Key Takeaways
- Even prior to yesterday’s “Liberation Day” announcements introducing a 10 percent baseline tariff (effective April 5) and additional country-specific reciprocal tariffs (effective April 9), which will dramatically alter international trade, there have been substantial changes in U.S. tariff policy.
- Trade-related actions have already affected, and will continue to affect, front-line U.S. importers, downstream consumers, and multinational and international businesses alike with strong vigor.
- Savviness about Harmonized Schedule (HS) classification and knowing what degree of third-country manufacturing activity is sufficient to change an item’s country of origin will become increasingly essential skills for business planning in an environment of increased tariffs.
- Expect continued testing of the limits of tariffs throughout this presidential term.
The month of April will mark the close of the first 100 days of the second Trump administration, in which we have already seen a number of significant trade-related announcements, orders, actions, and retractions come from the White House. After skipping past Day One without any concrete tariff actions (despite an otherwise record-setting number of Executive Orders for a presidential first day), President Trump in the subsequent weeks demonstrated clearly that tariffs and international trade will still be the subject of considerable focus in his second administration. So far, all these actions have been implemented through unilateral executive action and have experienced the characteristic levels of speed and unpredictability that have defined the beginning of the new administration.
Far from settled, the tariff episodes with Mexico and Canada that began on February 1, 2025—originally to be implemented on February 4, 2025, then deferred temporarily, and partially implemented and modified on and around March 4—remain in flux. Two separate actions in early February and early March have resulted in additional 20 percent tariffs on almost all commodities imported from China, atop already elevated average tariff rates. Escalated tariffs on steel and aluminum articles soon followed, and additional tariffs on automobiles and automobile components took effect today. New orders authorizing “secondary tariffs” have been issued, demonstrating a willingness to leverage tariffs for novel foreign policy ends. Threatened additional tariffs on the European Union, Denmark, India, South Korea, semiconductor products, pharmaceutical products, and even the world were all suggested in recent weeks, many of which were reflected in yesterday’s “Liberation Day” announcements and Executive Orders regarding the imposition of new global and “reciprocal” tariffs.
All of these actions signify a dramatically changing landscape for companies and consumers. Though we appear to be continuing on the arc of a bipartisan U.S. foreign policy designed to contain the technological advancement of the People’s Republic of China—one which started not long before President Trump entered the political arena in 2015—President Trump’s second term has started with renewed focus on tariffs far exceeding his first. Indeed, we anticipate that the current presidential administration may initiate the most significant shifts to the international trade and tariff landscape since the execution of the General Agreement on Trade and Tariffs (GATT) in the 1940s. With novel legal instruments, a diminished community of trade liberalization advocates, and an increasingly ineffective World Trade Organization (WTO), the Trump trade agenda is positioned to play a forceful role in U.S. economic and foreign policy in the coming years.
This primer is intended to preview some of the areas where the Trump trade agenda has already gone, will go, and might go in the balance of this presidential term. As discussed further below, we anticipate significant volatility in trade-related actions and potentially significant changes in terms of trade and global trade laws. Building up to yesterday’s “Liberation Day” announcements, these actions have already affected, and will continue to affect, front-line U.S. importers, downstream consumers, and multinational and international businesses alike with strong vigor.
The America First Trade Policy
Those looking for a preview about where the Trump administration is likely to go have an obvious resource to start with: the America First Trade Policy posted on the White House website here. Published on the first day of the presidential term, the America First Trade Policy instructs the administration’s Cabinet members and other officials to, among other objectives:
- investigate and recommend remedial actions to address “unfair” and “unbalanced” trade practices;
- review the impacts of the U.S.-Mexico-Canada Agreement (USMCA) ahead of its scheduled July 2026 review;
- assess the currency-related policies and practices of U.S. trading partners;
- recommend revisions to existing free trade agreements (FTAs) to advance “reciprocal” and “mutually advantageous” trade;
- identify opportunities to negotiate trade agreements with new partners consistent with the interests of American workers, farmers, ranchers, service providers, and other businesses;
- review and modify antidumping and countervailing duty (AD/CVD) laws and practices;
- investigate and identify instances of foreign countries imposing “discriminatory or extraterritorial taxes” on U.S. citizens and corporations;
- assess China’s compliance with its earlier U.S. trade agreements, Section 301 actions, and reciprocal and balanced treatment of intellectual property rights;
- investigate whether current import policies threaten the national security of the United States; and
- evaluate opportunities to modify U.S. export controls to maintain, obtain, and enhance the U.S.’s technological edge.
