U.S. Trade War Goes Global

With an unprecedented amount of fanfare, shortly after the stock markets closed yesterday afternoon, U.S. President Donald J. Trump signed an Executive Order that implemented a sweeping set of tariffs. This time around, the target was the entire world.

The so-called Liberation Day announcement imposed a baseline tariff of 10 percent on all imports effective 12:01 AM EDT on April 5, 2025, under the International Emergency Economic Powers Act of 1977 ("IEEPA"), to "address the national emergency posed by the large and persistent trade deficit that is driven by the absence of reciprocity in our trade relationships and other harmful policies like currency manipulation and exorbitant value-added taxes (VAT) perpetuated by other countries."

Individualized higher tariffs – referred to by the White House as "reciprocal tariffs" – were imposed on a long list of countries with which the United States has the largest trade deficits, effective April 9, 2025, at 12:01 AM EDT. Within this category, many developing and lesser-developed countries, including Lesotho, Cambodia, Laos, Madagascar, Vietnam, Sri Lanka, Myanmar, Mauritius and Bangladesh are among the hardest hit (37 to 50 percent), while China will see a further 34 percent tariff being added to the pre-existing 20 percent tariff. Imports from the European Union now face a 20 percent tariff, while the rate for imports from traditional allies such as the United Kingdom, Australia, New Zealand and Ukraine is 10 percent. Curiously, the baseline rate of 10 percent was also levied against countries that ran trade deficits with the United States in 2024, such as the United Kingdom, Brazil and Singapore.

The Executive Order includes modification authority, whereby the President may increase the tariff applicable to any country that takes retaliatory measures or decrease the tariff applicable to any country that takes "significant steps to remedy non-reciprocal trade arrangements and align with the United States on economic and national security matters."

Various commentators have observed that these new measures effectively terminate the more than 75-year-old global trading system. That remains to be seen, but given that the new duty rates are in some cases higher than those imposed by the Smoot-Hawley Tariff Act (1930), and given the retaliatory measures that will inevitably follow from various trading partners, it is reasonable to assume that these measure will result in the United States being sequestered behind a tariff wall.

Exclusions and exemptions

Russia is notably absent from the list of countries with individualized reciprocal higher tariffs. According to White House press secretary Karoline Leavitt, this is because existing U.S. sanctions "preclude any meaningful trade;" however, the Office of the U.S. Trade Representative reported that in 2024, the United States imported a total of USD 3.5 billion from Russia,¹ consisting primarily of energy products, minerals, metals and fertilizers.

There is a partial carve-out for goods that contain U.S.-originating inputs representing at least 20 percent of their value. In these cases, the reciprocal tariff will only apply to the non-U.S. content of the imported good.

Several goods are expressly exempt from the new reciprocal tariffs, including those which are subject to a separate, 25 percent tariff under Section 232 of the Trade Act of 1962, such as automobiles and auto parts, steel and aluminum, and other goods that are subject to ongoing or potential Section 232 national security investigations, such as copper, lumber, semiconductors, and pharmaceuticals. Watch for the publication of an annex to the Executive Order, which will enumerate other exempted products. This list is expected to confirm that certain critical minerals, energy and energy products will also be excluded from reciprocal tariffs.

Limited, temporary reprieve for Canada and Mexico

Canada and Mexico, which have been in the crosshairs since the earliest days of this trade war,² were expressly excluded from the list of countries subject to these new reciprocal tariffs, but this may prove to be no more than a temporary exemption. The Executive Order provides that if the pre-existing IEEPA tariffs targeting fentanyl and illegal migration currently in effect against these two nations were to be terminated, non-CUSMA certified imports from both Canada and Mexico will automatically become subject to a 12 percent reciprocal tariff.

The good news here is that CUSMA-certified goods that are manufactured in Canada or Mexico will continue to benefit from preferential tariff treatment under that free trade agreement; however, at least for the time being, non-CUSMA certified energy, critical minerals and potash remain subject to a 10 percent duty, with all other non-CUSMA certified goods being subject to a 25 percent duty.

It is also important to note that all imports into the United States of steel and aluminum products, as well as derivative steel and aluminum goods, remain subject to the 25 percent ad valorem tariff that went into effect on March 12, 2025, under section 232 of the Trade Expansion Act of 1962.

Automobiles and auto parts

In a further proclamation issued by President Trump on March 26, 2025, the United States imposed an ad valorem tariff of25 percent on automobiles and certain auto parts, to address the effects "on the national security of the United States under section 232 of the Trade Expansion Act of 1962, as amended." This new tariff came into effect as of 12:01 AM EDT on April 3, 2025 with regard to all imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, and will come into effect as of a date and time to be specified in the Federal Register, but no later than May 3, 2025, with regard to key automobile parts (engines, transmissions, powertrain parts, and electrical components).³ It is applied in addition to any other applicable duties, fees, exactions, and charges.

