Trump’s Day 1(5) Tariffs:
US Importers Subject to New 10 Percent Cumulative Tariff on All China-Origin Goods; A 30-Day Reprieve on 25 Percent Tariff on Canadian- and Mexican-Origin Goods
In a series of executive orders issued on February 1, 2025, President Trump threatened to impose across-the-board, cumulative tariffs on Canada,[1] Mexico,[2] and China[3] using the International Emergency Economic Powers Act (IEEPA). The China tariffs go into effect on February 4, 2025; Canada and Mexico benefit from “at least” a 30-day reprieve having committed to, inter alia, increased border security enforcement.
Commonalities Among the Executive Orders: A Probable Template
As originally proposed, neither the China nor the Mexico tariffs were subject to exclusion or exemption. The Canada program included a lower 10 percent rate for imports of energy resources.[4] In all other respects, the executive orders are alike:
- The tariffs, at least on China, are effective February 4, 2025 with respect to all goods entered for consumption or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern time.
- A limited exception applies to goods on the water or in the air at the time the tariffs were imposed; goods that were loaded onto a vessel at the port of loading or in transit on the final mode of transport for entry into the United States before 12:01 a.m. Eastern time on February 1, 2025 will not be subject to the additional duties if the importer certifies thereto.
- No de minimis exemption—all shipments, including those under $800—are subject.
- No drawback is available for these duties.
- The tariffs are cumulative with existing trade duties (including Sections 301 and 232).
- There is potential for increase of tariffs beyond the proposed rate should the target country retaliate with tariffs on United States-origin goods.
- Since these are IEEPA-based actions, the tariffs do not apply, directly or indirectly, to (1) personal communications, (2) donated articles, (3) informational materials, and (4) transactions ordinarily incident to travel.
IEEPA: A Trade Negotiation Tool
IEEPA provides extensive authority to address national emergencies, but it has never previously been used to impose tariffs. Until now, the statute has primarily been used to impose sanctions. In fact, IEEPA is the foundation for nearly all non-Cuba sanctions programs administered by the Office of Foreign Assets Control. IEEPA authorizes the president to exercise his authority during peacetime “to deal with any unusual or extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.” 50 U.S.C. § 1701(a). In furtherance of the goal of that authority, IEEPA removes the typical investigation and specificity required to impose tariffs pursuant to, for example, Section 301 of the Trade Act of 1974.
To invoke IEEPA, the president must assert a national emergency and, to sustain the action, the administration must declare a continuation of said emergency annually. Some could surmise that the IEEPA’s appeal to this administration is that it can frame issues such as illegal immigration, fentanyl smuggling, corruption, and human rights abuses as national emergencies and wield across-the-board tariffs against any country. It is pertinent to note that in his first term, Trump attempted unsuccessfully to invoke the IEEPA to ban Chinese-owned social media apps TikTok[5] and WeChat.[6]
Imminent Additional Actions
This administration has threatened to impose tariffs against the European Union as well as, most recently, Colombia. A 100 percent tariff was threatened against the BRICS countries—Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates—that attempts to replace the US dollar as a reserve currency. In addition, worldwide tariffs have been threatened on specific items, including aluminum, copper, steel, semiconductors, and pharmaceuticals. Thus far, there appears to be no exclusion for obligations made to NATO allies or free trade agreement partners, including, apparently, those made under the United States-Mexico-Canada Agreement.
Near-Term and Mid-Term Impact
US importers, in effect, will be subject to a 10 percent tax on approximately $500 billion worth of goods imported from China. If the Canada and Mexico tariffs are eventually implemented, US importers will pay an additional 25 percent tax on another $500 billion worth of goods. Together, China, Mexico, and Canada account for over one-third of all US imports. In sum and substance, tariffs are taxes on imports and paid by US entities.
- It is likely that the increased costs for importers will either be absorbed by businesses or, more likely, passed on to consumers with immediate inflationary impact.
- As supply chains redistribute, expect disruption and higher costs for industries reliant on Chinese components.
- Implementing tariffs under IEEPA can be done quickly and can therefore result in a lack of clarity or predictability in trade policy. Responsive retaliatory tariffs compound this uncertainty.
Suggested Immediate Actions for US Importers
- Country of Origin. An obvious, but often overlooked step for importers is to review their supply chain exposure and determine cost implications. Unambiguously, the additional 10 percent tariffs on China applies only to imported goods where the country of origin is, in fact, China. Therefore, importers should review inputs from other countries and determine whether the goods meet the “substantial transformation” standard.
- Government Procurement. If foreign-origin goods are imported for sale to the US government, contractors should consult their existing contracts to determine any potential avenues for relief.
- Incoterms. A careful review and restructuring of trade contracts may yield some relief. For example, Incoterm DDP requires the seller to pay customs duty in the destination country.
- American Goods Returned. Chapter 98 of the Harmonized Tariff Schedule may enable importers to deduct or avoid duties and tariffs in appropriate circumstances: products exported from and returned to the United States, regardless of country of origin, are duty exempt under heading 9801; and the value of US components in a product assembled abroad can be deducted from the total dutiable value upon import under heading 9802.
- Temporary in-Bond Goods. In some cases, if goods are imported only to be exported or incorporated into other goods for export, it may be helpful to avail oneself of the temporary importation under bond.
- First Sale Rule. Review the “first sale rule,” wherein the dutiable value of the goods is based on the price paid the first time they are sold for US import, as opposed to higher prices subsequently paid to middlemen.
[1] Imposing Duties to Address the Flow of Illicit Drugs across Our Northern Border, Exec. Order (Feb. 1, 2025) (“Canada EO”), available at https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-flow-of-illicit-drugs-across-our-national-border/.
[2] Imposing Duties to Address the Situation at Our Southern Border, Exec. Order (Feb. 1, 2025) (“Mexico EO”), available at https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-situation-at-our-southern-border/.
[3] Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China, Exec. Order (Feb. 1, 2025) (“China EO”), available at https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-synthetic-opioid-supply-chain-in-the-peoples-republic-of-china/.
[4] Energy resources are defined as “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, as defined by 30 U.S.C. 1606 (a)(3).”
[5] TikTok Inc. v. Trump, 507 F. Supp. 3d 92 (D.D.C. 2020).
[6] U.S. WeChat Users Alliance v. Trump, 488 F. Supp. 3d 912 (N.D. Cal. 2020).