Though most of the work to implement these policies and objectives lies ahead, this enumeration of policy priorities provides decent insight into how the administration will likely direct its tariff and international trade efforts.
Import-ant Shifts in U.S. Tariff Rates over the Decades
From the end of World War II through the U.K.’s 2015 Brexit referendum, global trade underwent a significant degree of trade liberalization. The implementation of the GATT in 1947, the development of the WTO in the 1990s, China’s accession to the WTO in 2001, significant rounds of trade concessions negotiated through the WTO in almost every decade of its existence, and strong bilateral and multilateral free trade agreement negotiations among WTO members resulted in historically low tariff- and non-tariff barriers to trade. World Bank data indicates that average U.S. tariffs across all imports fell to approximately 1.5 percent during the 2010s, boosted in part by a significant expansion of the de minimis entry discussed further below.
Average U.S. tariff rates attained such low levels by the mid-2010s that there was little left on the negotiating table for the U.S. to offer in subsequent WTO round agreements. Though broader global economic developments inevitably resulted in some new items entering the WTO trade agenda—think non-tariff barriers to trade in rapidly growing developing markets like India, trade in digital services, and rising levels of ecommerce—outright reductions in tariff rates became increasingly limited. By nearly achieving its established goal of reducing tariff barriers, the WTO eventually worked itself towards a stage of near irrelevance for the U.S. Later frustrations with the WTO following a series of U.S. losses before WTO tribunals eventually merged with the WTO’s near-obsolescence and led the U.S. to effectively abandon the organization altogether beginning in the mid-2010s.
Tariff changes since 2018 have been uneven in distribution, with the most significant escalations in tariffs affecting imports from China targeted under the Section 301 review process. From a baseline of low-single digit tariffs, these additional tariff levies have been both significant in both relatively and absolute terms. After the imposition of 7.5 percent to 25 percent tariffs on hundreds of billions of dollars of imports from China during the first Trump administration, the Biden administration largely continued these tariffs and escalated them even further with levies on electric vehicles (EVs), solar products, machinery, and other goods to the tune of 25 percent to 100 percent. On top of these tariffs, the current Trump administration has already levied additional 20 percent tariffs on almost all imports from China. Effective tariff rates on some products are therefore up more than 40 times from where they were not even a decade ago.
For decades, average duty rates stayed relatively flat, remained relatively low, only tended to move downwards (if at all), and businesses engaged in global trade became accustomed to these norms. Accordingly, business determinations of whether the buyer or seller would bear responsibility for import costs, largely defined through the Incoterms framework, were relatively unimportant. The costs associated with global trade were often negligible compared to the relative differences in material costs, labor costs, and productivity that resulted in a significant exodus of manufacturing from the U.S.
In 2025, this calculus is no longer true. Parties may find it necessary to renegotiate contracts to clearly allocate the burden of new (or threatened) tariffs, some of which have thrown significant wrenches into supply chain calculations or even blown them up entirely; no business will want to be caught flat-footed in the event of further tariff changes. Negotiation of contractual trade terms and import responsibilities will reflect the new normal where substantial changes to tariffs can occur at almost any time, at almost any target, in almost any amount. Diversification in international supply chains can mitigate some tariff risks, but there are no assurances that other countries won’t be the target of future tariff actions down the line. Savviness about HS classification and knowing what degree of third-country manufacturing activity is sufficient to change an item’s country of origin will therefore become increasingly essential skills for business planning in an environment of increased tariffs.
Overview of Tariff-Related Executive Orders Since January 20, 2025
*Actions marked with an asterisk denote “Liberation Day”-related actions, which will be further discussed in a forthcoming client alert.
The “Fair and Reciprocal Plan” on Trade
On February 13, 2025, the White House released a fact sheet on previewing some of the new norms it will try to implement as it overhauls longstanding U.S. trade policies. Although not itself announcing any specific or definite tariffs, the Fair and Reciprocal Plan (FRP) has provided a clear approach for how tariffs may change in the coming weeks, months, and years to advance President Trump’s America First Trade Policy, some of which has already been worked into the “Liberation Day” tariffs.
