A2X Newsletter | Tariffs: What your Canada-based ecommerce clients need to know
Here’s an unfortunate truth: Ecommerce sellers are on the front lines of these tariffs.
The U.S. has the world’s largest consumer market, and China finds itself in most ecommerce supply chains.
If your accounting practice supports Canada-based ecommerce businesses that sell into the U.S., you’re probably asking the same questions they are: “What will these tariffs do to our margins, and what should we change right now?” Tough to answer in volatile markets.
Your clients do have two clear advantages:
A) They have you.
B) They have accurate, up-to-date numbers to base real decisions on.
Even so, there’s still so much uncertainty. That’s why we teamed up with Lior Zehtser from ConnectCPA – ecommerce accounting specialists – to answer some frequently asked questions from Canadian ecommerce sellers.
If your clients are asking something we’ve missed, hit reply and let me know. I’ll track down an answer and share it with the community.
Let’s dive into the FAQ.
Geoff
Tariffs & margins: FAQs (and answers) for Canada-based sellers
Disclaimer: The information provided here is intended to be general. Every business will be impacted by tariffs differently and we strongly recommend you consult with an expert to understand your business’s specific obligations.
“How can I quickly determine which tariffs and duties apply to my product category?”
Start with your product’s HS (Harmonized System) code, which classifies goods for customs purposes. Most products can be narrowed down with the first 6-digit HS number; both the Harmonized Tariff Schedule of the United States (HTSUS) and Canada’s Customs Tariff ultimately require the full 10-digit code for entry.
You can look up tariff rates and duties through:
- The Canada Tariff Finder (for Canadian imports/exports)
- The U.S. Harmonized Tariff Schedule (for U.S.-bound goods)
Or consult your customs broker or freight forwarder for help mapping your SKUs to the correct codes.
You may want to seek a binding ruling:
- For U.S. imports, search past CBP rulings in the CROSS database, or file a new request through CBP’s eRulings portal.
- For Canada, see CBSA’s Advance Rulings hub to apply for a tariff or origin ruling before you ship.
Be precise: misclassifying your products can lead to compliance issues (and penalties), or missed duty savings.
“How do I keep up with evolving U.S. tariff regulations and ensure compliance?”
Tariff rules can change quickly (as we’ve seen recently), especially with elections, trade negotiations, or retaliatory duties.
Here are some tips to stay up-to-date:
- Subscribe to official alerts: CBP’s Cargo Systems Messaging Service (CSMS), CBSA Customs Notices, and USTR press-release updates.
- Follow trade advisory firms or legal professionals who specialize in international trade.
- Lean on your customs broker, who can provide alerts and help interpret regulatory changes.
- Follow a specialty trade lawyer or advisor on LinkedIn/X for real-time commentary.
- Work with a reliable foreign exchange (FX) partner to track how currency swings amplify or offset tariff costs.
“If I source my material in China, assemble in Canada, and sell into the U.S., do I still have to pay U.S. tariffs on Chinese products?”
It depends on the degree of transformation during assembly. The U.S. uses the “substantial transformation” rule: processing in Canada (or another country) must create a new and different article of commerce with a new name, character, or use.
Note: substantial transformation determines country-of-origin marking and Section 301 duty liability, but qualifying for duty-free treatment under CUSMA also requires meeting that agreement’s specific Rules of Origin (which may be stricter than “substantial transformation”).
Simple assembly or minor finishing in Canada usually does not change the origin. If CBP still deems the good to be of Chinese origin, then Section 301 tariffs will apply.
To avoid surprises, work with your customs broker to perform a substantial transformation analysis to determine whether the assembly in Canada is enough to shift the country of origin.
To support a “Made in Canada” claim, you’ll likely need:
- Clear evidence of transformation – production records, routing sheets, and costed bills of material showing a change in name/character/use
- A detailed bill of materials ready for CBP review (CBP often asks for this during audits).
- Optionally, a CBP binding ruling to lock in the decision before you ship.
