Calgary says two-thirds of its half-billion-dollar tariff exposure comes from Ottawa’s own retaliation, not Washington’s. Municipalities want a carve-out that the remission framework does not currently give them.
CALGARY, Oct. 7, 2026. City councillors here are asking the federal government to exempt municipalities from Canada’s own counter-tariffs, after administration warned that between $308 million and $449 million of tariff-related risk now sits on contracts the city has already signed, and that roughly two-thirds of that exposure comes from Canadian retaliatory measures rather than American ones.
The warning, delivered to council this week, puts a number on a problem that trade practitioners have been flagging since Ottawa’s counter-tariff order took effect on Sept. 8: Canada’s retaliation is a tax on Canadian buyers, and some of the largest Canadian buyers are public bodies spending federal grant money.
Mayor Jeromy Farkas has written to Finance Minister François-Philippe Champagne requesting two things. First, a retroactive exemption for municipalities from retaliatory tariff costs on contracts and orders placed before Sept. 8. Second, the creation of a dedicated tariff relief fund for municipal governments.
The city has already paid $1.2 million in tariff costs since March 2025, with a further $5.7 million embedded in contracts that have been negotiated but not yet fully delivered.
Farkas framed the issue as one of federal money cancelling itself out. When counter-tariff costs consume part of a federal infrastructure grant, he said, “it’s making their investment in local government less effective.”
A spokesperson for Champagne’s office responded by pointing to the quantum of federal support flowing to Calgary, saying Ottawa has contributed at least $59 million to the city this quarter across water projects, the Olympic Oval and high-speed rail work.
Councillor Jennifer Wyness took a sharper line, arguing that the tariff bill exposes how far removed other orders of government are from the realities of municipal infrastructure funding at a moment when residents are already dealing with an affordability squeeze.
Why municipalities are exposed
The exposure is not accidental. It is written into the schedules.
Canada’s counter-tariffs are imposed by the United States Surtax Order (2026), SOR/2026-186, made by order in council P.C. 2026-785 on Sept. 4 and in force from Sept. 8. The order applies a surtax on the value for duty of goods originating in the United States, at 15 per cent for tariff items listed in Schedule 1, 25 per cent for Schedule 2 and 50 per cent for Schedule 3.
Those schedules reach deep into the procurement basket of a mid-sized or large Canadian city.
Schedule 2, at 25 per cent, covers railway and tramway locomotives under tariff items 8601.10 and 8601.20, self-propelled railway and tramway coaches and vans under 8603, maintenance and service vehicles under 8604, passenger coaches and baggage vans under 8605, and a long list of rolling stock parts under 8607. Any transit authority buying American-built light rail vehicles, streetcars, or spare bogies, brake assemblies and couplers for an existing fleet is buying into a 25 per cent surtax.
Schedule 2 also captures cranes under 8426.20 and 8426.99, parts of lifting and handling machinery under 8431.31 and 8431.43, insulated electric cable under 8544.49, builders’ hardware under 8302, and office and other metal furniture under 9403.40 and 9403.91.
Schedule 1, at 15 per cent, covers fork-lift trucks and other works trucks under 8427.10, 8427.20 and 8427.90, other lifting and handling machinery under 8428.60 through 8428.90, and parts for boring and earth-moving machinery under 8431.41, 8431.42 and 8431.49. That is the construction and public works fleet.
Schedule 3, at 50 per cent, reaches telephone sets and other apparatus for transmission or reception of voice, images or data under 8517.13 and 8517.62, which covers a wide span of networking and communications equipment, along with a range of seating and furniture classifications under 9401 and 9403, and lighting under 9405.
A city replacing transit vehicles, buying new works trucks, rewiring a facility, upgrading a radio or network system and furnishing a recreation centre can touch all three schedules in a single capital year.
The remission gap
Ottawa has not left the counter-tariff regime without relief. It has built a remission architecture, extended it repeatedly, and applied it to the 2026 order. The problem for municipalities is the shape of the relief rather than its absence.
The United States Surtax Remission Order (2025) was amended by the 2026 surtax order so that its relief provisions now apply to surtaxes payable under the new counter-tariffs. The categories are specific.
Section 1 grants remission for goods imported for use by listed entities for the purpose of health care, public health, public safety, national defence or national security. Section 2 grants remission for specified health care goods. Section 3, the broadest, grants remission for goods imported for use in Canada in the manufacture or processing of any good, in the production of any agricultural product, or in the packaging of a food product or beverage. Sections 4, 4.1 and 4.21 grant remission for enumerated goods listed in the schedules to the remission order.
The horizontal relief in section 3 was extended on June 22, 2026, to June 30, 2027, for the categories expiring that month. Earlier amendments, implementing a steel support package announced Nov. 26, 2025, carried relief for goods used in motor vehicle and aerospace manufacturing, and for public health, health care, public safety and national security purposes, out to June 30, 2026, before the later extension.
What the framework does not contain is a general municipal carve-out. A city is not a manufacturer, a processor, an agricultural producer or a food packager. It can qualify under the public health, public safety, national defence or national security heading for goods genuinely imported for those purposes, which captures some fire, paramedic and emergency communications procurement. It does not capture a light rail vehicle, a grader, a water treatment pump or office furniture.
