Trump Administration Imposes Tariffs on Imports from Canada, Mexico, and China

On February 1, President Trump issued three executive orders (“EOs”) imposing broad tariffs on U.S. imports from Canada, Mexico, and China, initially to be effective on February 4. Invoking Presidential authority under the International Emergency Economic Powers Act (“IEEPA”), the EOs expand the national emergency declared by the President on his first day in office in Presidential Proclamation 10886 (Declaring a National Emergency at the Southern Border), and declare that the governments of Canada, Mexico, and China have failed to take appropriate action to stem the illegal influx of migrants and drugs, including fentanyl, into the United States. The EOs establish that the increased tariffs which take effect February 4 shall remain in place until the President has determined that these countries have taken sufficient action to alleviate this crisis, and that the President may take additional action—including by further increasing or expanding tariffs—if these countries either fail to act or respond by imposing retaliatory trade measures against the United States.

Increased Tariffs on Imports from Mexico, Canada, and China

The EOs establish that additional tariffs of 25% shall apply to all imported products from Mexico and nearly all products from Canada. Certain energy products from Canada (including, among others, crude oil, natural gas, electricity, refined petroleum products, uranium, coal, biofuels, and critical minerals) will be subject to a lower additional tariff rate of 10%.[1] In addition, all products from China will be subject to an additional tariff of 10%. These additional rates are imposed on top of any existing tariffs applicable to imports from these countries, including not only base rates set out in the U.S. Harmonized Tariff Schedule (“HTS”), 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 additional tariffs will take effect on February 4, 2025, though U.S. Customs and Border Protection (“CBP”) will establish a procedure to exempt certain imports already in transit as of February 1.

The EOs are vague on a number of important details regarding implementation of the tariffs, many of which are expected to be addressed in Federal Register notices that the Department of Homeland Security (“DHS”) is directed to issue, for example to identify modifications to the HTS necessary to effectuate the orders. Importantly, for products with multi-country supply chains, the EOs do not explain what rules of origin CBP will apply to determine country of origin for purposes of applying these new tariffs. Additionally, while the EO imposing duties upon Canadian imports sets out by reference a general definition of energy and energy resource products subject to lower tariff rates of 10%, the corresponding Federal Register notice is expected to define with greater specificity the precise scope of such products, using HTS sub-headings associated with these imports. The notices are also expected to address a number of important procedural details regarding implementation of the tariffs by CBP. No date is mandated for issuance of these notices, though it is expected that DHS will publish these notices in the coming days.

Revocation of Eligibility for De Minimis and Duty Drawback Benefits

In addition to increasing tariff rates, the EOs make important changes to the eligibility of imports from Canada, Mexico, and China for certain customs treatment under U.S. law. In particular, the EOs render imports from these countries ineligible for so-called “de minimis” benefits under Section 321(a)(2)(C) of the Tariff Act of 1930 (19U.S.C.§1321(a)(2)(C)). Under this provision, certain shipments of imports valued at $800 or less may be imported into the United States duty-free.[2] By excluding shipments of all imports from Canada, Mexico, and China from eligibility for this de minimis exception, the EOs will apply the heightened tariffs announced in the EOs to low-value shipments that would otherwise have been able to be imported tariff-free. Such low-value shipments may now also be subject to any other tariffs traditionally applicable only to shipments valued above the $800 threshold.

Furthermore, tariffs imposed under the EOs will be ineligible for duty drawback benefits, which generally allow importers to obtain a refund of fees, taxes, and tariffs paid for goods imported into the United States and then later reexported or destroyed.

No Process Identified for Requesting Tariff Exemptions

The EOs do not mention or identify any process for requesting product-specific exclusions from the new tariffs, and the Trump administration has not indicated any plans to implement such a process. By contrast, product exclusion processes were announced when special tariffs were imposed under the first Trump administration, including China Section 301 tariffs and Section 232 tariffs on steel and aluminum products. For example, for the Section 301 tariffs that entered into force in July 2018, the Office of the U.S. Trade Representative (“USTR”) established a process for product exclusions on the same day that the first tariffs became effective. The exclusion request process remained open from July 2018 to October 2018, and the first exclusions were granted by USTR in December 2018 and applied retroactively. With respect to Section 232 tariffs imposed in 2018, the Commerce Department’s Bureau of Industry and Security (“BIS”) similarly established a process for granting tariff exclusions in response to a direct instruction by the President contained in the Proclamations announcing the tariffs.

The EOs contain no instruction with respect to establishment of an exclusion process, nor is any such process mentioned in the White House Fact Sheet regarding imposition of the tariffs. If the Trump administration later implements a process for exclusion requests, Covington is available to assist clients in navigating the process.

Litigation Challenges and Limited Role for Congress

As described in our prior alert, the President has broad delegated authority to regulate imports. In addition, compared to Section 301 or Section 232, the IEEPA statute itself imposes few procedural requirements for agencies as prerequisites to presidential action. Nonetheless, the President’s use of IEEPA in this manner may be open to challenge in federal courts, which recently have shown some willingness to substantively evaluate IEEPA actions that have broad domestic effect and may be perceived as resulting from rushed decision making.