- CUSMA/USMCA origin statement (that includes the nine Annex 5-A data elements) if you’ll claim tariff-free entry.
“What if I use a U.S.-based fulfillment centre (like Amazon FBA) versus shipping orders directly from Canada?”
Using a U.S. fulfillment centre (e.g., Amazon FBA):
- You (or your broker) are the importer of record when the inventory enters the U.S.
- A formal customs entry is filed; you pay all duties, Section 301 surcharges (if any), and the Merchandise Processing Fee up-front.
- Cash-flow impact: duty money is tied up weeks before Amazon releases your sales proceeds.
Shipping direct-to-consumer (DTC) from Canada:
- Each parcel is its own customs entry.
- Orders valued ≤ US $800 normally clear duty-free under Section 321 – but effective May 2, 2025 that exemption no longer applies to products of China or Hong Kong. (Quota or AD/CVD goods are always excluded.) Above $800, duty and courier brokerage typically shift to the shopper.
- Delivery is usually slower (often 2-7 days) and surprise fees can hurt conversion.
Your decision here should factor in:
- Duties/tariffs (up-front under FBA vs. per parcel under DTC)
- Fulfillment costs (U.S. storage and prep vs. cross-border postage and brokerage)
- Speed and customer experience (Amazon Prime 1-2 days vs. 2-7 days + possible COD fees)
- Foreign exchange (FX) implications (immediate USD outflow under FBA vs. flexible conversion under DTC)
“How do I calculate my new landed costs so I don’t underprice (or overprice) products?”
Landed cost = Product cost + Shipping + Duties + Insurance + FX + Handling fees
With tariffs in play, you must update your Cost of Goods Sold (COGS) assumptions to maintain margin accuracy.
We suggest:
- Using tools like A2X to map landed cost to SKU level
- Reviewing vendor quotes and shipping invoices monthly
- Tracking margin by product and channel
This helps avoid underpricing and ensures profit clarity, even when selling across borders.
“What documentation or compliance pitfalls should I watch out for to avoid fines or unexpected fees?”
Watch for these mistakes:
- Incorrect HS codes
- Missing or vague commercial invoices
- Missing/incorrect country of origin marking
- Inconsistent values between systems (POS, A2X, inventory platforms); automate as much as possible. Integrations between A2X, your IMS, and accounting reduce manual key-in errors.
Don’t forget record-keeping: customs audits can go back five years, so keep a clean paper trail that includes import declarations, invoices, and freight docs.
“Could alternative sourcing or ’tariff engineering’ help me preserve profitability?”
Yes – if you do it correctly and document it.
Many brands are exploring:
- Sourcing from countries not subject to the Section 301 China duties
- Using tariff engineering by legally modifying products or packaging before import to fall into a lower-duty HTS classification
- Nearshoring or final assembly in Canada or Mexico so the finished good qualifies as North American origin
Always vet any plan with a customs broker or trade lawyer and, if in doubt, request a CBP binding ruling before shipping. Mistakes can add more cost than the tariff you were trying to avoid.
“Should I adjust my prices or absorb the tariff costs to stay competitive?”
It depends on your brand positioning and elasticity:
- Premium brands may pass on costs with limited pushback
- Commodity sellers might need to absorb tariffs or reduce other costs to stay competitive
Either way, we advise monitoring gross margin by channel and adjusting pricing dynamically.
If you must absorb costs, find savings through inventory management, fulfillment, and FX optimization.
“How are other Canadian sellers navigating these tariff changes?”
At ConnectCPA, we’ve seen our clients implement a range of strategies – here are three notable examples.
-
Operational adjustments
- Tightening inventory turnover and reducing slow-moving SKUs
- Prioritizing higher-margin products
-
Tightening financial controls
- Enhancing cash-flow forecasting to avoid surprises
- Reviewing cost structures monthly: ad spend, staffing, software, freight
-
Making strategic shifts
- Exploring alternate suppliers outside tariff-hit regions
- Working with FX partners to hedge risk
- Using tools to get SKU-level profitability clarity across marketplaces
