Tariffs Under the Incoming Administration: Projected Changes in Trade Policy

At a glance:

• The main takeaway: The incoming Trump administration’s proposals indicate several key changes in trade policy and tariffs, especially with China and Mexico.
• The impact on your business: Companies, especially those in Manufacturing, will need to review and potentially adjust their import strategy to minimize costs.
• Next steps: Schedule a consultation with Aprio’s Tariffs and Customs specialists to evaluate and reduce the impact of trade restrictions on your company, as well as to navigate the exclusion process.

The full story

President-elect Trump has signaled his intention to pursue an array of trade policies that could lead to higher import duties and potentially introduce new tariffs on specific nations and industries. Key measures likely to be under consideration include:

1. Uniform tariffs of 10-20% on all imports
2. Increased tariffs on Chinese imports, potentially up to 60%
3. 100% tariffs on Mexican imports, targeting select sectors

While these policies are not yet finalized and may evolve as they undergo government scrutiny, businesses can begin planning now for a changing trade landscape.

10-20% Uniform Tariffs on All Imports

One of the administration’s cornerstone proposals is a sweeping 10-20% tariff on imports from all trading partners. Although the legal authority for such tariffs remains uncertain, authorities like Section 232 of the Trade Expansion Act of 1962 (national security grounds) or Section 301 of the Trade Act of 1974 (unfair trade practices) could be invoked, similar to past tariffs imposed by the Trump administration.

Historical patterns suggest that these tariffs would not take immediate effect. Previous trade policy changes required extensive studies on trade behavior, economic impacts, and national security considerations—often taking a few months to a year. However, Trump may rely on other laws that grant executive authority to raise tariffs without prior studies, allowing him to increase tariffs immediately upon taking office.

Additionally, a Republican majority in both the Senate and the House could open the door to legislative actions potentially increasing customs duties across the board.

Based on previous patterns, Trump would likely impose tariffs as a blanket measure, then have tariffs negotiated down or waived for certain countries (e.g., countries with free trade arrangements) or provide limited exclusions as part of a strategic negotiation process.

Tariff Increase on Chinese Imports

The incoming administration’s proposed escalation of tariffs on Chinese goods builds on existing Section 301 tariffs, currently set at 7.5% or 25% across many product categories. The president-elect stated that these rates will increase up to 60%, which could significantly impact U.S. importers and businesses. The scope of these tariffs may expand to include additional goods outside the current China tariff lists.

The “Phase One” trade deal, entered between the U.S. and China in 2019, entailed commitments from China to boost imports of certain U.S. products in exchange for tariff concessions. However, China’s commitments were only partially fulfilled. The new administration is likely to revisit this issue, pushing for a stricter and enforceable follow-up agreement, i.e., the “Phase Two” deal. Failure to comply could lead to harsher penalties for China.

The administration’s history suggests that exclusions or exemptions will likely be made available, a departure from the more rigid approach seen under the Biden administration. Therefore, U.S. importers may anticipate some degree of flexibility or relief through an updated exclusion process.

100% Tariffs on Mexican Imports, Targeting Specific Industries

Amid rising interest in nearshoring—in which companies shift production to regions like Southeast Asia or Mexico to sidestep Chinese tariffs—Trump has proposed 100% tariffs on Mexican imports. This move could have significant ramifications for industries reliant on Mexican manufacturing and might also complicate the U.S.-Mexico-Canada Agreement (USMCA), a deal originally spearheaded by Trump’s prior administration.

The administration would need to navigate USMCA’s legal framework carefully. Though options like Section 232 and Section 301 might again come into play, imposing 100% tariffs on Mexico could strain U.S.-Mexico relations and potentially conflict with the USMCA’s existing terms. The new administration may also consider targeted tariffs on specific industries or companies, alongside increased use of antidumping and countervailing duties or other enforcement tools to counter transshipment or minimal processing practices that skirt tariff requirements.

How can businesses mitigate the impact of tariffs?

Despite the regulatory uncertainty surrounding proposed tariffs, businesses can implement proactive measures to mitigate the financial impact:

1. Review tariff codes
   Section 301 tariffs are applied based on specific tariff codes, and misclassification can lead to unnecessary duties. Many companies rely on suppliers or customs brokers for classification, but these parties often lack nuanced understanding. Conduct a comprehensive review of tariff codes to ensure accuracy.
2. Assess customs values
   Customs values reported to U.S. Customs and Border Protection (CBP) may be adjusted to reduce duty liability. Related-party transactions should also be reviewed to ensure that transfer pricing aligns with CBP valuation rules. Reassessing these factors may uncover significant savings.
3. Determine the true origin of your products
   Not all goods in a given China tariff category are created equal: if “major processing” occurred outside of China before the products were imported, the goods may not be considered “Chinese-origin,” and such goods may not be affected by the 301 tariffs. “Major processing” refers to complex manufacturing steps in which a product undergoes a substantial transformation. For example, assembling parts into a finished product (such as electronics) in a non-Chinese location may change a product’s country of origin.
4. Explore 301 exclusions
   The USTR has introduced a new exclusion process for certain machinery and electronic devices under Chapters 84 and 85 of the Harmonized Tariff Schedule of the U.S. (HTSUS). Businesses importing eligible products may submit exclusion requests through the USTR’s portal by March 31, 2025. Certain products are automatically excluded. For details, refer to the Federal Register from September 18, 2024. For tariff codes and descriptions related to exclusions, see Federal Register from September 18, 2024.
5. Consider duty drawback
   If your business exports imported products or further processed products that contain imported components, duty drawback is a great option. Drawback is a duty refund program for imported goods that were either exported as-is or as raw materials/components used in exported goods. Eligible importers can claim 99% of refunds on duties paid on the imported goods. Failing to claim this refund leaves money on the table.
6. Duty deferral programs
   Foreign Trade Zones (FTZs) and Bonded Warehouses (BWs) can be valuable options if you process imported items before bringing them into the U.S. or exporting them.In an FTZ, goods can be brought in for processing, assembly, or storage with the advantage of deferring, reducing, or even eliminating customs duties until they are officially entered into U.S. commerce, often with lower customs fees. Alternatively, in a BW, goods can be stored under customs supervision for up to five years without paying duties or related fees. Duties are paid only when the goods are withdrawn for sale or distribution within the U.S.; if they are ultimately exported, duties can be entirely avoided.
   
   Temporary Importation Under Bond (TIB) may also be an effective option if you’re importing products for specific purposes, such as repair, testing, or further manufacturing. Under TIB, goods may be imported and stored without paying tariffs, as long as they are exported or destroyed within a specified timeframe.

The bottom line

While the exact details of trade policy changes won’t be clear for several weeks or months, businesses can take a proactive approach now. Consulting with a professional advisory service now can help companies navigate the possibilities outlined above.

Aprio’s experienced Customs and Tariffs Team can assist with verifying tariff codes, preparing and filing exclusion requests or comments, and exploring duty deferral programs. Our services help ensure accuracy and compliance to improve your chances of securing tariff relief and minimizing the impact on your business operations.

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