Ask any Canadian fashion founder who was shipping to U.S. customers two years ago and they will probably say the same thing: it was almost too easy. A Canadian fashion brand could ship a $200 dress directly to a customer in Chicago, with no duties, no customs paperwork, and no friction. Section 321 of U.S. customs law (19 USC 1321), better known as the de minimis exemption, made the U.S. feel like an extension of your home market. Under $800? It sailed through the border. E-commerce was booming, and the rules seemed built for it.
Then came the election. And then the tariffs. And nothing has been quite the same since.
At a recent roundtable on tariff and commercial developments, our team gathered with customs brokers and industry professionals to map out what these shifts mean in practice. What follows is a straight-talking overview of the issues that matter most for Canadian fashion companies right now, and the steps you can take to stay ahead.
The landscape has shifted: 2024-2026 in review
The past two years have reshaped the trade environment in ways that few businesses were prepared for. In 2024, fashion brands were contending with economic slowdown, supply chain pressure, and mounting trade uncertainty. By 2025, tariff escalation had become a defining challenge. Now in 2026, we are in a period of trade policy review and what many are calling a long-term transformation of the sector. The ability to adapt is a competitive advantage and keeping track of what is happening is a business imperative.
Until the mid-1980s, roughly 70% of clothing worn by Canadians was made domestically. Today, more than 85% of garments, household textiles and industrial fabrics purchased in Canada come from foreign suppliers. The industry has pivoted toward design, branding and distribution, and supply chains now stretch across multiple borders, and every tariff decision lands differently.
- Domestic production (1980s) ~70% of clothing worn by Canadians
- Foreign-sourced today >85% of garments & textiles
- Canadian apparel establishments 3,242 NAICS 315, Statistics Canada 2025
- Micro-businesses (<5 employees) 56.7% of all apparel establishments
Source: ISED, Apparel Industry Profile | Statistics Canada / MRAS Business Registry
The end of de minimis as we knew it
Perhaps no single development has disrupted the fashion import model more than the changes to the de minimis exemption in the United States. For years, section 321 of U.S. customs law (19 USC 1321) allowed low-value shipments under USD $800 to enter duty-free with minimal paperwork. Canadian fashion brands in e-commerce relied heavily on this to sell directly to American consumers. Canada’s own retaliatory tariff measures have also placed textiles, clothing, footwear, bags, and accessories on the list of targeted products, meaning the pressure is running in both directions.
What this means for you: The end of de minimis does not mean the end of your U.S. market, but it does mean the end of the shortcut.
CUSMA: Your most powerful shield, if used correctly
- Canadian products that comply with CUSMA rules of origin remain exempt from U.S. tariffs.
- Non-compliant products are subject to a 10% tariff, and potentially additional IEEPA surcharges.
Before March 2025, many Canadian companies did not bother claiming CUSMA preferential treatment because standard tariff rates were low enough. That calculus has completely changed. More than 98% of bilateral tariff lines can theoretically benefit from CUSMA preferential treatment if origin rules are respected. That compliance is your tariff shield.
For fashion specifically, garments under HS Chapters 61 and 62 that do not qualify as originating goods may still qualify for CUSMA preferential tariff treatment under a Tariff Preference Level (TPL), provided they are cut and sewn or assembled in a CUSMA Party territory.
2026 marks the formal CUSMA review year. There is no fixed timeline for renegotiation, and any changes will depend on what emerges from this process, which could unfold over several years.
Implication: Do not assume CUSMA-eligibility without a thorough review of your product’s origin. Do not wait for the CUSMA review to conclude; the current rules are the ones that apply today.
Tariff refunds: Know what you are entitled to, and how not to lose it
Many Canadian fashion importers are unaware of the mechanisms available to seek refunds of tariffs paid. Several refund mechanisms now exist, and the window to act on some of them is limited.
The CBSA’s Duties Relief and Duty Drawback Programs allow companies to recover duties paid when goods are subsequently exported and are worth a close look for brands that import and re-export.
