Immediate U.S. Tariff Updates

Sunday, February 1, 2025, 11:49 p.m.

The is an end-of-day (early morning) summary of the tariff actions announced by the United States against imported products of Canada, Mexico, and China, and the potential retaliatory actions by those countries against U.S. exports. 

Beyond the amount of the tariffs and timing, there is no exclusion process for the U.S. tariffs and there are key limitations/restrictions on existing and potential duty mitigation strategies such as duty drawback and foreign trade zone (FTZ) designations.  Moreover, and potentially underreported, is that the U.S. action eliminates Section 321 “de minimis” exemptions (i.e., the $800 rule) for products of China, Canada and Mexico, which has implications for e-commerce retailers, fast fashion and many other North American companies including the warehouse and third-party logistics providers that have large presences in border regions.

We emphasize that this is just the beginning of the America First Trade Policy agenda.  The review of the “new NAFTA”/USMCA is underway, the U.S. has launched analyses of planned sectoral tariffs (e.g., steel, aluminum, semiconductors, copper, oil & gas, pharmaceuticals), and the across-the-board Global Supplemental Tariffs loom, all with target dates in Q1/Q2 2025.

1. President Trump issued three (3) Executive Orders on February 1, 2025 largely confirming our prior report that the U.S. will impose the tariffs pursuant to the International Emergency Economic Powers Act (“IEEPA”) that will take effect on goods entered into the United States that are “products of” Canada, Mexico, or China effective Tuesday, February 4, 2025 as follows:

• A 10% tariff on “products of Canada” that are“energy resources” defined as crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals (as critical minerals are defined by 30 U.S.C. 1606 (a)(3))”.
• A 25% tariff on all other “products of Canada”.
• A 25% tariff on all “products of Mexico”.
• A 10% tariff on all “products of China”.
• All of these tariffs are in addition to/cumulative “with any other duties, fees, exactions or charges”.
• The definitions of “products of Canada” “products of Mexico” and “products of China” will be determined by the U.S. Department of Homeland Security (DHS) / U.S. Customs and Border Protection (US-CBP) as to be defined in forthcoming (not yet available) Federal Register Notice(s).  Typically, the rules surrounding country of origin (“COO”), which govern nearly all customs matters, will be used to define “products of”.
• THERE IS NO EXCLUSION PROCESS AT THIS TIME.
• For goods that are “products of Canada”, “products of Mexico” and “products of China” and enter Foreign Trade Zones (FTZs), those goods must now only enter as “foreign privileged status”, which “locks in” the tariffs as of the date the goods entered the FTZ as opposed the later date when the goods may be withdrawn/sold (e.g, a later date when the tariffs may be removed), thereby limiting this tariff mitigation technique.
• No duty drawback “will be available with respect to the duties imposed pursuant to this order” which also eliminates a common tariff mitigation technique.
• The removal for ALL “products of Canada”, “products of Mexico” and “products of China” the use of de minimis / section 321 treatment which largely exempts certain customs requirements for shipments over USD 800.  This is a significant elimination for e-commerce and parcel shipments and has broad implication for the trade.
• Limited treatment for goods that are entered for consumption, withdrawn from a warehouse for consumption, loaded on a vessel at the port of loading, or in transit on the final mode of transport between February 1, 2025 and February 4, 2025 to address those goods moving during the “gap” period.
• The President reserves the right to “increase or expand in scope the duties” should Canada, Mexico, or China retaliate.
• Any prior Presidential Proclamation, Executive Order, or other Presidential Directive or guidance that is related to trade with Canada, Mexico or China that “is inconsistent” with the new EO is “terminated, suspended or modified to the extent necessary.”  Moreover, the national security exception in international trade matters (and USMCA) likely would be raised as a U.S. defense to any challenge by the three targeted countries.
• The Secretary of Homeland Security (Kristi Noem), in coordination with Secretary of State (Marco Rubio), the Attorney General (Pam Bondi), Assistant to the President for National Security Affairs (Michael Waltz), and the Assistant to the President for Homeland Security (Stephen Miller), shall inform the President “of any circumstances, that, in the opinion of the Secretary of Homeland Security, indicate”: “the Government of Canada has taken adequate steps to alleviate this public health crisis through cooperative enforcement actions”, the “Government of Mexico has taken adequate steps to alleviate the illegal migration and illicit  drug  crisis through cooperative actions”, or “the PRC [People’s Republic of China] Government has taken adequate steps to alleviate the opioid crisis through cooperative actions.” The President then will determine if tariffs should be removed.