That is the gap Farkas is asking Ottawa to close, and it is why Calgary’s analysis attributes roughly two-thirds of its tariff risk to Canadian measures rather than American ones. American tariffs raise the cost of what Calgary sells abroad, which for a municipal government is close to nothing. Canadian counter-tariffs raise the cost of what Calgary buys, which is a great deal.
Remission is already doing heavy work elsewhere
The municipal complaint lands in the middle of a wider argument about how much of Canada’s retaliation is actually being collected.
Trade analysts have noted that the remission orders substantially blunt the practical bite of the counter-tariffs across a large share of the 629 American product lines covered. The manufacturing input relief in section 3 is extremely broad in its terms: any good imported for use in Canada in the manufacture or processing of any good. An industrial importer with a production use case has a strong claim. A municipality buying the same tariff item for public use does not.
The federal government’s own Regulatory Impact Analysis Statement is explicit about what the surtaxes are meant to do to buyers. “In the near term, the surtaxes are expected to increase the cost of certain U.S. goods and inputs used by Canadian businesses,” it reads. “Importers, distributors and retailers that continue to source these goods from the United States would be expected to pass some or all the additional costs on to downstream businesses or consumers.”
The statement also sets out the policy logic for restricting relief. Remission, it says, “represents an exception to the rules by providing for relief of otherwise applicable duties,” and the government “only considers remission where it is required to address exceptional and compelling circumstances that, from a public policy perspective, are found to outweigh the primary rationale behind the application of the tariffs.”
That is the test Farkas’s letter has to meet. The counterargument is that taxing a municipality’s purchase of an American transit vehicle creates no substitution pressure on the American producer when there is no Canadian or third-country alternative that can be qualified and delivered inside the project schedule, and simply converts federal grant dollars into federal surtax revenue with a project delay attached.
Precedent for carve-outs exists
Ottawa has already shown it will adjust the counter-tariff perimeter in response to evidence of domestic harm.
The list of goods proposed for counter-tariffs was published on Aug. 25, 2026, followed by a Department of Finance briefing with Canadian industry and labour stakeholders. Following that publication, the Regulatory Impact Analysis Statement records, “concerns were raised by stakeholders in the Canadian fish and seafood sector regarding the potential negative impact of tariffs, including on domestic fish processing. Based on the feedback received, the Government made select adjustments to protect against broader economic harms, including removing seafood and fish products from the list of counter-tariffs.”
The order also carries several narrow exceptions already: goods in transit to Canada on the day it came into force, goods imported under a permit issued for the Import for Re-Export Program under subsection 8.3(3) of the Export and Import Permits Act, most Chapter 98 and 99 classifications not listed in Schedule 4, and personal and household goods brought in by Campobello Island residents returning from absences of less than 24 hours.
A municipal class exemption would be larger than any of these, but it would not be unprecedented in kind.
The fifth round
Canada’s current counter-tariffs are, by the federal government’s own count, the fifth response to American tariff action since early 2025.
On March 4, 2025, Canada imposed counter-tariffs under the United States Surtax Order (2025-1) covering roughly $30 billion in annual imports, including food products, appliances, cosmetics, furniture, apparel, plastics, aftermarket tires and pulp and paper. Those were repealed on Sept. 1, 2025.
On March 13, 2025, Canada responded to American Section 232 steel and aluminum tariffs with the United States Surtax Order (Steel and Aluminum 2025), covering $15.6 billion in steel and aluminum goods and a further $14.2 billion in other consumer products. The consumer product component was repealed on Sept. 1, 2025.
On April 9, 2025, the United States Surtax Order (Motor Vehicles 2025) applied tariffs to passenger vehicles and light trucks representing $35.6 billion in annual imports.
On Dec. 26, 2025, Canada imposed a global surtax on steel derivative products under the Steel Derivative Goods Surtax Order, covering prefabricated buildings, wires, cables, chains and fasteners worth $10.6 billion in 2024 global imports. That measure is not aimed at the United States alone, and it catches municipal buyers of fabricated structural products regardless of source.
The 2026 order added $27.6 billion in American imports at 15, 25 and 50 per cent, matched to the $27.6 billion the United States hit under Section 338 on Aug. 22. A companion amendment raised the counter-tariff on most steel and aluminum goods from 25 to 50 per cent, generally matching the American rate.
For a municipal procurement officer, the cumulative effect is that a single capital project can now attract surtax under more than one order, at different rates, with different relief rules and different expiry dates.
What this means for suppliers and buyers
For vendors bidding on Canadian municipal work, the immediate implication is contractual. Fixed-price bids priced before Sept. 8 against American-sourced equipment are now carrying an uncovered surtax liability, and the party holding it depends entirely on the change-in-law and tax clauses in the contract. Calgary’s $5.7 million of negotiated-but-unpaid exposure is exactly this category.
For municipalities, three steps are worth taking immediately. Classify the American-origin content of every active capital contract against the three schedules of SOR/2026-186. Test each line against the remission order’s public health, public safety, national defence and national security heading, which is narrower than it sounds but is not nothing. And confirm whether any goods were in transit on Sept. 8, since those are exempt by operation of the order rather than by application.
