President Trump announces tariffs on Canada, Mexico, and China

On February 1st President Trump signed three executive orders imposing 25% tariffs on imports from Canada and Mexico and a 10% additional tariff on imports from China starting from February 4th. Additionally, as an exception certain “energy resources” that are products of Canada would be subject to a tariff of 10%. The tariffs were set to address national security concerns related to unlawful immigration and the flow of illicit drugs and drug precursors.

Mexico, Canada and China announced retaliatory measures in response to US tariffs. Canada promised to impose 25% tariffs on agricultural products, clothing, sport equipment and home appliances. Mexico declared it would introduce tariffs on some products such as agricultural goods, steel and aluminum. China also announced that it will introduce certain measures. It is planning to challenge US tariffs at the level of the World Trade Organization (WTO) and introduce 15% tariffs on coal and LNG, as well as 10% duties on crude oil, agricultural machinery, and some vehicles. Additionally, the Chinese Commerce Ministry announced export restrictions on materials such as tungsten, which is used in high-tech products, and sanctions on two US companies. The imposition of Chinese tariffs is set to take effect on February 10th.  

Following talks with the leaders of Mexico and Canada, President Trump released executive orders on February 3rd pausing implementation of tariffs on imports from those countries for 30 days. The executive order for China is now in effect.  

President Trump’s recently announced tariffs, if fully enforced, are anticipated to have significant consequences, such as higher prices for consumers, disruptions in supply chain, and escalated trade tensions with the United States’s biggest trading partners. 

Additionally, executive orders issued by President Trump introduce a more stringent approach to tariff application. The executive orders for each jurisdiction state that the duties imposed by the orders will not be eligible for duty drawback and the products covered therein will not be eligible for the duty-free de minimis treatment under 19 U.S.C. 1321 (i.e., exceptions from customs duties for shipments below 800 USD). 

Companies affected by the recently imposed tariffs should conduct comprehensive assessments to evaluate the financial and supply chain implications on their activities. They should consider implementing mitigation strategies such as exploring alternative sourcing options, adjusting inventory levels to accommodate possible delays and higher expenses, leveraging special trade programs and renegotiating supplier contracts.

As President Trump pushes forward with his America First Trade Policy, the potential consequences on the trade environment appear to be significant and pose challenges for companies as they strive to grasp the effects of tariff actions and retaliatory measures on their supply chains and business structures. It is crucial for companies to engage in thorough modeling exercises to assess the impact of tariffs and develop appropriate mitigation strategies. Given the anticipated swift changes in the trade landscape as countries respond, companies need to stay informed about latest developments to adopt their supply chain and trade strategies effectively, mitigating the impact of tariffs and supply chain disruptions in this evolving trade environment.