a possibility that the tariffs may never go into effect; however, there remains a possibility that the tariffs will go into effect on March 4, 2025, as currently ordered.

Brief History of Tariffs on Oil and Natural Gas Imports in the United States

Prior to the February 1 Executive Orders, tariffs on North American imports of oil and natural gas were increasingly rare, as an unencumbered energy trade has, in modern times, been viewed as a strategic and beneficial component of North American economic integration. Yet, while average tariff duty rates have fallen — and many duties on imported oil and natural gas having been eliminated altogether — the American energy trade has not always been unfettered. For example, in the 1970s, Presidents Nixon, Ford, and Carter utilized authority granted under Section 232 of Trade Expansion Act of 1962 to impose import restrictions on oil on the grounds of national security concerns. The import fees, which ranged from $0.21 to $4.62 per barrel⁴ (depending on the type and source of oil), were designed to encourage domestic production and refining capabilities and to reduce the country’s dependence on foreign oil supplies.

The oil import fees of the 1970s, however, were gradually reduced and were ultimately eliminated in the 1980s and 1990s as energy markets stabilized and the United States introduced a more cooperative and market-oriented approach toward energy policy. With respect to North American trade, specifically, the execution and implementation of NAFTA in 1994 signaled the beginning of a modern trend toward regional economic cooperation in which tariffs (and other cross-border fees and taxes) on North American energy products were virtually nonexistent. This trend continued when the USMCA replaced NAFTA during Trump’s first term. The broad tariffs proposed by the February 1 Executive Orders, therefore, represent an unprecedented shift in modern U.S. energy policy, the impacts of which remain to be seen.

Overview of the Impact of the February 1 Executive Orders on Canadian Trade — What You Need to Know⁵

• What Products Do the Tariffs Apply to? While the tariffs apply broadly to “products of Canada,” the precise scope of the tariffs is currently unclear. We expect clarification regarding the covered U.S. Harmonized Tariff Schedule (“HTS”) codes and the new HTS Chapter 99 special tariff number will likely be included in a subsequent Federal Register Importers can look to a recent publication in the Federal Register concerning supplemental tariffs imposed on importation of Chinese merchandise as an example of how the HTS might be updated if the North American tariffs are implemented.⁶

The terms “energy” and “energy resources” are defined by reference to related Executive Order 14156,⁷ issued by Trump on January 20, 2025, and include “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water and critical minerals.” The Executive Orders do not address whether the tariffs will apply to cross‑border flows of electricity; however, precedent from the International Trade Commission suggests that electricity would not be impacted.⁸

• What Are the Tariff Rates? With the exception of Canadian energy resources, all products imported from Canada are subject to an additional twenty-five percent (25%) ad valorem rate of duty. Canadian energy resources will be assessed a ten percent (10%) ad valorem rate of duty. The rates of duty established by the February 1 Executive Order are in addition to any other duties, fees, exactions, or charges applicable to such imported goods.
• Are There Any Exceptions/Exclusions? The February 1 Executive Orders originally provided exceptions for goods that were loaded onto a vessel at the port of loading, or in transit on the final mode of transport, prior to entry into the United States before 12:01 a.m. Eastern time on February 1, 2025. To utilize this exception, the importer would have needed to follow the U.S. Customs and Border Protection (“CBP”) certification process, which was to have been published in the Federal Register. This exception was withdrawn as part of the February 3 Executive Orders which otherwise delayed the implementation of the tariffs.

Additionally, the February 1 Executive Orders exclude from tariffs any merchandise covered by 50 U.S.C. § 1702(b), including: (1) personal communications which do not involve a transfer of value, (2) donated articles, (3) informational materials, and (4) transactions ordinarily incident to travel.

• When Do the Tariffs Take Effect? The CBP was initially authorized to begin implementing the tariffs against Canada beginning at 12:01 a.m. Eastern Standard time on February 4, 2025; however, subsequent negotiations between the United States and Canadian governments resulted in a temporary delay on the assessment of any tariffs until March 4, 2025.⁹
• How Will the Government Administer the Tariffs? Under current law, CBP — which is an agency under the U.S. Department of Homeland Security — has jurisdiction to assess and collect tariffs. To the extent these tariffs are administered like other current tariffs, importers will file entry paperwork and pay estimated duties upon importation. CBP will then review that entry paperwork and fix the assessment of duties through its liquidation process.

