As described in our previous client alert, President Trump issued three executive orders (“EOs”) on February 1 announcing broad tariffs on U.S. imports from Canada, Mexico, and China for their failure to take appropriate action to stem the illegal influx of migrants and drugs into the United States. The President relied on his authority under the International Emergency Economic Powers Act (“IEEPA”) to impose the tariffs, which included a 10% additional tariff on all imports from China, as well as an 25% additional tariff on all imports from Mexico and Canada, except certain energy products from Canada that would be subject to a lower rate of 10%. On February 3, President Trump issued two EOs pausing entry into force of the tariffs on Canada and Mexico until March 4, while the 10% tariff on China went into effect as scheduled on February 4.
On March 3, President Trump announced that tariffs would enter into force against imports from Mexico and Canada as scheduled on March 4, and that the 10% tariffs applicable to China would increase to 20%. Notices subsequently issued by U.S. Customs and Border Protection (“CBP”) confirmed all additional tariffs entered into force at 12:01 a.m. on March 4.
However, on March 5, the White House issued a statement indicating that—with respect to imported autos that qualify for duty-free treatment under preferential rules of origin applied under the U.S.-Mexico-Canada Agreement (“USMCA”)—the Canada and Mexico tariffs would be paused for one month. Subsequent statements indicated this exemption would also apply to auto parts, and that the President was open to considering exemptions for other products.
Then, on March 6, Trump announced an additional pause on tariffs for imports from Canada and Mexico that are “compliant” with the USMCA Agreement. Further details on this pause have not been released as of the time of publication.
Increased Tariffs on Chinese Imports
In a new EO issued on March 3, President Trump increased the 10% tariffs previously imposed on imports from China to 20%. Guidance issued by CBP clarified that the new 20% rate applies to goods entered for consumption into the United States after 12:01 a.m. on March 4. As before, the 20% tariffs will apply on top of any other applicable tariffs, including not only base rates set out in the U.S. Harmonized Tariff Schedule (“HTSUS”), but also any special tariffs already in force, such as antidumping or countervailing duties (“AD/CVD”) and duties applicable under Section 232 of the Trade Expansion Act of 1962 or Section 301 of the Trade Act of 1974.
The new EO functions as a single-line revision to previously issued EO 14195, whose other provisions remain in effect. This includes an exemption for certain imports already in transit as of February 1 and entered for consumption by March 7. Similarly, imports from China remain eligible for de minimis benefits for the time being—until the Secretary of Commerce notifies the President that “adequate systems” are in place to handle the increased processing requirements that the announced revocation of de minimis benefits for China would entail.
The tariffs imposed on China by EO 14195 and the new EO relate solely to the flow of fentanyl into the United States from China. The Office of the United States Trade Representative is currently conducting five separate reviews on U.S. concerns related to China’s trade and economic practices. These reports are due on April 1 and may result in recommendations for further tariffs based on distinct concerns.
Implementation of Canada and Mexico Tariffs
The 25% tariffs for Canada and Mexico (and 10% tariffs for energy products from Canada) entered into effect for imports entering the United States for consumption after 12:01 a.m. ET on March 4. These tariffs apply broadly to all imported products, and on top of any other tariffs applicable to these imports.
After the new tariffs took effect, Secretary of Commerce Howard Lutnick indicated on March 4 that President Trump was considering tariff exemptions for certain products eligible for preferential treatment under the rules of origin established in the USMCA. On March 5, the Trump Administration announced that it would grant a one-month exemption for automobiles and auto parts that “qualify” under USMCA. On March 6, President Trump also announced an additional pause for imports from Canada and Mexico that are “compliant” with the USMCA Agreement. Neither the President nor CBP has issued formal guidance clarifying the scope of the automotive exemption or the broader tariff pause as of the time of publication.
As with the previously imposed China tariffs, the President issued executive orders on March 2 (EO 14226, EO 14227) suspending the revocation of de minimis benefits for Canada and Mexico until the Secretary of Commerce notifies the President that “adequate systems are in place to fully and expeditiously process and collect tariff revenue.”
CBP published Federal Register (“FR”) notices for the Canada and Mexico tariffs, confirming several key details:
- Country of Origin: CBP’s implementing guidance clarifies that the tariffs will apply to goods that qualify as originating from Canada or Mexico under either the USMCA marking rules, as set forth in 19 C.F.R. Part 102, or CBP’s traditional substantial transformation test.
- Same Limited Tariff Carve Outs Apply: There are very limited carve outs from the Canada and Mexico tariffs for donated humanitarian goods and informational materials, as set out in federal law. See 19 U.S.C. §§ 1702(b). These limited carve outs are equivalent to those available under the additional China tariffs.
- Canadian Energy and Energy Resources: The definition of “energy or energy resources” matches that provided in the Energy Emergency EO, which explains at Section 8(a):
The term “energy” or “energy resources” means 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).