These FRP policies could significantly disrupt the generally low and streamlined tariffs that the U.S. currently levies on imports from almost every nation under the HTSUS. Dispensing with the WTO approach of each country charging a single, non-discriminatory tariff rate on almost all trading partners (the “Most Favored Nation” or MFN rate) without exceptions providing more favorable terms for certain trading partners, the FRP instead suggests plans for U.S. tariffs to rise to match the average levels that U.S. trading partners impose on imports of the same items from the U.S.
Rather than charging a single 2.5 percent tariff on automobile imports from Germany and Japan as is the case under current U.S. policy, the rate the U.S. levies on imports from Germany appears poised to rise significantly, in part to reflect the higher tariff rates that Germany (as a member of the EU customs union) currently levies on U.S. imports of those items (currently 10 percent).
This escalation may therefore require a significant overhaul in customs processing, significant bilateral negotiation with foreign trading partners on duty rates, and significantly complicate the calculation of effective duty rates—particularly for companies with complex, multinational supply chains. The “Liberation Day” tariffs appear to go even further in terms of what counts when evaluating “reciprocity,” to include such matters as currency manipulation, non-tariff charges such as digital services taxes (DSTs), and value-added taxes (VATs).
Ultimately, it appears that a primary policy goal of the FRP and of the “Liberation Day” tariffs implementing the FRP is to leverage the threat of heightened U.S. tariffs to encourage other countries to lower their tariffs affecting the import of goods exported from the U.S. How the U.S. will implement these tariffs and respond to trading partners’ responses to the new U.S. tariffs, and whether the policy will be successful in lowering the tariff rates affecting foreign imports of goods exported from the U.S., is not yet clear.
However, by purporting to reciprocally respond other countries’ tariff rates—charging other countries the rates they charge imports from the U.S.—the U.S. may find it has very few effective gains to be obtained.
To put this another way, the fact that the EU imposes a higher 10 percent tariff on automobiles may reflect the relative importance of protective trade policy on automobiles to the EU, whereas the U.S.’s lower 2.5 percent tariff may reflect a lesser threat to the U.S. automotive industry from international competition. The EU may therefore lose little by the U.S. raising its tariff on EU automotive imports if the EU’s primary policy concern is not with maximizing the quantity of automotive exports from the EU, but instead about minimizing the quantity of automotive imports from the U.S. And even if the concern is about maximizing the quantity of exports from the EU, whether the U.S. imposing a higher reciprocal tariff on imports from the EU will affect trade volumes depends on many factors external to the tariff rates that both countries impose, including buyers’ price elasticity (the strength of their preference for EU-manufactured automobiles, based on factors such as perceived quality and role as a status symbol).
But there is no reason to believe that trade flows will necessarily equalize simply because the effective tariff rates charged in either direction are equal, meaning the Trump administration may not be able to achieve balanced trade even if that is a communicated justification for the implementation of the policies it is proposing and implementing.
In an optimistic scenario, the process of arriving at reciprocal tariffs through protracted bilateral negotiation may require current many above-average tariff WTO members to reject the WTO norm of “most favored nation” (MFN) tariff rates in order to offer the U.S. special, lower effective tariff rates so as to attain reciprocity at the U.S.’s lower tariffs currently in effect on imports of the same type of product from that country. By eschewing the MFN mechanism, this policy could accelerate the erosion of the WTO as an effective facilitator for the global trading system, given the WTO’s historical role in maintaining and lowering MFN tariff rates through continued multilateral negotiation.
Theoretically, however, the same pressures may ultimately result in an even greater bargain where WTO members agree not only to maintain the MFN principle, but to ultimately adopt the exact same lower effective tariffs as well. Thus, rather than the U.S. committing to levy a 2.5 percent tariff on automotive vehicle imports from all countries, and the EU committing to levy a 10 percent tariff on automotive vehicle imports from all countries, the FRP ideal could be consistent with WTO obligations and eventually result in multilateral agreement whereby all WTO members commit to a single effective global tariff on automotive vehicles (whether 10 percent, 2.5 percent, 0 percent, or still another number).
If the above measure is successful, the result could even be a global trade regime with even more trade liberalization and an unambiguous improvement in the terms of trade between the U.S. and other countries, potentially making the FRP a more effective tool for facilitating free trade than any effort undertaken by the WTO in the last decade. Whether such an outcome will be realized will depend on the exact policies and negotiation positions the U.S. and affected countries take now that the opening salvo of the reciprocal tariff plan has been revealed.
