On 13 February 2025, US President Donald Trump signed a Presidential Memorandum introducing the "Fair and Reciprocal Plan." This plan aims to address non-reciprocal trading arrangements with foreign partners by establishing equivalent reciprocal tariffs for each trading partner. The approach will include a review of the following activities in an effort to determine the appropriate potential measure:

1. Tariffs imposed on US products
2. Taxes imposed on US businesses, workers and consumers, including value-added taxes
3. Costs to US businesses, workers, and consumers from nontariff barriers and unfair policies, including subsidies and burdensome regulatory requirements on US businesses operating overseas in other countries
4. Policies and practices that cause exchange rates to deviate from their market value
5. Any other practice that imposes any limitation on market access or any structural impediment to fair competition with the market economy of the US

Following the submission of agency reports under the America First Trade Policy Memorandum, the Secretary of Commerce and the United States Trade Representative (USTR), in collaboration with key officials from various departments, will take necessary actions to investigate the impact of non-reciprocal trade arrangements by foreign partners. (For background, see EY Global Tax Alert, United States President signs 'America First Trade Policy' Presidential Memo, dated 22 January 2025.)

Upon completing this investigation, the Commerce Secretary and USTR will provide a report to the President outlining proposed remedies to achieve reciprocal trade relations. Additionally, within 180 days of the Presidential Memorandum, the Director of the Office of Management and Budget will evaluate the fiscal impacts on the Federal Government and the effects of any information collection requests on the public and will issue a written assessment to the President.

In addition to the Presidential Memorandum, the White House issued a fact sheet outlining the "Fair and Reciprocal Plan" and stating that the US "is one of the most open economies in the world." The fact sheet cites examples of duty rate disparities, including noting the average US duty on imported agricultural goods is 5%, while India's average duty rate on the same products is 39%. India imposes a 100% tariff on US motorcycles, but the US charges a 2.4% tariff on Indian motorcycles. The fact sheet cites examples of other non-reciprocal treatment as well. For example, the European Union (EU) bans 48 states from exporting shellfish into the continent even though the EU committed to expediting approvals for shellfish exports in 2020. In 2023, the EU exported US$38m worth of shellfish to the US, compared to the US imports of US$274m of the product from the EU. Moreover, the fact sheet states that the digital services taxes imposed by Canada and France collect more than US$500m annually from American companies, and discriminatory taxes cost American firms more than US$2b annually.

Finally, the fact sheet highlights the lack of reciprocity as a contributing factor to the trade deficit in the US and diminishing US competitiveness in the market.

Action for businesses

Immediate actions for companies to consider include:

• Conduct scenario-planning exercises to anticipate various outcomes of trade policy changes and develop contingency plans to ensure business continuity.
• Consider possibilities for duty mitigation. For example, customs valuation is a key driver of duty mitigation. Aligning customs valuation with transfer pricing, considering bifurcating product and non-product costs and first sale for export planning are all potential activities to mitigate the increase in duty.
• Flag related-party entries imported into the US for Reconciliation to account for potential retroactive reductions in transfer price to enable filing the adjustments and securing potential refunds.
• Identify strategies to defer, eliminate or recover potential excess duties, such as the use of bonded warehouses, Foreign Trade Zones (FTZ) and Chapter 98 (Special Classification Provisions).
• Keep up with the latest news and developments in trade policies and stay adaptable to quickly respond to changes in trade regulations and tariff rates. This includes understanding potential publication of how the tariffs impact Foreign Trade Zone operations.