What Happened

On February 1, 2025, President Trump issued three executive orders (EO) imposing new tariffs on imports from Mexico, Canada and China, each originally slated to go into effect on February 4, 2025. On February 3, President Trump agreed to suspend the tariffs against Mexico and Canada by one month after negotiations with his counterparts in each nation, but the Chinese tariffs went into effect at 12:01 am ET on February 4.

Each EO directed the Department of Homeland Security (DHS) to issue notices in the Federal Register outlining changes to the Harmonized Tariff Schedule of the United States (HTSUS) necessary to implement the tariffs. On February 5, 2025, DHS published the China notice, entitled Implementation of Additional Duties on Products of the People’s Republic of China. Absent from the Federal Register were notices for Mexico and Canada.

The EOs state that the tariffs will remain in place indefinitely once imposed, or until the President decides to remove them. The EOs also state that the President may raise the tariffs further if Canada, Mexico and China retaliate. At the same time, as evidenced by the agreements reached between the United States and Mexico and Canada, tariffs could also be delayed, rescinded, or otherwise modified or reduced before fully going into effect.

China Tariff

The China notice sets out the specific rates of duty on the import of articles that are products of China, and modifies Chapter 99 of the HTSUS to provide specific article descriptions that are subject to the new tariffs, as well as a subset of exempted items such as those related to humanitarian relief, informational materials, and personal use and baggage of people arriving in the United States. With the notice identifying HTSUS codes subject to the tariffs, Customs and Border Patrol (CBP) was able to begin implementing the tariffs against China, beginning at 12:01 a.m. Eastern Standard Time on February 4, 2025, as called for in the China EO.

Chinese articles imported into the customs territory of the United States are now subject to a 10 percent tariff, to be imposed on top of the other tariffs issued on certain Chinese goods, such as the tariffs imposed on China under Section 301 of the Trade Act issued under the first Trump and Biden Administrations (the “China Section 301 Tariffs”).

Mexico and Canada Tariffs

The tariffs announced in the Mexico and Canada EOs have been delayed until March 6, 2025. Should the Mexico and Canada EOs go into effect next month, the EOs will apply a 25 percent ad valorem rate of duty on all articles imported from Mexico and Canada, which in recent years have enjoyed duty-free trade with the United States under the United States-Mexico-Canada Agreement (USMCA), and its predecessor, the North American Free Trade Agreement. There is an exception for Canadian energy resources, which will face a 10 percent tariff.

Statutory Authority

The EOs were issued pursuant to the International Emergency Economic Powers Act (IEEPA) in response to national emergencies declared at the border related to fentanyl, synthetic opioids, drug trafficking and illegal immigration concerns. This is a stark departure from traditional tariffs such as those under Sections 201 and 301 of the Trade Act of 1974. Indeed, this is the first time a president has issued tariffs using authority under the IEEPA. The closest analog is President Nixon’s 10 percent tariff that he imposed in 1971 on all imports under a different law, the Trading With the Enemy Act, considered the predecessor statute to IEEPA. In recent years, IEEPA has been used by the executive branch to impose a wide range of economic sanctions, including trade embargos and prohibitions on imports from sanctioned countries, but the EOs are the first time the statute has been used to impose tariffs in response to a national emergency.

Tariff Mitigation Considerations

Section 1321 De Minimis Exception

The EOs explicitly state that the duty-free de minimis treatment under 19 U.S.C. 1321 shall not be available for the articles covered by the tariffs. The de minimis exception authorizes CBP to allow duty free imports when the articles are valued below certain thresholds. The most widely known de minimis exception allows products with a value less than $800 to be imported duty free—which Chinese retailers have increasingly relied on over the last 10 years to individually import products directly to customers. The exclusion of the de minimis exception in the EOs signals an awareness of e-commerce strategies to work around tariffs for retail goods.

Duty Drawback

Since the founding of the country, the government has provided domestic entities with options to recover or avoid tariffs on products that are ultimately exported out of the United States. Under duty drawback, companies can be reimbursed for up to 99 percent of the duties paid on imported products that are: manufactured and then exported, unused, or returned or destroyed. The new EOs, however, specifically prohibit duty drawback on tariffs thereunder, although duty drawback remains available for the previously imposed China Section 301 Tariffs. Companies looking to mitigate the impact of the new tariffs on Chinese imports under the EO should explore whether they can offset their other tariffs under a duty drawback program.

Foreign Trade Zone (FTZ)

Like the duty drawback, an FTZ also effectively exempts companies from tariffs on items that are exported from the US. Rather than getting a refund on tariffs, establishment of an FTZ causes a company’s facility to be treated as if it were not in the United States for customs purposes. If a product leaves the FTZ and enters the US, it is assessed tariffs. However, products that are instead exported are not assessed tariffs. There can also be benefits where the final product produced at the FTZ is substantially transformed such that it is classified differently than its inputs and potentially subject to lower tariffs. However, the EOs require that articles assessed tariffs be admitted as “privileged foreign status,” meaning that the tariffs will continue to apply to Chinese imports even if substantially transformed in an FTZ.

Temporary Import Under Bond

The EOs do not mention any changes to the treatment of merchandise entered under Temporary Importation under Bond (TIB) programs as outlined in HTSUS Chapter 98. Additional details may be provided in forthcoming technical annexes. Previous actions by the Trump Administration, including the China Section 301 Tariffs and the tariffs imposed on steel and aluminum from China under Section 232 of the Trade Expansion Act, permitted importers to continue using TIB, though the required bond amount had to reflect the higher duty rates.

Other Potential Tariff Actions

Businesses should anticipate continued uncertainty and potential escalation in the coming days and weeks as China retaliates against the United States or negotiates a pause to the dispute, as is currently the case with Mexico and Canada. At the time of this writing, China has already announced some retaliatory tariffs. It is also possible that the tariffs on imports from Mexico and Canada will be reinstated in a month’s time.

The three executive orders indicate that the United States may raise its tariffs further if the targeted countries retaliate. Additionally, the President has recently raised the possibility of tariffs against other economies, including the European Union and BRICS member countries (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates). Beyond country-specific tariffs, President Trump has also suggested the possibility of new global tariffs on semiconductors, pharmaceuticals, oil, steel, aluminum and copper.

These actions illustrate the new Administration’s willingness to use tariffs to pressure other countries over policy disputes that extend beyond traditional trade policy concerns, including national security concerns. Historically, the United States has reserved the use of tariffs for trade disputes. However, President Trump is now adopting an expansive approach to tariffs, treating them as potential tools to address foreign policy disputes generally. Further, the imposition of tariffs on Mexico and Canada indicates that free trade agreement partners may not be immune from these actions, raising questions about the reliability of trade commitments previously made by the United States, including those made under the USMCA.