For importers generally, the Calgary case is a reminder that origin here is determined by the marking rules under the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations, not by CUSMA preferential origin. A product assembled in the United States from third-country components may or may not be caught depending on that marking analysis, and the distinction is worth professional review before a surtax is paid rather than after.
The broader question
Calgary’s complaint is a local expression of a national design problem. A dollar-for-dollar retaliation framework is built to impose symmetrical pain on the other country. In practice it imposes immediate, certain, measurable cost on domestic buyers and uncertain, delayed, diffuse cost on foreign sellers.
Ottawa’s answer has been remission, applied generously to manufacturers and processors on the theory that taxing production inputs harms Canadian competitiveness. The municipal argument is that taxing public infrastructure inputs does the same thing to Canadian public capital, with the added feature that the money moves from one federal pocket to another while a transit project slips a quarter.
Whether Champagne accepts that argument, and whether he accepts it retroactively to Sept. 8, will set a precedent for every province, school board, hospital authority and transit agency in the country that is currently running the same arithmetic.
What the national numbers say about who is paying
The Calgary figures are the most detailed municipal disclosure so far, but the pattern they describe is visible in national survey data.
The Canadian Federation of Independent Business surveyed 1,545 members between Aug. 28 and 31, 2026, with a margin of error of plus or minus 2.49 per cent. Twenty-eight per cent of all business owners reported major negative impacts from Canada’s counter-tariffs, slightly more than the 26 per cent reporting major negative impacts from the American 50 per cent tariffs. Among importers, 49 per cent said they were affected by the Canadian retaliatory measures, compared with 46 per cent of exporters affected by the American Section 338 action.
Affected businesses reported median tariff costs of $65,000 a month. Twelve per cent of importers said they would cease to be financially viable if the trade war continued for three months or more. Forty-two per cent of respondents expected to absorb most tariff costs rather than pass them on, which for a supplier bidding into a public tender is often not a choice.
The CFIB’s September Business Barometer put long-term optimism at 47.9 and short-term optimism at 43.3, both down roughly 10 points and both below the neutral 50 line. Andreea Bourgeois, the organization’s director of economics, attributed the decline to tariff uncertainty alongside rising oil and gas prices.
Those numbers describe private firms. Municipalities do not appear in business confidence surveys, do not have the option of relocating production, and cannot pass costs to anyone except property taxpayers and utility ratepayers. That combination is the substance of Farkas’s case.
Other cities are running the same math
Calgary is not alone in quantifying the problem, and the fact that it moved first does not make it the most exposed.
Any municipality with an active light rail or commuter rail expansion is carrying Schedule 2 exposure on rolling stock and parts at 25 per cent. Any municipality running a large water or wastewater capital program is carrying exposure on pumps, valves, instrumentation and control systems spread across several schedules. Any municipality in the middle of a facilities renewal cycle is carrying Schedule 3 exposure at 50 per cent on furniture, lighting and communications equipment.
The variable that determines severity is not city size. It is the share of a municipality’s capital program that was tendered before Sept. 8 on fixed-price terms with American-origin equipment specified, and the drafting of the change-in-law clauses in those contracts. A city that specified a single qualified American supplier in a technical specification has less room to substitute than one that wrote performance specifications.
That is the practical advice flowing from Calgary’s disclosure. Procurement teams should be reading their own specifications before they read the tariff schedules, because the exposure was largely created at the specification stage, months or years before the surtax existed.
The legal route if relief does not come
If Ottawa declines a class exemption, municipalities are not without options, though none of them are fast.
The remission framework announced on March 4, 2025, created a process for considering individual remission requests. It is open to any importer, including a public body, and it is decided case by case against the exceptional and compelling circumstances test set out in the government’s own policy statement. A well-documented application tied to a specific project, a specific tariff item, a demonstrated absence of a qualified non-American alternative and a quantified schedule impact is a materially stronger filing than a general plea for municipal treatment. Cities that want relief in this fiscal year should be assembling those files now rather than waiting on a policy decision.
A second route runs through contract rather than customs. Change-in-law provisions, tax and duty escalation clauses and force majeure language all allocate this risk somewhere, and in many municipal contracts the allocation was never consciously negotiated because surtaxes of this magnitude were not contemplated. Where a contract is silent, the default allocation often sits with the supplier, which pushes the cost into claims, disputes and eventually renegotiated prices on future work.
A third route is substitution, which is the outcome the surtax is designed to produce. The federal Regulatory Impact Analysis Statement states the intent directly: over time, the surtaxes “are expected to encourage supply chain adjustments, including increased sourcing from domestic producers or from countries not subject to the surtaxes.” For rolling stock, heavy equipment and specialized water infrastructure, that adjustment is measured in years and requires qualification testing, parts commonality analysis and often a redesign of maintenance practice. For furniture, lighting and general building products, it can be done inside a procurement cycle.
The honest summary is that the policy is working as designed on the categories where substitution is easy and functioning as a pure cost transfer on the categories where it is not. Municipal capital programs are concentrated in the second category.