Starting April 20, 2025, Canadian companies that acted as the official importer of record in the U.S. and paid IEEPA surcharges between February 4, 2025 and February 24, 2026 on non-CUSMA-compliant goods may be eligible for refunds, whether you sold direct-to-consumer, through U.S. retailers, or via your own U.S. stores.
The process runs through CBP’s ACE/CAPE platform, entry by entry, and is not automatic. If your brand was not the official U.S. importer of record, the legal right to the refund belongs to that entity, not to you.
On the Canadian side, the U.S. Surtax Remission Order (2025) came into force on April 16, and the Regional Tariff Response Initiative (RTRI) has allocated over $12 million in non-repayable contributions to support manufacturing SMEs.
Critical trap: Filing for a refund through CAPE typically requires you to withdraw any outstanding protests. If your application is unsuccessful, you lose your right to appeal. Do not abandon protest rights without legal advice first.
U.S. structure and supply chain: Building for the new reality
For brands serious about the American market, a properly structured U.S. entity is increasingly important, one with a bank account, tax filings, incorporation documentation, and commercial leases where applicable.
The model: A Canadian parent sells to a U.S. subsidiary, which sells to U.S. customers. Transfer pricing between related entities must be properly documented and defensible on both sides of the border. A half-formed U.S. presence creates more risk than it resolves.
On sourcing, the current environment is a strong signal to diversify by considering alternative sourcing markets, nearshoring, bonded warehousing for flexibility on customs entry timing, and free trade zone strategies for goods destined for multiple markets.
The broader principle: Brands that rush to restructure based on today’s rules may regret it when those rules change. Build adaptive strategies that preserve optionality and protect your legal rights, including protest and appeal rights. Bring your business structure back to Canada thoughtfully.
Consolidation of US warehouse fulfillment nodes within a Foreign Trade Zone (“FTZ”): A cost-management strategy
Apparel firms leveraging the $800 de minimis exemption often established decentralized foreign fulfillment nodes. This often involved warehouses and distribution hubs set up in Canada and Mexico. Firms could take orders from US customers for apparel valued under the $800 threshold, fill the orders outside the of the US, and import them from those hubs into the US duty free. This has changed with the elimination of the de minimis threshold. Firms are now consolidating fulfillment nodes.
By merging fulfillment nodes into a single, centrally located US FTZ, importers can save significant costs associated with multiple hubs. For example, a firm may save costs by building a single shipment of apparel goods overseas and bringing them into a US FTZ in customs bond. It can then import the goods from the FTZ into the US, Canada, and Mexico. Goods imported into the US can be imported under a US consumption entry. Goods destined for Canada or Mexico may be transshipped through an FTZ in bond under specified conditions without incurring US duties. Firms are often advised to obtain a customs ruling from customs authorities to ensure that their goods will receive the most favourable duty treatment.
What Canadian fashion brands should do now
Based on the roundtable discussion and our firm’s experience advising clients in the fashion and retail sector, we recommend the following immediate priorities:
- Audit your tariff exposure. Understand exactly what duties you are paying, on which goods, under which classifications.
- Claim your CUSMA exemptions. If you are exporting to the U.S. without actively claiming preferential treatment, you are likely overpaying.
- Replace your de minimis strategy. Model your cost structure under normal customs entry and develop alternatives now.
- Check your IEEPA refund eligibility. If you paid IEEPA surcharges as importer of record between February 2025 and February 2026, act before the window closes.
- Review your U.S. entity and transfer pricing. Both are live audit risks on either side of the border.
- Do not waive protest rights without advice. Before filing for any tariff refund, understand what rights you may be giving up.
- Monitor CUSMA developments. The 2026 review is underway, and its outcome will directly affect your tariff planning.
- Warehouse consolidation. Merge decentralized fulfillment hubs into a single centrally located US FTZ warehouse to manage costs out of your business model.
Talk to our tariffs team
The legal landscape governing cross-border trade is shifting faster than many businesses can track on their own. At Miller Thomson, the lawyers from our US Tariffs’ team work with Canadian fashion brands at every stage of their import and export operations.
Whether you need help structuring a U.S. presence, assessing your tariff exposure, navigating a customs refund claim, or building a long-term supply chain strategy, we are here to provide practical, commercially grounded legal advice.
