On 2 April 2025, President Donald J. Trump signed an Executive Order imposing a 10% baseline tariff for all United States (US) trading partners to take effect on 5 April 2025. The Executive Order also announced a Reciprocal Tariff Policy against specific countries effective 9 April 2025.

Background

On 20 January 2025, President Trump issued the America First Trade Policy Presidential Memorandum, directing his administration to investigate the root causes of the trade deficits and assess their economic and national security implications. The findings of these investigations were finalized on 1 April 2025 and, according to the 2 April Executive Order, revealed that the deficits have contributed to the decline of the US manufacturing base, undermined critical supply chains, and increased dependency on foreign adversaries for essential goods. The Executive Order also notes that the investigations pointed to the historical principle of reciprocity in US trade policy, which has been compromised in recent years, leading to an unbalanced trading environment.

In response to these findings, President Trump declared a national emergency, invoking his authority under the International Emergency Economic Powers Act and the National Emergencies Act, and announced a policy to impose additional tariffs on imports at a baseline of 10%. These tariffs will apply to all imports from all trading partners, with specific increases outlined for certain countries, as detailed in Annex I to the order.

The additional duties will take effect for goods entered for consumption on or after 5 April 2025, with country-specific rates commencing on 9 April 2025. Note that subject articles, except those eligible for "domestic status" as defined in 19 CFR 146.43, that are subject to the duty specified in the 2 April 2025 Executive Order and are admitted into a Foreign Trade Zone (FTZ) on or after 12:01 a.m. EDT on 9 April 2025, must be classified as "privileged foreign status" according to 19 CFR 146.41.

Goods not subject to the retaliatory tariffs

Certain goods will be exempt from the ad valorem rates of duty outlined in the order, including:

• Articles covered by 50 USC 1702(b), including personal communications without value transfer, donations, the importation and exportation of informational materials (excluding those controlled for nonproliferation or antiterrorism), and transactions related to personal travel, including baggage importation and living expenses
• Steel and aluminum products subject to existing duties under Section 232 of the Trade Expansion Act, including those specified in various proclamations from 2018 and 2025
• Automobiles and automotive parts also subject to Section 232 duties
• Products listed in Annex II, such as copper, pharmaceuticals, semiconductors, lumber, critical minerals and energy products
• Articles from trading partners with which the US does not have normal trade relations (i.e., countries subject to Column 2 of the Harmonized Tariff Schedule of the United States)
• Articles that may be subject to future duties under Section 232

Moreover, the additional duties only apply to the non-US content of an article if at least 20% of its value originates from the US.

Goods from Canada and Mexico

Goods from Canada and Mexico that qualify under the United States-Mexico-Canada Agreement (USMCA) remain eligible for preferential treatment when entering the US. However, goods that do not qualify as originating under USMCA are subject to an additional ad valorem duty of 25%, while energy resources and potash from Canada not qualifying under the USMCA face a duty of 10%. (See EY Global Tax Alert, United States imposes additional tariffs on Canada and Mexico, raises additional tariffs on China, dated 5 March 2025.)

Furthermore, any additional tariff on articles imported from Canada or Mexico under the Executive Order will not be added to existing duties specified in previous orders. If the previous orders are terminated or suspended, items from Canada and Mexico that qualify under USMCA will not incur additional duties, while non-qualifying items will face a 12% duty. Notably, these rates do not apply to energy resources, potash or articles eligible for duty-free treatment under USMCA that are part of a product substantially finished in the US.

De minimis

Duty-free de minimis treatment will continue for the goods subject to the retaliatory tariffs except from People's Republic of China and Hong Kong, as discussed below. The de minimis program allows goods valued at less than US$800 per person, per day to enter the US free of duty. The treatment will remain in effect until the Secretary of Commerce notifies the President that systems are in place to process and collect duty revenue for eligible articles. After this notification, the de minimis treatment will no longer apply to those articles.

In addition to the retaliatory tariff Executive Order, the President also signed an Executive Order on 2 April 2025 effectively ending the duty-free de minimis treatment for certain goods originating from Mainland China and Hong Kong.

Specifically, the order introduces a 30% ad valorem duty on goods entering the US on or after 2 May 2025, along with a specific duty of US$25 per item for goods entered before 1 June 2025, and US$50 per item for those entered thereafter. Additionally, carriers transporting these goods are required to maintain an international carrier bond to ensure the payment of duties. The US Customs and Border Protection will require formal entry for certain packages, which will not be subject to the new duties but rather to all applicable duties, taxes and fees.

The Secretary of Homeland Security has been tasked with implementing this order and has the authority to adopt necessary regulations to ensure compliance. Furthermore, within 90 days of the order's issuance, the Secretary of Commerce, in consultation with the United States Trade Representative, will submit a report to the President assessing the order's impact on American industries, consumers and supply chains. This report will include recommendations for further actions, potentially extending the ineligibility for de minimis treatment to other countries to prevent circumvention of the new regulations.

Actions for businesses to consider

Companies that import into the US should immediately identify the potential impact of these measures and explore potential mitigation strategies. For example:

• Review the Federal Register notice that will follow the Executive Order to understand the operational details including Chapter 98 exemptions and drawback considerations.
• Consider valuation planning, such as first sale for export, warranty push down and bifurcating product and non-product costs (e.g., exclusive distribution rights).
• 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.
• 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 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.
• Assess the operational impact of eliminating de minimis duty-free treatment for China- and Hong Kong-origin products.
• Consider using the 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.
• Review US-continuous-import-bond sufficiency to help prevent goods' being stuck at the border due to insufficient bond and stacking liability.
• Develop compliance processes and procedures that demonstrate reasonable care in the face of increased customs enforcement and scrutiny in the US.
• 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, particularly as it relates to potential retaliatory measures.