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Trump Tariffs on Canada, Mexico Delayed, China Responds With its Own Tariffs

19 February 2025

In a historic “first,” President Trump signed three executive orders (EOs) on February 1, 2025, imposing new 25% ad valorem tariffs that would apply to most merchandise imported into the U.S. from Canada and Mexico starting on February 4, 2025, now delayed 30 days. These duties will be imposed in addition to any Normal Trade Relations or other trade remedy tariffs that might apply.

China was also the target of an EO, with new 10% ad valorem tariffs to be imposed starting on February 4, in addition to any other tariffs that might apply, including the Section 301 “China tariffs” already in place at 100%, 50%, 25%, or 7.5% (depending on the imported item’s classification code under the Harmonized Tariff Schedule of the United States (HTSUS)).

The only products garnering special treatment in the EOs are certain oil and gas imports from Canada, with duties to be imposed at 10% ad valorem instead of 25%. President Trump took this step to “minimize any disruptive effects we might have on gasoline and home heating oil prices,” said a senior administration official.
The tariffs on Canada, Mexico, and China arose from candidate Trump’s oft-repeated promise during his campaign for a second term in the White House to respond to an increased flow of migrants and illegal drugs crossing the border into U.S. territory. The tariffs will remain in effect until President Trump determines that the Canadian, Mexican, and Chinese governments have taken “sufficient action to alleviate the crisis,” including through cooperative enforcement actions (see also the fact sheet released by the White House).

Announcement of the tariffs elicited immediate responses from the governments of Canada, Mexico, and China promising retaliatory actions in the form of tariff and non-tariff measures (see below). However, on February 3, it was announced that based on talks between President Trump and Canadian Prime Minister Trudeau and Mexican President Sheinbaum, the tariffs on Canada and Mexico, respectively, would be delayed for 30 days to allow for further negotiations.

The tariffs on China went into effect on February 4 as planned, but China quickly countered with a 15% tariff on coal and liquefied natural gas products and a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S. that will take effect on February 10. China also announced export controls on several elements critical to the production of certain high-tech products, which took effect on February 4.

International Emergency Economic Powers Act

In announcing the new tariffs, the president relied on the International Emergency Economic Powers Act (IEEPA) as the legal basis for allowing him to take such actions. The IEEPA was enacted in 1977 and cited in 2019 during the first Trump administration as the basis for threatened tariff increases of 25% on all goods exported from Mexico unless Mexico addressed illegal immigration issues at the border. In the EOs, President Trump declared such national emergencies with respect to an “influx of illegal aliens and illicit drugs.”

Many legal scholars question whether the IEEPA allows the president to impose tariffs to counter “national emergencies” that must be declared before any economic measures can be taken. IEEPA has traditionally been viewed as the heart of the U.S. sanctions regime targeting countries, entities, organizations, and individuals that pose a national security threat to the U.S. by, for example, freezing bank accounts and adopting embargoes. IEEPA has never been used to impose tariffs, especially on two of America’s closest trade and security partners (Canada and Mexico).

Gregory Meeks, the ranking Democrat on the U.S. House of Representatives’ Foreign Affairs Committee, announced that he will introduce a resolution to terminate President Trump’s proclaimed “national emergencies.” If the Senate follows suit and both houses vote to nullify them, the new tariffs would end.

Retaliatory Tariffs and Other Measures

Shortly after the U.S. tariffs were revealed on February 1, Canada announced that it would impose retaliatory tariffs of 25% on C$30 billion worth of imports beginning February 4, 2025, covering Florida orange juice, Kentucky peanut butter and bourbon, Tennessee whiskey, coffee, appliances, apparel, cosmetics, motorcycles, and pulp and paper. An additional C$125 billion more of targeted U.S. merchandise categories that will be subject to the 25% tariffs is expected. This second wave of tariffs will target products such as passenger vehicles and trucks (including EVs), recreational vehicles, steel and aluminum products, aerospace products, designated produce, beef and pork, and dairy products. The Canadian government is also considering other countermeasures—including non-tariff options—if the U.S. government imposes tariffs on Canadian goods. As noted above, a 30-day pause on the tariffs and retaliatory tariffs is now in effect.

Mexico’s President Sheinbaum previously announced that if the U.S. chose to proceed with the 25% tariffs, Mexico would retaliate with similar tariffs on a wide range of products imported from the U.S. Following the announcement of the U.S. tariffs, the Mexican president ordered the economy minister to respond with proposals for both tariff and non-tariff measures. Retaliatory tariffs of 25% on U.S. goods were expected, but as in the case of Canada, the Mexico tariffs are on hold for 30 days.

