Trump Administration Imposes “Reciprocal” Tariffs

On April 2, the President signed an Executive Order (“EO”) announcing “reciprocal” tariffs based on his authority under the International Emergency Economic Powers Act (“IEEPA”). Citing disparate foreign tariff rates and non-tariff barriers, as well as harmful foreign economic policies, the President declared that the resulting lack of reciprocity in U.S. trade relationships constituted a national emergency.

As a result, imports into the United States will generally be subject to increased tariffs of at least 10 percent, subject to certain important exceptions. Tariffs of 10 percent will first take effect on April 5, followed by an increase in tariffs for a certain subset of countries on April 9. U.S. Customs and Border Protection (“CBP”) is expected to issue more detailed implementation guidance regarding the tariffs in coming days.

These reciprocal tariffs are expected to have a significant impact on international supply chains, as could potential foreign retaliatory measures. Moreover, the Trump administration has indicated it may take steps in the near term to impose additional sector-specific tariff measures, which could impact products currently excluded from the scope of the new reciprocal tariffs.

Under the terms of the EO, imports into the United States will generally be subject to increased tariffs of at least 10 percent, subject to certain important exceptions. Specifically:

• Beginning April 5 at 12:01 am EDT, imports from all trading partners other than Canada and Mexico will be subject to an additional tariff of 10 percent.
• Then, beginning April 9 at 12:01 am EDT, for a specific subset of countries listed in Annex I of the EO, tariffs will increase from 10 percent to a country-specific rate. These country-specific rates range from 11 percent to as high as 50 percent.

There is an “on the water” exception for goods loaded onto a vessel at their port of loading and in transit to the U.S. on the final mode of transit before the effective dates of each of these tariffs. The EO does not specify a deadline by which goods on the water must enter the United States to qualify for this exception, though such deadlines may be announced later pursuant to guidance from CBP.

In general, duties imposed by the EO are to be applied in addition to any other applicable duties, subject to various important exceptions described below.

Section 3(b) of the EO sets out various exceptions to the new reciprocal tariffs.

Products Subject to Current or Future Section 232 Tariffs

At present, the EO indicates that reciprocal tariffs will not apply to certain products subject to tariffs under Section 232 of the Trade Expansion Act of 1962 (“Section 232”). These include, for instance, articles and derivatives of steel and aluminum covered by Section 232 tariffs.

Also exempted from the reciprocal tariffs are automobiles and automotive parts subject to Section 232 tariffs recently announced in a separate EO issued on March 26. The specific autos and auto parts subject to these tariffs are identified in annexes attached to the March 26 EO, which were published on April 3.

The EO also exempts from any reciprocal tariffs all articles that may become subject to new Section 232 actions in the future.

Products Exempted under Annex II of the EO

Also exempt from reciprocal tariffs are certain products identified in Annex II of the EO. These products include copper, pharmaceuticals, semiconductors, lumber, and critical minerals, as well as energy and energy products. Products listed in Annex II belong to sectors that the President and his advisors have repeatedly indicated are likely to be subject to separate, sector-specific tariffs that may be announced in the near term. Indeed, the President has already ordered the initiation of Section 232 investigations into imports of copper and lumber.

Exemptions for Canada and Mexico

As described in our previous client alert, President Trump imposed broad tariffs of up to 25 percent on U.S. imports from Canada and Mexico, effective March 4, for failure to take appropriate action to stem the illegal influx of migrants and drugs into the United States. President Trump lifted those tariffs effective March 7 with respect to imports from Canada and Mexico deemed to be “compliant” with the U.S.-Mexico-Canada Agreement (“USMCA”) Agreement—i.e. goods that qualify as originating under the USMCA rules of origin and properly claim preferential treatment. That exemption was not retroactive; goods that were entered for consumption between March 4 and 7—even if USMCA-compliant—were subject to 25 percent duties.

The EO makes no changes with respect to the IEEPA tariffs currently in effect on certain goods imported from Canada and Mexico. Rather, the EO confirms that those tariffs remain in force, subject to the exemption for USMCA-compliant imports. Goods imported from Canada and Mexico that are not USMCA-compliant remain subject to the IEEPA tariffs of 25 percent. Moreover, the EO specifies that the new reciprocal tariffs shall not apply to imports from Canada and Mexico so long as the previously announced IEEPA tariffs remain in force. If those tariffs are ever terminated or suspended, the EO provides that all imports from Canada and Mexico that qualify as originating under USMCA shall not be subject to additional reciprocal tariffs, but imports that do not qualify as originating under USMCA will be subject to an additional reciprocal tariff of 12 percent.

Other Exemptions

Goods imported from Cuba, North Korea, Russia, and Belarus are also exempt from the reciprocal tariffs, and tariff rates specified in column 2 of the U.S. Harmonized Tariff Schedule will continue to apply. Those column 2 rates are generally much higher than the ordinary tariff rates that apply to other countries, though they may not be higher than some country-specific reciprocal tariff rates.

Finally, the EO provides that the reciprocal tariffs apply only to the non-U.S. content of a subject article, so long as at least 20 percent of the value of the article is U.S.-origin content. “U.S. content” refers to the value of an article attributable to components produced entirely or substantially transformed in the United States. The EO also authorizes CBP to collect information necessary to operationalize this provision, as permitted by law.

Availability of De Minimis Exemption

The de minimis exemption allowing duty-free treatment for low-value shipments will generally continue to apply to products subject to the new reciprocal tariffs, until the Secretary of Commerce notifies the President that adequate systems are in place to process and collect duty revenue for articles currently eligible for de minimis treatment. At the same time, a separate EO issued on April 2 terminated the de minimis exemption for goods from China and Hong Kong, effective May 2.

International Responses

The EO provides that the President may decrease or limit the scope or application of the tariffs if a foreign country takes significant steps to remedy non-reciprocal trade arrangements with the United States. Even before the April 2 announcement, several countries took steps to proactively reduce tariffs or perceived trade barriers, in the hope of reducing or avoiding new U.S. tariffs. While such measures have not spared countries from reciprocal tariffs to date, it is possible that continued engagement with the United States could lay the groundwork for negotiated tariff reductions in the future.

At the same time, several countries have taken steps to consider implementation of retaliatory trade measures, including the EU, UK, Brazil, and China, among others. In an attempt to deter such responses, the reciprocal tariff EO indicates that the President could take action to increase tariffs or expand their scope in response to any foreign retaliatory measures.

Covington’s trade lawyers have been advising a wide range of clients with regard to recent tariff actions and related customs and supply chain questions. Covington can also assist with assessing exposure to potential foreign retaliatory trade actions and evaluating options for navigating such measures.

If you have any questions concerning this alert, please contact the members of our Trade Policy practice.