Tariffs as Foreign Policy
In addition to the flip on U.S. economic policy vis-à-vis the use of tariffs, tariffs have seemingly also become a default implement in the foreign policy tool belt. Like the proverbial nail from the perspective of the hammer, tariffs have been invoked i) to prompt Canada, Mexico, and China to take action addressing illegal migration and the flow of fentanyl; ii) to rectify longstanding imbalances in trade flows between the U.S. and the EU, the UK, Canada, Mexico, and other countries; iii) to pressure world leaders to accept migrants; iv) to prompt Denmark to come to the negotiating table regarding the sovereign status of Greenland; and v) to prompt Russia to seriously negotiate a resolution to the conflict in Ukraine. In light of some of the (arguable) successes of this approach in the initial weeks of this administration, we expect continued testing of the limits of tariffs during this presidential term.
More recently, the Trump administration’s March 24, 2025, executive order authorizing the imposition of 25 percent tariffs on countries determined to be importing Venezuelan oil represents yet another novel use of tariffs. Much like secondary sanctions have been used to historically apply maximum pressure to obtain U.S. foreign policy objectives in dealing with certain adversaries (such as Iran), the use of these “secondary tariffs” provides an additional tool to economically pressure parties to isolate Venezuela and the Maduro regime. It is unclear how and where the Trump administration will enact or enforce these measures—China, as a large buyer of Venezuelan oil, is an obvious potential target—and whether the shift from secondary sanctions to secondary tariffs may represent a permanent shift in Washington’s policies.
The Political Economy of Reciprocal Trade
Undergirding the effective use of tariffs as a foreign policy tool is, seemingly, a fundamental belief that other countries have more to lose from the U.S.’s imposition of tariffs than does the U.S. itself. This is, in part, an empirical economic question as well as a political one.
Economists are virtually unequivocal that U.S. consumers will bear at least some of the burden of the tariffs—when imposed, if imposed, and potentially even if not imposed but in the event that the threat of future tariffs generates uncertainty that frustrates business plans and complicates business contracts. These cost increases may also reverberate downstream in the domestic U.S. economy and prompt a return to the macroeconomic inflationary pressures that peaked in 2022, a consequence that may constrain tariff policies going forward. Important economic metrics such as equities indices, floating foreign exchange rates, and global interest rates may affect U.S. policy on international trade as much as they are affected by it.
Similarly, the incentives to import foreign-produced goods from countries subject to heightened tariffs will almost certainly be diminished compared to an environment without such tariffs. Whether the incentives will be significant enough to encourage businesses to shift production from existing locations to new locations will depend, primarily, on the cost structures and risk profiles of the business in question. High tariffs focused on some countries—e.g., China, Vietnam, and Cambodia—may incentivize manufacturers to move operations to alternate locations with comparable conditions (e.g., low labor costs, high workforce quality, advanced infrastructure development). Most naturally, this may shift production to other countries that retain geographic proximity to those existing supply chains (to the extent those countries are not also slated to be affected by the new “Liberation Day” tariffs). But as these new geographies continue to develop and move up the value chain, and as their trade flows with the U.S. become increasingly imbalanced due to the dramatic increase in exports to the U.S. diverging from the existing flows from tariff-affected regions, these new manufacturing hotspots may also find themselves in the crosshairs of further tariff actions, not unlike a game of trade/tariff whack-a-mole.
At a microeconomic level, trade is virtually never a zero-sum game. Complicating the simple supply-and-demand schema of the Trump trade agenda are two question marks. First, how to credit the potential revenue collections associated with the new tariffs (regardless of whether that collection continues to be done by Customs and Border Protection (CBP) or by a newly established External Revenue Service (ERS)). The benefit of additional CBP/ERS tariff collections might be thought of as a U.S. public good, though the distributive effects will depend, in part, on how these sums are expended. Tariff collections—which, in the U.S.’s first century of independence used to generate the overwhelming majority of revenue collected by the U.S. federal government—could be used for a number of ends. They could provide general credits to the U.S. Treasury that effectively pays down U.S. national debt. They could also be used to fund new and/or extended income tax cuts, another domestic policy priority for the Trump administration. The theoretical possibilities are endless, and the costs and benefits of these impacts are subject to much political debate.