CUSMA-certified vehicles

Notably, in the case of vehicles that qualify for preferential tariff treatment under CUSMA, the ad valorem tariff of 25 percent will only apply to the value of the non-U.S. content of the automobile. To avail themselves of this carve-out, importers must submit documentation to the Secretary of Commerce, identifying the amount of U.S. content in each model imported into the United States, where the term "U.S. content" refers to the value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States. The proclamation provides for stiff penalties in the event of any overstatement of U.S. content:

CUSMA-certified auto parts

The ad valorem tariff of 25 percent on auto parts is currently suspended with regard to CUSMA-certified auto parts, until such time as the Secretary of Commerce, in consultation with Customs & Border Protection, establishes a process to apply the tariff exclusively to the value of the non-U.S. content of such auto parts, and publishes notice in the Federal Register.

Canada's retaliatory tariff on U.S.-made vehicles

Prime Minister Mark Carney announced earlier today that Canada will impose a reciprocal tariff of 25 percent on all U.S.-manufactured, finished vehicles that are not CUSMA-certified.⁴ We are watching for further details, and will provide an update in due course.

Termination of the de minimis exemption

A further Executive Order was signed on April 2, 2025, eliminating duty-free de minimis treatment for low-value imports from China and Hong Kong effective 12:01 AM EDT on May 2, 2025. As a result:

• all imported goods transported to the United States via any means other than the international postal network will be subject to all applicable duties, entry and payment procedures, even if their value for duty is below USD 800; and
• all imported goods transported to the United States via the international postal network that are valued at or under USD 800, and that would otherwise qualify for the de minimis exemption, will be subject to a duty rate of either 30% of their value or USD 25 per item (increasing to USD 50 per item after June 1, 2025), in lieu of any other duties.

Carriers transporting such postal items must report shipment details to CBP, maintain an international carrier bond to ensure duty payment, and remit duties to CBP on a set schedule. CBP may require a formal entry for any postal package.

We note also that buried within the Executive Order announcing reciprocal tariffs was a further announcement concerning the wholesale elimination of the de minimis exemption for low-value shipments from all countries. This will occur as soon as the Secretary of Commerce notifies the President that adequate systems are in place "to fully and expeditiously process and collect duty revenue applicable pursuant to this subsection for articles otherwise eligible for de minimis treatment."

The elimination of the de minimis exemption will no doubt affect a broad range of eCommerce distributors and retailers. It will come as a further blow to manufacturers that channelled investments through countries such as India, Thailand, Turkey, Malaysia, Philippines, Vietnam and Bangladesh under the so-called "China + 1" strategy. It will also have a significant impact on warehouse operators and third-party logistics services providers in Canada and Mexico that currently hold inventories of low-value goods in bond and provide fulfilment and direct-to-consumer delivery services to the United States. The elimination of the de minimis exemption will render all such services less attractive for most goods.

Key takeaways

We continue to live in the most interesting of times! Canadian manufacturers, importers and exporters would be well-advised to take several critical steps to mitigate, and continue to thrive notwithstanding the ongoing trade war:

• Gap analysis and scenario planning can help identify risks and possible strategies. Focus on resilience, balanced with efficiency.
• Review and reconfirm the tariff classifications, origin and valuation of all foreign inputs used in your manufacturing process and finished products; and, if they do qualify as CUSMA-originating goods, gather the back-up material to substantiate that claim and proceed with certification.
• If your manufacturing process currently depends on U.S.-origin inputs that are now, or will soon become, subject to Canadian retaliatory tariffs:
  • Take advantage of the drawback and duties relief programs, subject to the limitations established under CUSMA.
  • Make a concerted effort to locate a domestic Canadian source. If need be, expand your search to include potential suppliers in the 50 other countries with which Canada continues to enjoy preferential tariff treatment under free trade agreements.
  • If there are no commercially reasonable domestic alternatives for those U.S.-origin inputs, consult with an experienced customs and trade lawyer to determine whether you have a viable case for seeking remission from Canada's retaliatory surtax.

• Streamline your supply chain and logistics arrangements.
• Consider reconfiguring your sales structure, to the extent permitted by applicable laws, to minimize value for duty for exports to the United States or to manufacture in whole or in part goods in the United States. This might include establishing a limited risk distributorship in the United States, unbundling the provision of services from the sale of goods, or entering into a toll or contract manufacturing agreement with a U.S. manufacturer.
• Where possible, negotiate amendments to sales and supply contracts, to reallocate the additional tariff burden equitably between the parties.
• Beware of the transfer pricing and income tax implications associated with cross-border transactions involving non-arm's length companies.

Now is the time to review your import and export processes to minimize the impact of tariffs and mitigate the risks associated with potential changes. Evaluating whether there is a more strategic method for importing goods can help reduce tariff exposure and ensure compliance.

Footnotes

1. https://ustr.gov/countries-regions/europe-middle-east/russia-and-eurasia/russia.

2. See our earlier publications on this topic, including: 2025 U.S. Tariff Threats: A legal roadmap for Canadian business resilience; The U.S. tariffs and Canadian retaliatory measures: What you need to know; and U.S. tariffs and Canadian retaliatory measures.

3. The list of vehicles and auto parts that are subject to these tariffs may be expanded, if necessary.

4. Vipil Monga, "Canada to Hit U.S. Autos With Retaliatory Tariffs," The Wall Street Journal, 3 April 2025. Online at: https://www.wsj.com/livecoverage/trump-tariffs-trade-war-stock-market-04-03-2025/card/canada-to-hit-u-s-autos-with-retaliatory-tariffs-CH1c2YbcTCDFfbrALCzO.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.