Administration of tariffs, however, may eventually shift to the U.S. Department of the Treasury. President Trump has instructed the Secretary of the Treasury to “investigate the feasibility of establishing and recommend the best methods for designing, building, and implementing an External Revenue Service (“ERS”) to collect tariffs, duties, and other foreign trade-related revenues.”¹⁰ If an ERS is created, it would be somewhat of a return to form as prior to the creation of the Department of Homeland Security and CBP, tariffs were administered through the U.S. Customs Service, which was then housed under the Treasury Department.

Near- and Long-Term Considerations

Although the effective date of this first round of tariffs has been delayed, companies should begin planning for these or other tariffs to go into effect in the near future. Companies with significant import and/or export operations in North America, and especially those moving energy resources across the borders, should be proactive in determining how such tariffs may impact their businesses and should explore potential mitigation strategies, including by:

• Analyzing the effect on short/long-term operations and profitability, including impacts resulting from delays or disruptions in the supply chain;
• Reviewing existing contracts for the purchase and sale of impacted energy resources to understand contractual liability and risk from the impending tariffs;
• Renegotiating existing contracts with suppliers or customers to clarify or alter the parties’ respective cost-sharing responsibilities; and
• Assessing domestic or alternative sources of goods to avoid impacts from the payment of additional duties.

We anticipate that the CBP will issue further guidance regarding the scope and application of the tariffs following its receipt of directives from the White House. President Trump has indicated a clear willingness to utilize tariffs as a tool in influencing international trade policy, and it is possible that tariffs against other countries will be a recurring topic that we will focus on throughout this administration.

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¹ Executive Order 14193 of February 1, 2025: “Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border” (available at https://www.federalregister.gov/documents/2025/02/07/2025-02406/imposing-duties-to-address-the-flow-of-illicit-drugs-across-our-northern-border); Executive Order 14194 of February 1, 2025: “Imposing Duties to Address the Situation at Our Southern Border” (available at https://www.federalregister.gov/documents/2025/02/07/2025-02407/imposing-duties-to-address-the-situation-at-our-southern-border); Executive Order 14195 of February 1, 2025: “Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China” (available at https://www.federalregister.gov/documents/2025/02/07/2025-02408/imposing-duties-to-address-the-synthetic-opioid-supply-chain-in-the-peoples-republic-of-china) (the “February 1 Executive Orders”). See also “President Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China,” February 1, 2025 (available at https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/.

² IEEPA authorizes the president to impose economic sanctions and other measures following a declaration of an “unusual and extraordinary threat” originating outside the United States. IEEPA grants the president broad economic authority and is the statutory basis for the vast majority of the economic sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, but the 1970s-era law has never been used to impose tariffs on foreign goods.

³ See Executive Order 14197 of February 3, 2025: “Progress on the Situation at our Northern Border” (available at https://www.federalregister.gov/documents/2025/02/10/2025-02478/progress-on-the-situation-at-our-northern-border); Executive Order 14198 of February 3, 2025: “Progress on the Situation at our Southern Border” (available at https://www.federalregister.gov/documents/2025/02/10/2025-02479/progress-on-the-situation-at-our-southern-border) (the “February 3 Executive Orders”).

⁴ Adjusting for inflation based on the year in which they were originally imposed, fees of $0.21 to $4.62 per barrel would be the equivalent of $1.56 to $18.74 per barrel in 2025 (calculated utilizing the CPI Inflation Calculator published by the U.S. Bureau of Labor Statistics, available at https://www.bls.gov/data/inflation_calculator.htm).

⁵ While this client alert focuses specifically on the Canadian tariffs, the principles are largely the same with respect to the tariffs imposed on Mexican and Chinese imports.

⁶ “Implementation of Additional Duties on Products of the People’s Republic of China Pursuant to the President’s February 1, 2025 Executive Order Imposing Duties To Address the Synthetic Opioid Supply Chain in the People’s Republic of China”, Feb. 5, 2025 (available at https://www.federalregister.gov/documents/2025/02/05/2025-02293/implementation-of-additional-duties-on-products-of-the-peoples-republic-of-china-pursuant-to-the).

⁷ Executive Order 14156 of January 20, 2025: “Declaring a National Energy Emergency” (available at https://www.federalregister.gov/documents/2025/01/29/2025-02003/declaring-a-national-energy-emergency)

⁸ See USITC, HTS Rev. 28 (2020), Additional U.S. Note 6(b); ClearCorrect Operating, LLC v. Int’l Trade Comm’n, 810 F.3d 1283, 1298 (Fed. Cir. 2015).

⁹ See February 3 Executive Orders. 

¹⁰ “America First Trade Policy”, Jan. 20, 2025 (available at https://www.whitehouse.gov/presidential-actions/2025/01/america-first-trade-policy/).