Once the President takes action under IEEPA, he must “immediately” transmit a report to Congress that describes the actions taken and explains their necessity. While Congress retains the ability to terminate a national emergency declared by a President (which is a necessary prerequisite for action taken under IEEPA), it has never successfully exercised this power, and Republican control of Congress renders such an outcome very unlikely.

Foreign Government Responses

In response to any tariffs imposed by the United States, the Canadian government has announced it will impose retaliatory 25% tariffs on CAD 155 billion (USD 105 billion) of U.S. exports to Canada. Of those, CAD 30 billion (USD 20 billion) enter into effect on February 4, 2025, and will include products such as orange juice, alcoholic beverages, appliances, clothing, motorcycles, and cosmetics. The remaining CAD 125 billion (USD 85 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 indicated it is considering other non-tariff measures. Separately, several Canadian provinces have implemented retaliatory measures, including limiting access to provincial procurement for U.S. businesses, removing U.S. products from sale, and increasing tolls for commercial vehicles entering from the United States.

While Mexican President Claudia Sheinbaum stated in a post on X on February 1 that Mexico will also respond to any U.S. tariffs with both tariff and non-tariff measures, no further details have been provided regarding what products may be subject to Mexican retaliatory measures in the event U.S. tariffs go into effect. In past actions retaliating against U.S. trade measures, including under procedures set out under World Trade Organization (“WTO”) rules and the North American Free Trade Agreement (“NAFTA”), Mexico has targeted politically-sensitive agricultural goods, food products, consumer appliances, and other manufactured articles.

An official statement from China’s Ministry of Commerce indicated that China plans to respond to any U.S. tariffs by initiating a WTO dispute and taking unspecified countermeasures. While the Chinese government has not clarified what these countermeasures could entail, China previously imposed escalating retaliatory tariffs on a range of U.S. exports—including agricultural products, autos and auto parts, medical equipment, chemicals, and textiles—in response to tariffs imposed by the first Trump administration. China may also consider other tools for potential retaliation, including restrictions on exports of certain products to the United States.

Potential for Future Tariffs

As these recent tariff announcements confirm, the Trump administration continues to view tariffs as a key policy tool for addressing both economic and non-economic issues. In the days before the issuance of the EOs, the President made a number of remarks suggesting his administration may be considering further tariffs against other countries or specific product sectors. For instance, President Trump has suggested tariff measures may be forthcoming as early as mid-February with respect to computer chips, pharmaceuticals, steel, aluminum, copper, and oil and gas imports. President Trump has also threatened tariff increases against the European Union as a result of significant bilateral trade deficits, as well as against BRICS countries attempting to find an alternative currency to the U.S. dollar for international trade.

Practical Considerations for Business

In assessing the practical effect of tariffs on their business, companies should be mindful that, where a product is subject to the new tariffs, the amount of the tariff will likely be calculated based on the “entered value” of the imported goods as declared to CBP. While incorrect application of CBP’s valuation rules to date has not been a major risk for goods eligible for duty-free treatment under the U.S.-Mexico-Canada Agreement (“USMCA”) or for de minimis entry, CBP is likely to actively scrutinize future import entries subject to these new tariffs, looking for instances of undervaluation.

Companies should also review contractual arrangements to understand which parties bear the risk of increased duties, as contract terms may shift such costs between the buyer and seller. While many force majeure clauses in contracts would generally not protect against tariff increases, this question will depend on the specific contractual language, and there may be other contract doctrines related to performance that could come into play. Covington’s trade and disputes lawyers are well-situated to advise on these issues.

Covington can also assist businesses with options for mitigating the effects of the tariffs in the short and long term, including assessments of the commercial impact of the tariffs, evaluation of alternative suppliers, and options to shift merchandise to other markets. Covington is also available to advise on customs compliance, political engagement strategies, and litigation options, including potential legal challenges against the tariff measures, as well as disputes regarding contractual obligations between buyers and sellers of goods impacted by the new tariffs.

Conclusion

The tariffs imposed against imports from Canada, Mexico, and China threaten to have a significant impact on companies that rely on international supply chains or customers. Moreover, the Trump administration may seek to impose additional tariff measures on particular products or trading partners in the coming weeks or months. Exposure to foreign retaliatory measures may also significantly impact companies that export from the United States or rely on cross-border supply chains. Covington’s diverse trade policy team is uniquely positioned to provide thoughtful strategic advice to clients seeking to monitor, prepare for, and react to these evolving trade developments.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Trade practice.

[1] “Energy or energy resources” from Canada that are subject to the lower tariff rate of 10% are defined by reference to a separate EO—no. 14156, issued on January 20, 2025—declaring a national emergency with respect to insufficient U.S. energy production, transportation, refining, and generation.

[2] To date, de minimis treatment has applied even to low-value shipments that would otherwise be subject to special tariffs, including, for instance, tariffs imposed on a range of imports from China under Section 301, as well as tariffs imposed on certain steel and aluminum products under Section 232. On January 21, 2025, CBP issued a Notice of Proposed Rulemaking proposing to exclude shipments valued at $800 or less and subject to special tariffs imposed under Section 301, Section 232, as well as tariffs imposed under Section 201 of the Tariff Act of 1930, from eligibility for the de minimis exemption, though this change is still under consideration.