Insights
What’s Next? President-Elect Trump Signals 25% Tariffs on Mexico and Canada, 10% Increase on Chinese Goods
What Happened?
On November 25, 2024, President-elect Donald Trump provided some additional clarity on his immediate tariff plans in a post on Truth Social. Specifically, Trump announced his intent to sign an Executive Order on his first day in office to impose a 25% tariff on all products from Mexico and Canada. According to the post, the tariff will remain in effect for an indefinite period tied to fentanyl smuggling and illegal immigration. In a separate post, President-elect Trump also announced his intention to add a 10% tariff “above any additional tariffs” on all Chinese-origin products. Factoring in current 25% Section 301 tariffs on Chinese goods, this means that some Chinese products will be subject to a 35% tariff in addition to their normal duty rate. Trump similarly tied this tariff hike to China’s role in the fentanyl crisis.
The tariff on Chinese products is not surprising as Trump campaigned on a 60% tariff on Chinese goods. But the 25% tariff on Mexican and Canadian products is somewhat unexpected (although “expect the unexpected” comes to mind regarding trade policy in the second Trump administration). During his presidential campaign, candidate Trump regularly referenced a 10% to 20% tariff on all imported goods, so a universal tariff proposal would not be surprising. The targeted nature of these tariffs, however, may catch importers of Mexican and Canadian goods off-guard, especially because the U.S.-Mexico-Canada Agreement (“USMCA”), negotiated during Trump’s first term, incentivized companies to shift supply chains to North American neighbors. This initial salvo is reminiscent of the Section 232 tariffs on aluminum and steel that were implemented during Trump’s first term. Those tariffs did not initially exclude Canada and Mexico but were lifted with respect to those countries in May 2019 in the run up to the passage of the USMCA.
What’s Next?
President-elect Trump will not be inaugurated until January 20, 2025, so these announcements will obviously not be effective immediately. The inference, though, is that Trump is already positioning his “America First” agenda with no exclusions for USMCA partners. In fact, depending on how the tariffs on Canada and Mexico are enacted, they will likely violate the terms of the USMCA, which allow for duty-free treatment of qualifying goods. These may be signs of early hardball negotiating tactics to gain an advantage in the upcoming 2026 USMCA review, or a sign that Trump and his trade team will walk away from the still young USMCA. The U.S. can expect retaliatory tariffs from its trade partners if Trump goes through with the 25% increase.
With respect to the increased Chinese tariffs, this could be a “testing the waters” approach to gauge the reaction from the U.S.’s most notorious trade war foe, or the initial volley in ever increasing tariffs to reach or exceed the 60% mark frequently referenced on the campaign trail. Using Trump’s first administration as the template, any retaliatory tariff from China in response could be met by additional tariffs by the U.S. on Chinese goods.
This is unlikely to be the last of Trump’s pre-inauguration trade pronouncements. And if U.S. neighbors and USMCA partners, and, in the case of Canada, close national security allies are in the crosshairs, then no country is safe from potential tariffs.
How To Prepare?
Moving supply chains is a difficult, often years-long process, and in this instance, it may be akin to playing a game of Whack-a-Mole depending on the next target of tariffs. Meanwhile, manufacturing in or sourcing from the United States is an economic impossibility for many importers. Manufacturing abroad, paying transportation costs, and paying an additional tariff may still be less expensive than sourcing from the United States.
For some importers, there may be options for decreasing duty costs based on preferential import programs and other means, including use of foreign trade zones and duty drawback, among others. The first step will be to ensure compliance with the in-place Customs regulations, including appropriate Harmonized Tariff Schedule (“HTS”) classification, valuation, and country of origin marking. If the USMCA remains in place, properly identifying and declaring USMCA qualifying goods will also be of utmost importance.
If you require advice in navigating the upcoming tariffs or Customs compliance generally, please reach out to the trade attorneys at Torres Trade Law.