Executive summary

This edition of Trade Talking Points provides updates on:

• United States (US) tariffs on Canadian, Mexican and Chinese imports and retaliatory measures
• US review of US-China Phase 1 trade deal
• US reciprocal tariffs and announcement of additional tariffs
• European Union (EU) Competitiveness Compass
• European Commission 2025 work program
• EU Carbon Border Adjustment Mechanism (CBAM) announcements
• United Kingdom (UK) trade landscape
• UK Safety and Security declaration requirements
• UK steel consultation
• UK trade remedies

US tariffs on Canadian, Mexican and Chinese imports and retaliatory measures

On 1 February 2025, US President Donald Trump issued three Executive Orders (EOs) to impose tariffs on Canadian, Mexican and Chinese goods. Though the tariffs were initially due to come into force on 4 February 2025, President Trump has announced a delay to tariffs on imports from Mexico (25%) and Canada (25% with 10% for certain energy products) for a month, during which negotiations will be held between country representatives.

Chinese imports will be subject to an additional 10% duty rate to the tariffs already in force. The Executive Orders also place restrictions on the use of certain customs procedures, including de minimis and duty drawback.

To date, China has responded by imposing tariffs on a range of US-origin energy products and farm equipment. China has also imposed new export controls on a range of critical minerals and launched investigations into certain US companies.

Businesses should identify the impacts that the announcements and proposed tariff hikes may have on their operations, and consider commencing short-term actions to help mitigate exposure, including scenario-modeling or the assessment of customs valuation, classification and origin. Businesses should also stay up to date with the latest news and developments and be prepared to adapt quickly to changes in trade policies and tariff rates.

For more information, see EY Global Tax Alert, United States issues Executive Orders imposing additional tariffs on Canada, Mexico and China, dated 3 February 2025.

US review of US-China Phase 1 trade deal

On 24 January 2025, the Office of the US Trade Representative (USTR) announced that it would be reviewing the Economic and Trade Agreement between the US and the People's Republic of China (PRC) to determine whether the PRC is acting in accordance with its commitments outlined in the agreement.

The review is conducted pursuant to Section 3(a) of the Presidential Memorandum America First Trade Policy, signed on 20 January 2025. (For more see EY Global Tax Alert, United States President signs 'America First Trade Policy' Presidential Memo, dated 22 January 2025.)

US reciprocal tariffs and announcement of additional tariffs

On 13 February 2025, US President Trump signed a Presidential Memorandum aimed at addressing non-reciprocal trading arrangements with US trading partners. The primary goal of the Memorandum is to foster fairness and balance within the international trading system, and account for trade practices that disadvantage the US. (See EY Global Tax Alert, United States initiates review to determine reciprocal tariffs on all trading partners, dated 14 February 2025.

Within 180 days of the issuance of the Memorandum, the Director of the Office of Management and Budget will evaluate the fiscal impacts on the US and provide an assessment and next steps to President Trump. This timeline suggests that reciprocal tariffs and trade restrictions may follow closely.

The investigations will focus on several key areas, including:

• Tariffs imposed on US products
• Unfair, discriminatory or extraterritorial taxes, such as value-added tax (VAT)
• Overall economic impact on US businesses, workers and consumers due to non-tariff barriers and unfair policies, including subsidies and burdensome regulations faced by US companies operating abroad
• Policies that lead to deviations in exchange rates from their market value
• Any other practices that impose unfair limitations on market access or create structural barriers to fair competition

In response, on 17 February the European Commission released a Q&A document regarding the United States' reciprocal tariff policy, including guidance on VAT in relation to tariffs, the EU's trade surplus rules, average tariff rates on both EU and US imports and asymmetrical tariff structures.

President Trump has also announced plans to impose a 25% tariff on all steel and aluminum imports into the US, beginning on 12 March 2025. President of the European Commission Ursula von der Leyen has stated that the EU will respond to the steel and aluminum tariffs and is well-equipped to do so.

On 18 February 2025, President Trump announced his intention to impose tariffs "in the neighborhood of 25%" on imported automobiles from 2 April 2025. (See EY Global Tax Alert, US modifies and expands tariffs on steel and aluminum imports, citing national security, dated 18 February 2025.) The EU is in the process of reducing its current 10% tariff on US car imports to 2.5%, to match the 2.5% tariff the US imposes on European cars. President Trump also voiced his intention to impose tariffs of 25% or above on semiconductors and pharmaceutical imports, but the timing is uncertain.

Businesses should consider adopting proactive strategies that assess the interplay of the new America First Trade Policy, the abovementioned reciprocal tariffs and non-tariff measures, and expected retaliatory action from US trading partners.

EU Competitiveness Compass

On 29 January 2025, the European Commission presented its Competitiveness Compass, an initiative that provides a framework to position Europe as a leader in future technologies, services and clean products. The Compass builds on the Draghi report and is the first major initiative of the Commission in this mandate. (See also EY Global Tax Alert, Global Sustainability Tax Policy Developments (January 2025), dated 12 February 2025.)

The Compass focuses on three core areas:

1. Closing the innovation gap by fostering a supportive environment for start-ups and high growth sectors based on deep technologies
2. A joint roadmap for decarbonization and competitiveness to address high and volatile energy prices
3. Reducing excessive dependencies and increasing security by diversifying the EU's supply chains through Clean Trade and Investment Partnerships; public procurement rules will also be reviewed to allow for the introduction of a European preference in public procurement for critical sectors and technologies

These three "pillars" are supported by five horizontal enablers: simplification; lowering barriers to the Single Market; financing competitiveness; promoting skills and quality jobs; and better coordination of policies at the EU and national levels.