The Chinese government initially said that it would take retaliatory action but did not announce any tariffs. China’s Commerce Ministry said it intends to file a lawsuit against the U.S. at the World Trade Organization (WTO) on the grounds that the blanket 10% tariff constitutes a “serious violation” of international trade rules. While China took steps in 2024 to limit exports of the chemicals needed to produce fentanyl, the government has made it clear that any further efforts to curb exports of these precursor materials to the U.S. will be tied to progress on the overall U.S.-China relationship, not just trade.

The EOs discourage any retaliation and indicate that if such measures to counter the U.S. tariffs are put in place, the U.S. reserves the right to increase the new tariffs above the 25% and 10% levels, respectively, on imports from Canada and Mexico, as well as China.

Federal Register Notice

U.S. Customs & Border Protection (CBP) issued a Federal Register notice in connection with the EO covering Canada that specified that the all-important issue of country of origin will be determined to assess which products would be subject to the tariffs either by (1) application of the so-called “NAFTA [USMCA] Marking Rules” found in 19 C.F.R. § 102 et seq. for manufacturing occurring in North America, or (2) under the traditional test CBP employs to determine origin for all countries outside of North America, “substantial transformation.” Under this standard, all raw materials used in final processing or assembly must undergo a change in name, character, and use in that final country of production such that a new and different article of commerce results.

Presumably, this same standard for origin determinations will also apply to goods from Mexico, given that the Federal Register notice implementing this EO has not yet been released. The Federal Register notice issued with respect to the EO on tariffs for Chinese goods makes no mention of the origin criteria, so presumably the “substantial transformation” test will apply.

No Exclusion Process

Trump administration officials announced that, unlike the process the U.S. enacted in 2018 to allow exemptions from the trade remedy tariffs (Section 301 “China tariffs” and Section 232 “national security tariffs” on steel and aluminum raw materials), no such exclusion process would be considered in connection with the new tariffs.

Impact on Duty Drawback and De Minimis Shipments

All three EOs make it clear that the new tariffs will not be eligible for duty drawback (a program under which 99% of U.S. Customs duties paid are refunded if imported goods are exported, either in the same condition as imported or as further manufactured articles, or destroyed). In addition, the EOs end the ability of exporters in Canada, Mexico, and China to use the de minimis exemption for low-value shipments under $800. This action was aimed primarily at Chinese e-commerce platforms, which have reportedly used this procedure to evade the legal payment of duties on goods that would otherwise be subject to formal entry and reporting procedures when valued over $2,500.

A New Universal Tariff?

Lurking in the background is the possibility of another tariff seeming to gain traction on Capitol Hill: the 10% “universal tariff” that would apply to all imports from all countries, in addition to the current Normal Trade Relations duties imposed by the HTSUS code and any trade remedy tariffs. Many observers believe that such sweeping tariffs could be imposed only by Congress, and not by the president via another IEEPA-type declaration of a “national emergency,” which could not plausibly be used to target every nation in the world.

However, given the current negotiations to replace the revenue that would be lost by enacting a second version of the 2017 Tax Cuts and Jobs Act, some of whose provisions are set to expire at the end of 2025, everything is on the table. Because the Congressional Budget Office has estimated that a new universal tariff would bring in $1 trillion annually in new revenue, lawmakers seem to be warming to this initiative. While enacting such new Normal Trade Relations duties would violate the obligations the U.S. agreed to as a member of the WTO, many in Congress and most in the new administration seem to disregard these obligations as counter to U.S. sovereignty.

Insight

As President Trump seeks to stop the flow of undocumented immigrants and illicit narcotics (such as fentanyl and its precursor agents) into the U.S., uncertainty abounds not only about the legal authority he relied on to impose the new tariffs – IEEPA -- but about the retaliatory measures that Canada, Mexico, and China will adopt in response.
The overriding question facing U.S. companies (and nonresident companies, including many Canadian entities that import into the U.S.) is whether the cost of the new tariffs, which are paid by the U.S. importer of record, can be passed on to U.S. consumers in whole or in part. Canada, Mexico, and China account for more than 40% of all U.S. imports that include motor vehicles, pharmaceuticals, shoes, electronics, lumber, steel and aluminum, and a host of other products ultimately purchased by American retail consumers.

In sum, many view these new tariffs as the opening salvo in a new global trade war in which all major trading nations will ultimately become enmeshed. In fact, President Trump has indicated that tariffs on imports from the EU and the BRICS countries may be forthcoming. Multinational companies trading in goods should monitor developments closely and prepare to adopt mitigation strategies to lessen or eliminate the impact of these significant tariffs for merchandise imported into the U.S., as well as countermeasures adopted by the countries subject to the new tariffs.

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