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Executive summary

United States (US) President-elect Donald Trump published on TRUTH social (a social media platform owned by Trump Media & Technology Group) that one of his first Executive Orders will be to charge Mexico and Canada a 25% tariff on all products imported into the US.¹ Trump added that these tariffs would remain in place until the countries intensify efforts to combat drugs and illegal immigration.²

Trump also discussed charging China an additional 10% tariff on top of the tariffs already in place until it is concluded that China has taken a stronger stance on the issues of drugs crossing into the US from the Mexico border.³

Possible tariffs on imports into the US

On 8 November 2024, Donald Trump secured the electoral votes needed to become the 47th President of the US and will officially take office on 20 January 2025.

During his campaign, Trump stated his intention to impose tariffs of at least 10% on all goods being imported into the US and targeting additional tariffs on countries like China and Mexico.⁴ But this is one of the first times, since elected, that Trump has made a statement on specific tariffs to be introduced.

Most goods of Chinese origin are already subject to additional tariffs as a result of measures under Section 301 of the Trade Act of 1974 (Section 301). These additional tariffs on Chinese goods are part of ongoing trade actions aimed at addressing deemed unfair trade practices and protecting US industries. Notably, a significant legal challenge has been brought against the United States Trade Representative (USTR) regarding the assessment of these additional duties on goods imported from China under Section 301. The plaintiffs argue that the USTR exceeded its authority and did not follow proper procedures in implementing the tariffs. The US Court of Appeals for the Federal Circuit has scheduled oral arguments for 8 January 2025, as the litigation continues to seek relief from the imposed tariffs.

Moreover, it was already known that the partnership with Canada and Mexico was facing challenges. Trump signed the US-Mexico-Canada Agreement (USMCA) during his first presidential term. However, the USMCA has a sunset clause that introduces a "doomsday clock" mechanism, mandating a review every six years to decide on an extension. If not extended, annual reviews continue until the expiration date. During his 2024 campaign, Trump had expressed his intent to invoke the six-year renegotiation provision.⁵

There are several ways that the Executive Branch can modify tariff rates and impose trade remedies on the basis of national security or economic injury, including under Section 232 of the Trade Expansion Act of 1962, Section 201 and Section 301 of the Trade Act of 1974, and the International Emergency Economic Powers Act. Although legislation has previously been introduced to reassert greater congressional authority over trade policy, it is unlikely that Congress will meaningfully roll back presidential powers related to trade and tariffs. As a result, Trump is likely to have sweeping authority to implement significant trade and tariff policy priorities.

President-elect Trump's social media post regarding tariffs on imports from Mexico, Canada and China align with his campaign promises and could cause a significant financial impact to US importers.

Action for businesses

With an anticipated 10% increase in tariffs on all Chinese imports and a 25% tariff on all Mexican and Canadian imports into the US, US importers will face significantly higher customs duties after 20 January 2025, absent planning. Strategic planning is imperative to help mitigate these additional tariffs.

Immediate actions to consider for companies that import into the US include:

• Consider importing products from affected countries before 20 January 2025, if feasible. Be mindful of the additional inventory carrying costs, transfer pricing and direct cost implications, product limitations (e.g., perishables) and cash flow impacts.
• Analyze both financial and physical flows, as well as the import duties spent, to assess the potential duty impact of anticipated new tariffs.
• Evaluate current domestic or alternative sourcing options (e.g., outside of China, Canada and Mexico) and consider country-of-origin planning to mitigate duties.
• Consider valuation planning such as bifurcating product and non-product costs and first sale for export planning to help mitigate the increase in duty.
• Consider the alignment of customs valuation with transfer pricing policies. US tax reform has resulted in companies' migrating intellectual property (IP) back to the US. With IP in the US, and in a direct import model, customs value is decreased. For customs value, certain design and development costs must be added to value, but US research and development (R&D) can be excluded. For R&D-intensive companies with significant R&D in the US, value reduction can be significant.
• Optimize supply chains to utilize duty recovery through duty drawback, reclaiming duties paid on imports when the same or similar products are exported (e.g., substitution duty drawback).
• Conduct scenario-planning exercises to anticipate various outcomes of trade policy changes and develop contingency plans to ensure business continuity.
• Keep up with the latest news and developments in trade policies, and stay adaptable to quickly respond to changes in trade regulations and tariff rates. This includes understanding potential announcement of how the tariffs impact Foreign Trade Zone operations.