New tariffs imposed on Canada and Mexico, tariffs increased on China

Additional IEEPA Tariffs Imposed

On March 4, new tariffs under the International Emergency Economic Powers Act (IEEPA) went into effect on imports from Canada and Mexico. The IEEPA tariffs include an additional 25% duty on imports from Canada and Mexico, with an exception for energy or energy resources from Canada that received a lower 10% additional duty rate. This imposition of IEEPA tariffs on imports from Canada and Mexico comes after a 30-day pause after the initial IEEPA announcement. IEEPA tariffs on imports from China were set at a rate of an additional 10% and went into effect on Feb. 4. However, on March 4, the IEEPA rate for China increased by an additional 10%, bringing the total IEEPA rate for imports from China to 20%. These IEEPA tariffs apply in addition to the ordinary rate of duty and other special tariffs already owed.

The current Trump administration has shown a preference to impose tariffs quickly, through unilateral executive action. The President’s use of IEEPA authority is founded on emergency declarations with respect to illegal immigration and drugs, such as fentanyl. The IEEPA executive orders explain that the purpose of the IEEPA tariffs is to secure the U.S.’s borders and to hold Canada, China, and Mexico accountable for stopping illegal immigration and the influx of illegal drugs into the United States. As a result, the executive order states that the IEEPA tariffs will continue “until such actions are expressly reduced, modified, or terminated.” This allows President Trump broad discretion to determine when sufficient action has been taken by Canada, China, or Mexico, that warrants termination of these additional tariffs. The governments of Canada and Mexico previously indicated interest in negotiating with the United States to avoid IEEPA tariffs. Despite initial hope for an additional pause on the IEEPA tariffs for Canada or Mexico, no further delay was granted and the IEEPA tariffs took effect in the early hours of March 4. By the afternoon of March 4, U.S. Secretary of Commerce Howard Lutnick indicated a possibility of finding a middle ground concerning IEEPA tariffs on Canada and Mexico. Clark Hill continues to monitor ongoing developments on this topic.

Exemptions

Very limited exemptions exist from the additional tariffs imposed under IEEPA.

• Certain Chapter 98 Goods: Most goods that receive duty-free treatment under Chapter 98 of the Harmonized Tariff Schedule (HTS) will continue to receive duty-free treatment, exempt from the IEEPA tariffs. However, certain products that received duty-free treatment under Chapter 98, such as products that were repaired abroad or assembled abroad using U.S. components, may face IEEPA tariffs on a portion of the value of the imported goods.
• Personal communications including imports of “postal, telegraphic, or other personal communication, which does not involve a transfer of anything of value” are not subject to additional IEEPA tariffs.
• Certain donations of humanitarian materials are not subject to additional IEEPA tariffs.
• Certain information materials such as publications, films, and artworks are not subject to additional IEEPA tariffs.
• Products for personal use including baggage accompanying persons entering the United States are not subject to additional IEEPA tariffs.
• Temporary exemption for De Minimis imports: This exemption is temporary. Although the IEEPA tariffs on Canada, China, and Mexico, each respectively removed the availability of de minimis treatment for imports of goods under $800, the executive orders were subsequently amended, allowing duty-free import of de minimis shipments to resume on a temporary basis. This exemption will be terminated when the Secretary of Commerce notifies the President that systems are in place to enforce the collection of duties on de minimis shipments from these countries.

Unlike prior tariffs, no formal exclusion process exists to request exclusions for particular products. Additionally, duty drawback is not available to goods imported from Canada, China, or Mexico.

Retaliation

Each of the three countries impacted by IEEPA tariffs have either issued or threatened to issue retaliatory tariffs against imports from the United States. China targeted the U.S. agricultural sector by imposing retaliatory tariffs of 15% on U.S. exports of soybeans, meats, and grains.

In response to the March 4, IEEPA tariffs on Canada, Canada immediately responded with 25% tariffs on $30 billion of various U.S. goods and an additional promise to extend these tariffs on an additional $125 billion of U.S. goods in 21 days.

The government of Mexico has likewise threatened to impose retaliatory tariffs quickly against imports from the United States. President Sheinbaum is expected to announce Mexico’s retaliatory tariff plan on Sunday, March 9, at a rally in Mexico City.

Escalating trade tensions and reciprocal tariffs

Retaliatory tariffs are expected to further escalate trade tensions between the United States and its foreign trading partners, particularly as the United States also prepares to impose “reciprocal tariffs” in early April. The idea of reciprocal tariffs is to impose tariffs on imports from other countries that are equivalent to the tariffs imposed by those foreign countries on U.S. goods. As a result, increasing tariff rates in China, Canada, and Mexico as a result of retaliation are likely also to influence the reciprocal tariffs rates contemplated by the United States.

While reciprocal tariffs are not yet in effect, President Trump issued a memorandum on Feb. 13, entitled the Fair and Reciprocal Plan, ordering various U.S. government agencies to study trade imbalances and to develop a reciprocal tariff plan. The government agencies’ reports studying reciprocal tariffs and developing a plan to implement those tariffs are due to President Trump by April 1. The President is expected to take immediate action on these reports, imposing reciprocal tariffs as early as April 2.

Clark Hill

At Clark Hill, we understand that changing tariff policies cause significant disruptions to normal business operations. Clark Hill offers a multipronged approach to advise clients on trade relations and to develop strategies to improve supply chains. To learn more, please contact one of Clark Hill’s international trade attorneys, such as Mark Ludwikowski and Kelsey Christensen in Washington, DC, or one of Clark Hill’s Mexico City-based corporate attorneys, such as Mario Barrera.

This is a developing story.

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