Foreign Government Responses
People’s Republic of China
China responded immediately with a new set of countermeasures. The Tariff Commission of the State Council promulgated two lists of American goods subject to additional tariffs. The first list of products, subject to an additional tariff of 15%, includes chicken, wheat, corn, and cotton. The second list of products, subject to an additional tariff of 10%, includes sorghum, soybeans, pork, beef, fruits, vegetables, and dairy products, among others. These new tariffs are scheduled to take effect on March 10.
China’s Ministry of Commerce (“MOFCOM”) released a suite of trade control measures targeting U.S. companies. MOFCOM added 15 companies to its Export Control Entity list and 10 companies to its Unreliable Entity List (“UEL”), thereby restricting the ability of the listed companies to engage in certain trade and investment activities in China. A majority of the targeted firms were already subject to Chinese sanctions under the UEL or the Countering Foreign Sanctions Law stemming from previous arms sales to Taiwan. MOFCOM also announced prohibitions on the import of certain DNA sequencing devices from U.S. companies, as well as the initiation of an anti-circumvention investigation into certain cut-off single-mode optical fibers from the United States. China’s General Administration of Customs announced that three U.S. companies would be disqualified from exporting soybeans to China, and suspended all imports of U.S. lumber.
At the World Trade Organization (“WTO”), where China had already filed a dispute against the United States challenging the legality of the original 10% tariffs, China supplemented its request for consultations with the United States to include the new 20% tariffs.
Canada
Canadian President Justin Trudeau announced that Canada would go forward with retaliatory measures it had previously laid out in February. Under that plan, Canada will impose retaliatory 25% tariffs on CAD 155 billion (USD 107 billion) of U.S. exports to Canada. Of those, tariffs on CAD 30 billion (USD 21 billion) in imports from the United States enter into effect immediately, and will include products such as orange juice, alcoholic beverages, appliances, clothing, motorcycles, and cosmetics. Tariffs on the remaining CAD 125 billion (USD 86 billion) will go into effect after a 21-day public comment period and will potentially include products such as passenger vehicles and trucks, steel and aluminum products, aerospace products, certain fruits and vegetables, beef, pork, and dairy. Canada also filed a WTO dispute challenging the consistency of the U.S. tariffs with U.S. international trade obligations.
Separately, Canadian provinces have threatened retaliation of their own. Several provinces have banned the sale of U.S. alcohol products and restricted the access of U.S. companies to provincial government procurement activities. Nova Scotia announced it would double the tolls for U.S. commercial vehicles entering Canada at Cobequid Pass. In addition, Ontario Premier Doug Ford announced that he will impose a 25% tariff on electricity sent from Ontario to the United States, effective March 10.
In response, President Trump stated in a social media post that his Administration’s anticipated “reciprocal” tariffs (described in a prior alert), which he has suggested may be announced on April 2, would take into account and would offset Canada’s retaliatory tariffs.
With President Trump subsequently announcing a pause on the tariffs on imports from Canada and Mexico that are “compliant” with the USMCA Agreement, it is unclear what this pause means for Canada’s announced retaliation.
Mexico
Prior to the negotiated tariff pause for imports from Mexico, Mexican President Claudia Sheinbaum stated that Mexico was preparing retaliatory measures to be announced on Sunday, March 9, which would reportedly include both tariff and non-tariff measures. If the tariffs are implemented in the future, it is likely that Mexico would move forward with announcing those retaliatory measures.
Mitigation Strategies for Businesses
Duty drawback continues to be unavailable under the China, Mexico, and Canada tariffs, but companies still have other mitigation options. CBP’s implementing regulations specifically provide that adjustments under Chapter 98 of the HTSUS will remain available for all three sets of tariffs. Companies could also evaluate other mitigation options, including the use of Foreign Trade Zones (“FTZs”) and bonded warehouses, first sale for export, tariff engineering, and correcting the applicable valuation methodology. Covington is available to assess company-specific applications of these potential mitigation strategies.
Future Tariffs and Related Developments
As reported in our prior alert, the Trump Administration previously announced additional Section 232 tariffs of 25% against imports of steel, aluminum, and related derivative products, which are set to take effect on March 12. Guidance issued to date indicates these Section 232 tariffs will apply cumulatively, on top of any IEEPA tariffs. In addition, the Trump Administration is poised to announce imposition of “reciprocal” tariffs against trading partners the Administration identifies as implementing unfair or non-reciprocal practices that harm U.S. business. The date often identified by Trump and his advisors as the target for announcing reciprocal tariffs is April 2. Tariffs on strategic product sectors such as semiconductors and pharmaceuticals are also under development. Finally, tariffs will likely be a key element of the upcoming review of the USMCA, which is scheduled to be completed no later than 2026.
For the Trump Administration, tariffs are part of a larger relationship strategy, aimed not only at driving changes in trade and investment patterns, but also at providing leverage to achieve progress on other, non-economic bilateral and foreign policy issues. In this context, it will be critical for companies doing business in North America to actively engage with the three governments as part of the review process.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Trade Policy practice.
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