2. The Executive Orders impose the tariffs pursuant to the IEEPA which affords the President with the authority “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.”  The President declared a national emergency on January 20, 2025 with the issuance of Proclamation 10886 National Emergency at the Southern Border relating to undocumented migration and illegal drugs.  The three new Executive Orders expand that emergency action and include repeated references to fentanyl, opioids, drugs methamphetamine, cocaine, border security, human trafficking, smuggling, the purported relationship between drug cartels and the Mexican government, and China’s fentanyl traffickers’ purported relationship with the PRC government, the strain on the U.S. public health system and many other emergency issues.

i.      With regard to Canada, the Imposing Duties to Address the Flow of Illicit Drugs Across our Northern Border Proclamation expands the emergency action “to cover the threat to the safety and security of Americans, including the public health crisis of deaths due to the use of fentanyl and other illicit drugs and the failure of Canada to do more to arrest, seize, detain, or otherwise intercept [drug trafficking organizations] other drug and human traffickers, criminals at large, and drugs.” The Proclamation specifically cites: (1) Canada’s “central role” in the sustained influx of opioids and other drugs, (2) Canada’s failing to devote sufficient attention and resources to meaningfully coordinate with United States Law enforcement partners to stem the tide of illicit drugs; (3) human trafficking and smuggling at the northern border, (4) Mexican cartels operating fentanyl and nitazene labs in Canada, (5) the flow of drugs from Canada to the U.S. through illicit networks and mail, including de minimis shipments, and (6) Canada’s Financia Transactions and Reports Analysis Centre information regarding money laundering of illicit proceeds and the expansion of fentanyl production, particularly in British Columbia.  The Proclamation notes the low volumes of fentanyl in Canada as compared to the “southern border” but highlights that even small amounts of fentanyl can kill Americans.

ii.      With regard to Mexico, the Imposing Duties to Address the Situation at Our Southern Border Proclamation expands the emergency action “to cover Mexico’s failure to arrest, seize, detain, or otherwise intercept DTOs, other drug and human traffickers, criminals at large and illicit drugs.”

iii.      With regard to the PRC, the Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China Proclamation expands the emergency action “to cover the failure of PRC government to arrest, seize, detain, or otherwise intercept chemical precursor suppliers, money launderers, other [transnational criminal organizations], criminals at large, and drugs.”

3. IEEPA requires the President to consult with Congress “in every possible instance” before taking action pursuant to the statute.  Additionally, the President must perform certain post-imposition actions such as publishing the action in the Federal Register.  The main “check” against IEEPA abuse is Congress, which can issue a joint resolution (required in both the U.S. House of Representatives and U.S. Senate) removing the underlying national emergency.  Given the Republican majorities in the U.S. House of Representative and U.S. Senate, and the nexus to the politically sensitive issues of the U.S. southern border, fentanyl and China, it is unlikely that Congress initially will seek to repeal the national emergency unless there are significant economic costs over time and political outcry.
4. Legal questions may arise regarding the use of IEEPA to impose tariffs.  IEEPA typically is used to impose sanctions and seizures (e.g., terrorism related asset seizures) but there is only one instance of imposing tariffs.  Specifically, President Nixon used IEEPA under a predecessor statute in the early 1970 to impose “surtaxes” (i.e., tariffs) to address currency issues.  It has not been used to impose tariffs since that time.  It is highly likely that there will be legal and/or procedural challenges surrounding the tariff authority under IEEPA and procedural elements such as consultation. These will take time and are unlikely (absent TRO/injunctive relief) to stop the imposition of the tariffs in the near term.
5. Canada has announced retaliatory tariffs of 25% against $155 billion of U.S. goods, with $30 billion to commence on Tuesday, February 4, 2025 and the remaining $125 billion to be implemented in 21 days’ time.  These will be tailored to specific products in politically important congressional districts (e.g., Republican districts), largely in Ohio, Michigan and Florida among others, including beer, wine, bourbon, fruits and fruit juices, vegetable, perfume, clothing, household appliances, lumber and more.  At this time, non-tariff measures such as restrictions on energy and critical minerals are being considered but not imposed.  Mexico will retaliate with a “carousel” where products are drawn from all sectors and cycle on and off the list at set periods. Mexico also has advised that it may impose non-tariff actions.

We emphasize that today’s tariffs are just the opening bell. The next wave of trade actions include potential oil and gas, steel and aluminum, semiconductors, pharmaceuticals and other sectoral tariffs, negotiations and potential withdrawal of the U.S. from USMCA/CUSMA, and the Global Supplemental Tariffs that may range as high as 10%-20%.  Tariff mitigation strategies, including contracting and sourcing, should be designed and deployed as quickly as possible.  We are available to assist.

Dan Ujczo | Senior Counsel | Thompson Hine LLP