Second, is how to account for any “deadweight loss” from the new/additional tariffs, the effects of which may fester largely unobserved. The transactions that no longer happen because escalated tariff rates make transactions uneconomical will result in real, decreased savings currently enjoyed by U.S. importers, U.S. businesses, and U.S. consumers. These lost savings may be theoretical and not always be easily or neatly observable, except for when an importer actually pays the significant tariff or can clearly observe the difference in costs when forced to accept a second-best option due to the tariff impact. These economic effects may not always be potent, but there’s a risk that they can accrue and be a costly, unbudgeted expense on U.S. persons that fails to be realized at all on the tariff accounting sheet.
Some Not So De Minimis Changes
Though news regarding the 25 percent tariffs on Canadian and Mexican goods (and their initial temporary suspension through March 4, 2025, then partial temporary suspension with respect to goods covered under the USMCA Agreement) and the additional 20 percent tariff on imports of Chinese origin goods (which actually took effect across two step-wise increases on February 4, 2025, and March 4, 2025) have received the most attention among the Trump administration’s international trade actions so far, the changes to the de minimis provisions nestled in those same executive orders may end up having a significant effect for a much wider swath of U.S. importers and consumers.
The de minimis provisions, also known as Section 321 entry (in reference to the Tariff Act of 1930 statute from which it is derived), allow certain imports below a certain value threshold to be admitted into the U.S. without undergoing full Customs formalities. Items eligible for entry under this provision are exempt from all tariff duties, are ordinarily cleared quickly (and virtually automatically), and are delivered directly on to the U.S. consumers. From a policy perspective, this allowance is intended to mitigate the direct and indirect costs associated with Customs formalities on low-value shipments that would not generate a significant amount of Customs revenue and allows CBP to focus its limited enforcement resources on higher-value shipments.
The implementation of 2015’s Trade Facilitation and Trade Enforcement Act (TFTEA) significantly boosted the value threshold of shipments eligible for de minimis entry from $200 to $800. This expansion also coincided with a significant increase in direct-shipment imports from Chinese ecommerce platforms shipping items directly to U.S. consumers. These shipments have been significant beneficiaries of the de minimis entry process and therefore have avoided a significant part of the economic impact of the increased tariffs on China to date.
Under all three of the February 1, 2025, executive orders originally implementing the new China, Canada, and Mexico tariffs, covered shipments subject to the new tariffs would be prohibited from benefitting from de minimis entry. The Trump administration began implementing this de minimis prohibition with respect to China on February 4, 2025, only to reverse course days later. The new Executive Order codifying the reversal in de minimis entries has paused the end of de minimis for such shipments until “notification by the Secretary of Commerce … that adequate systems are in place to fully and expediently process and collect tariff revenue.” Similar delays were formalized with respect to de minimis entry for covered goods under March 4, 2025, Executive Orders modifying the February 1, 2025, executive orders with respect to Canada and Mexico.
Once these tariff collection systems become “adequate,” a significant quantity of imports originally eligible for de minimis entries may become ineligible. When or if this cross-border trade becomes subject to the full weight of increasingly heavy trade-related measures, placing new burdens on shippers, importers, and CBP alike. Moreover, the capabilities that CBP builds up as it learns how to “fully and expediently process” large numbers of previously exempt shipments may eventually lead to an eventual global demise of de minimis import privileges itself.
Trade After “Liberation Day”
Most of the measures discussed above precede the April 2, 2025, “Liberation Day” announcements and its accompanying Executive Order. These further tariffs and trade actions, announced yesterday by the White House, include a 10 percent baseline tariff (effective April 5) and additional country-specific reciprocal tariffs (effective April 9), will continue to dramatically affect importers and their business plans in the months and years ahead, and will be separately discussed in a forthcoming client alert. All of these measures are being implemented atop an existing tariff, sanctions, and export controls regime that has otherwise been fairly consistent despite the changes in presidential administrations.
Throughout the past decade, U.S. tariffs, sanctions, and export controls have broadly moved in only one direction: “more weight.” Time will tell whether it is the U.S.’s foreign adversaries or U.S. companies’ compliance staff who will be impacted more by the crucible of U.S. national security and international trade measures.
