What a week! There have been few weeks in trade that have been quite as volatile.
What Happened
On Saturday February 1, 2025, pursuant to the International Emergency Economic Powers Act (IEEPA). President Trump delivered on his campaign promises and announced the imposition of new tariffs on imports from Mexico, Canada and China. He announced that effective February 4, 2025, a 25% duty would be imposed on all goods from Canada (10% on energy resources) and Mexico, and 10% on all goods from China.
To impose tariffs under IEEPA, President Trump had to declare a National Emergency and used border security and the fentanyl crises as a basis for doing so. Once in place, there is essentially no limit to how long the IEEPA tariffs can remain and there is no exclusion process.
On February 2, 2025, the Executive Orders (EOs) on each country were released, detailing the scope of the IEEPA tariffs. The EOs for each country were virtually identical and included several important aspects:
- Foreign Trade Zones (FTZs) cannot be used to store goods temporarily as a way to avoid the new duties. Goods admitted to an FTZ will be subject to the additional duty upon entry for consumption from the FTZ.
- Drawback (i.e., refund of customs duties, taxes, and tariffs paid on imported goods) is not available with respect to these IEEPA duties.
- The IEEPA duties are in addition to any other duties owed (e.g., 301 duties).
- There is no process for obtaining exclusions.
- Certain items such as informational materials are exempt from the IEEPA tariffs.
The EOs contained two additional details that have caused significant concern among the importing community:
- All EOs indicated that goods subject to these IEEPA tariffs are not eligible for duty-free de minimis treatment under Section 321 (i.e., goods with entered values $800 and less). As such, all goods from China, no matter what the value, will be subject to the new 10% tariff, plus any 301 tariffs and regular customs duties. This is a massive sea change for the imports into the U.S. and will impact many on-line DTC retailers.
- On February 7, 2025, the President issued an amended EO temporarily suspending this provision until “notification by the Secretary of Commerce to the President that adequate systems are in place to fully and expediently process and collect tariff revenue . . . for covered articles otherwise eligible for de minimis ” It is not clear how long it will take CBP and logistic companies such as FedEx, UPS, etc. to revise their systems to handle this significant change.
- The China IEEPA duties apply to Hong Kong origin goods. This is different than previous 301 and 232 duties against China, which did not include Hong Kong origin goods.
The EOs also indicated that duties can increase in response to retaliation from Canada, Mexico, and China.
Immediately after the issuance of EOs, all three countries announced retaliation measures. Canada’s retaliation was most specific and compensatory, scheduled to go into force on February 4, 2025. They announced a two-step retaliation with the first phase imposing a 25% duty on targeted products (beverages, cosmetics and paper products), which account for $30 billion in import value. The second phase was to go into effect at an unspecified time after the first phase and was intended to cover $125 billion in goods (passenger vehicles, trucks and buses, steel and aluminum products, certain fruits and vegetables, aerospace products, beef, pork, dairy products, and more).
On February 3, 2025, President Trump announced a delay in the imposition of the Canada and Mexico IEEPA duties for 30 days until March 4, 2025, based upon agreements between the countries. Each country agreed to take certain steps to strengthen their borders and pause their own retaliation. The IEEPA duties against Canada and Mexico could go into effect at any time should President Trump be unsatisfied with each country’s efforts to address border security.
On February 4, 2025, China announced retaliatory duties on certain goods imported into China from the United States, effective February 10, 2025. These included a 15% tariff on coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, large-displacement cars and pickup trucks.
After All This, What Additional Duties Are In Effect Now?
As of today, the only EO that remains in force is the 10% additional duty on China. There has not been any indication this week of an impending agreement between China and the U.S.
Importers should expect these duties to remain in place for the foreseeable future.
What Can Importers Do in this Unpredictable Environment?
As we reflect on the chaos of the last week, the primary lessons learned are that additional duties will likely be imposed erratically, for unknown time periods, without advance notice, that no country is safe, and processes to seek exclusions should not be expected. While these actions are unpredictable, there are steps that importers can take now to limit the impact of additional tariffs. Such measures include:
- Supply Chain Management
- Are you reliant on a single supplier or country?
- How quickly can you switch suppliers to unaffected countries?
- Can any imported components be purchased domestically?
- Valuation
- Can the entered value of your goods change by using alternative methods of appraisement?
- If a middleman is used, can a first sale regime be implemented to reduce entered value?
- If you purchase from an affiliate, can the transfer price be adjusted or can an alternative customs valuation method be used?
- Tariff Classification
- Evaluate current classifications and identify items where more than one classification could apply and consider whether alternate classifications with lower rates of duty might be available.
- Identify goods that can be “tariff engineered” to qualify for \ lower duty rates.
- Country of Origin
- Can multi-country processing be used to change the country of origin?
- What products are susceptible to supply chain changes that could impact country of origin?
- Review Contracts
- Do any contracts contain clauses related to tariffs and trade disruptions?
- Do contracts contain “pass through” provisions where tariffs, taxes or similar increased costs can be passed along to the customer or charged back to the supplier?
- For contracts which do not contemplate price adjustments due to supply chain disruption, consider whether the contract can be amended or terminated.
GDLSK has been assisting importers with tariff remedies for over 40 years. As the trade environment evolves, the tried-and-true duty reduction measures that our attorneys have honed over the years remain the best defense.
