On 3 March 2025, United States (US) President Donald Trump issued a Fact Sheet announcing that the US would proceed with additional tariffs on Canada and Mexico. Effective on or after 12:01a.m. ET on 4 March, a 25% duty rate took effect on products from Mexico. A 10% duty rate also took effect on Canadian energy and energy resources, and 25% on all other Canada-origin products. For China, President Donald Trump issued an amendment to the 3 February 2025 Executive Order, increasing the additional duties from 10% to a total duty rate of 20%.

Background

On 1 February 2025, the White House released a Fact Sheet confirming President Trump's move to impose tariffs on Canada, Mexico and China by invoking the International Emergency Economic Powers Act (IEEPA). The IEEPA grants the President authority to impose economic sanctions, control foreign assets and undertake other measures to address threats to national security, foreign policy or economy. The IEEPA was enacted in 1977, but it has never before been invoked by a US president to impose tariffs.

Additional tariffs of 10% on goods originating from China took effect on 4 February 2025. However, the implementation of additional tariffs on items from Canada and Mexico was postponed for one month due to ongoing negotiations. (For details, see EY Global Tax Alert, United States issues Executive Orders imposing additional tariffs on Canada, Mexico and China, dated 3 February 2025.)

Canada and Mexico

US Customs and Border Protection (CBP) issued guidance on 3 March 2025, stating that on imports from Canada and Mexico would go into effect on or after 12:01 a.m. ET on 4 March 2024.

All Canadian and Mexican imports, other than donations, informational materials, along with products for personal use in the accompanied baggage of persons arriving in the US, will be subject to the additional 25% ad valorem rate. This includes products eligible for special tariff treatment under the United States-Mexico-Canada Agreement (USMCA) or temporary duty exemptions or reductions under Subchapter II to Chapter 99. Duties will not apply to goods under Chapter 98, except for those under heading 9802.00.80 and subheadings 9802.00.40, 9802.00.50, and 9802.00.60. Additional duties apply to the value of repairs, alterations and processing performed in Canada and Mexico for subheadings 9802.00.40, 9802.00.50 and 9802.00.60.

Canadian energy or energy resources that include 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 will be subject to a 10% ad valorem duty.

Canadian or Mexican articles destined for a foreign trade zone in the US must be admitted as "privileged foreign status." No drawback is available for goods subject to the additional tariff. The de minimis exemption that allows for goods to be imported duty free when not exceeding US$800 per person, per day will still be available for articles subject to the additional tariffs.

China

On 3 March 2025, President Trump signed an Executive Order, "Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People's Republic of China," based on the 1 February 2025 Executive Order determining that China's failure to stop the sustained flow of synthetic opioids, including fentanyl, into the US, posed a threat. As a result, President Trump increased the 10% tariff to 20% on products imported into the US from China.

China responded with its own tariffs of up to 15% on various US farm exports and expanded the list of US companies subject to export controls and other restrictions.

Actions for businesses

Immediate actions to consider for companies that have North American import and export operations, as well as those that import into the US from China, depending on their specific situations, include:

• Analyze both financial and physical flows for imports and exports into and out of North America and China, as well as the import duties paid, to assess the potential total landed cost, including duty impact of the new tariffs.
• Review contracts with suppliers and customers to clarify contractual liability for duties and taxes.
• Consider renegotiating supplier and customer pricing agreements and/or cost-splitting arrangements.
• Evaluate current domestic or alternative sourcing options for the impacted countries and consider country-of-origin planning to mitigate duties.
• Evaluate product Bill of Materials composition and evaluate alternate substitute materials.
• Assess the operational impact of eliminating de minimis duty-free treatment for affected products.
• Consider valuation planning, such as bifurcating product and non-product costs and other country-specific planning, such as first sale for export in the US, to mitigate the increase in duty.
• Consider using the US Free-Trade Zone (FTZ) program for duty deferral on long-lead-time inventory items to provide cash-flow benefits as well as to help mitigate duties to the extent the imported items are ultimately exported from the FTZ — either re-exported without any change or re-exported after being incorporated into other manufactured articles. Using the FTZ program requires applying special considerations on a case-by-case basis; being able to utilize the program may provide a reduced effective tax rate in certain circumstances, despite the restrictions that the Executive Order imposes on subject merchandise.
• Identify potential approaches to leverage under the Chapter 98 Special Classification Provisions to partially or fully mitigate duties for certain products based on their use or condition (e.g., goods returned after having been exported, goods being temporarily imported, goods imported for the use of certain nonprofit institutions).
• 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.
• Review US-continuous-import-bond sufficiency to help prevent goods' being stuck at the border due to insufficient bond and stacking liability.
• Consider aligning customs valuation with transfer pricing policies. US tax reform has resulted in companies' migrating intellectual property (IP) back to the US. With IP in the US, and in a direct-import model, customs value is decreased. For customs value, certain design and development cost must be added to value, but US research and development (R&D) can be excluded. For R&D-intensive companies with significant R&D in the US, value reduction can be significant.
• 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.