President Ursula von der Leyen emphasized the need for urgency and unity among Member States to transform the Compass's recommendations into actionable plans.

European Commission 2025 work program

On 12 February 2025, the European Commission (EC) adopted its 2025 work program, outlining the initiatives that the EC intends to undertake throughout the year. The program includes 51 policy initiatives as well as 37 evaluations and "fitness checks."

One of the key focuses of the work program is simplification of EU policies and laws to strengthen the EU's competitiveness. As part of its commitment to simplification, the EC is introducing three Omnibus packages:

• 1st Omnibus package on sustainability reporting (Q1 2025)
• 2nd Omnibus package on investment simplification (Q1 2025)
• 3rd Omnibus package on small mid-caps and removal of paper requirements (Q2 2025)

These Omnibus packages will be followed by a Digital package, a Common Agricultural Policy simplification package, the Industrial Decarbonization Accelerator Act and a review of the Securitization Framework, alongside other key initiatives with a significant simplification dimension.

EU CBAM announcements

On 13 February 2025, a high-level conference on the Carbon Border Adjustment Mechanism (CBAM) was held in Paris.

The French Minister for Industry and Energy, Marc Ferracci, outlined three main areas where additional work was needed on the EU CBAM:

1. Clarification of existing rules, including recognition of carbon price paid, verification of emissions and easing the burden on small and medium-sized enterprises
2. Reinforcing the effectiveness of EU the CBAM through expansion to downstream products and a solution for exports
3. Preventing circumvention

The Director General of TAXUD at the European Commission, Tomas Gerassimos, noted that there will be simplifications for smaller importers, which will entail a new de minimis of tons of CO2, with the exact number still being discussed internally. Simplifications could also include measures for National Competent Authorities (NCAs).

There is also a focus on the implementing regulations, which are yet to be agreed and will require the involvement of the NCAs of the 27 EU Member States. Several major EU countries, such as France, Italy and Poland, are advocating for the EU CBAM to be expanded in the coming years in order to help the EU repay the debt of over €300b that it built up during the COVID-19 pandemic.

Businesses should be aware of the potential requirement to undertake more EU CBAM due diligence in the event that they shift suppliers in the coming months in response to the US tariff announcements and broader supply chain changes.

UK trade update

Recent developments in the UK trade landscape include:

• The new "global growth team" of UK Trade Envoys. On 28 January 2025, the UK Business and Trade Secretary appointed 32 parliamentarians as UK Trade Envoys. Each Trade Envoy has been assigned a target market across the world and is responsible for identifying trade and investment opportunities for UK businesses, as well as promoting the UK as a preferred investment destination in those markets.
• The UK Trade Minister's visit to South Africa and Botswana. UK Trade Minister, Douglas Alexander, visited South Africa and Botswana in late January 2025. During the visit, Alexander co-chaired the first Southern African Custom Union and Mozambique (SACUM) — UK Economic Partnership Agreement (EPA) Joint Council, and met with the Trade Ministers of South Africa, Botswana, Eswatini, Lesotho and Namibia to discuss future growth areas including infrastructure, energy, transport and logistics, agriculture, minerals, and the digital economy.
• The UK Business and Trade Secretary's upcoming visit to India. Secretary of State for Business and Trade, Johnny Reynolds, is due to visit India to restart trade deal negotiations. The visit follows UK Prime Minister Keir Starmer's announcement that UK-India Free Trade Agreement discussions would relaunch in early 2025 due to general elections in both the UK and India stalling talks in 2024. (Officials from India and the UK will reportedly restart talks on the agreement on 25 February 2025.)

UK Safety and Security declaration requirements

As of 31 January 2025, all EU imports into the UK require Safety and Security declarations. Legal responsibility for submitting the declarations lies with haulers or carriers. The UK Government has published guidance for businesses on preparing for the new Safety and Security declaration requirements.

Those who are not yet ready to submit declarations should engage with their supply chains to check who is responsible for submission. Goods for which Safety and Security declarations have not been made from 31 January 2025 onward could be subject to checks, which would have otherwise been unnecessary, and businesses could be liable for financial penalties.

UK steel consultation

The UK Business Secretary launched the Plan for Steel Consultation on 16 February 2025, inviting stakeholders to provide input on the upcoming Steel Strategy, which is set to be published in Spring 2025.

The consultation aims to address long-standing challenges in the steel sector, including high electricity costs, unfair trading practices and scrap metal recycling, with the goal of safeguarding jobs and living standards in key industrial regions in the UK.

The Plan for Steel will explore ways to expand domestic steelmaking, improve scrap-processing facilities and encourage the use of UK-made steel in public projects. An independent review is underway to assess the UK's primary steelmaking capabilities and production technologies.

Businesses interested in responding to the consultation have until 11:59 p.m. on 30 March 2025 to do so.

UK trade remedies update

The UK Trade Remedies Authority (TRA) has announced that some of its initial trade remedies are due to expire in January 2026. The TRA is contacting industries impacted by the measures, in addition to encouraging UK producers of the affected goods to consider applying for an expiry review if they believe that the expiration of these measures could cause injury to their industry.

The measures set to expire cover the following products:

• Welded tubes and pipes from Belarus, China and Russia
• Rainbow trout from Turkiye
• Biodiesel from the US and Canada
• Continuous glass fiber from China
• Wire rod from China

Businesses have until October 2025 to request an expiry review, and guidance on the process can be found here. Measures for which requests are not submitted will automatically expire in January 2026 and could leave UK producers exposed to unfair dumping or subsidization.