The “What,” “When,” and “How” of President Trump’s New Tariffs Against Canada, Mexico and China: Developing a Legal and Business Strategy

By Brett W. Johnson, Derek Flint, and T. Troy Galan

1. What? Tariff Rates and Legal Authority

President Trump signed three executive orders imposing new tariffs against Canada, Mexico, and China, following through on prior campaign and post-inauguration promises. While implementation and specific details remain fluid, the key details already available provide critical information for importers.¹

Legal challenges are likely, but courts have historically granted the president broad discretion when actions are tied to national security concerns. If lawsuits are filed, importers should monitor for any temporary restraining orders (TROs) or injunctions that could delay or suspend implementation. However, legal challenges to tariffs can take years to reach a final resolution.

Tariff Details

The tariffs are being imposed under the International Emergency Economic Powers Act (IEEPA).² The use of the IEEPA is significant because it is typically used for sanctions, not tariffs, and no modern U.S. president has used it in this way. Unlike Section 301 or Section 232 tariffs, which require an investigation and specific findings, the IEEPA allows the president to impose trade measures immediately without a formal review process. The tariff rates on the three countries are as follows:

A significant distinction from previous tariffs is the absence of an exclusion process. Previously, importers could apply for exemptions for specific products. That option is not available now. Additionally, the executive order states that no drawback will be available for these tariffs. This means that even if an importer enters goods, pays the tariff, and later exports or destroys the goods, they cannot recover the tariff paid.

The executive orders also include a “retaliation clause,” which will allow for increased tariffs if Canada, Mexico, or China imposes retaliatory duties. Both Canada and Mexico have already announced plans for countermeasures, which will take effect on the same day as the U.S. tariffs. Given the risk of further tariff increases, importers should closely monitor these developments as part of a larger strategic plan.

De Minimis Treatment Eliminated

Previously, shipments valued under $800 were exempt from certain tariffs, allowing importers to route goods through third countries and fulfill orders under de minimis thresholds to avoid tariffs. This loophole is now closed, meaning all imports from Mexico, Canada, and China, will be subject to tariffs, regardless of value. Companies should reassess their logistics strategies in moving even small amounts of goods between the U.S. and any of these three countries.

2. When? Effective Date and Application

The tariffs take effect at 12:01 a.m. Eastern Time on Tuesday, February 4, 2025. The tariffs apply to all goods originating from these countries that enter the U.S. or are withdrawn from warehouses for consumption on or after that date.

Goods in Transit. Due to the immediate implementation of these tariffs, a key question is whether they apply to goods already in transit. The executive order clarifies that goods loaded on a vessel, plane, or truck and already in the final mode of transport to the U.S. before 12:01 a.m. on February 4, 2025, will not be subject to the new tariffs. However, importers must certify these facts through a process that will be outlined in the upcoming Federal Register Notice.

3. How? Handling the New Tariffs

Review the Contract. Importers should review contracts and purchase orders that are impacted by the tariffs. Importantly, the delivery terms and change of title may impact whether the foreign supplier or the importer is responsible for the new tariffs. In addition, importers need to fully understand the force majeure clauses. President Trump has used emergency powers to effectuate the tariff increase. If the force majeure clause is implicated, importers should consider providing the appropriate notice to the other parties to ensure the risk is properly shifted according to the terms. In addition, whether an importer is a supplier or purchaser, it is key to understand the contractual rights to hold the other party to existing pricing terms, and to preemptively evaluate the dispute resolution process in the event of a demand for pricing change, or even a termination or default.

Foreign Trade Zones (FTZs) & Bonded Warehouses. Importers should evaluate whether they can enter goods into FTZs or bonded warehouses before the tariff deadline. The executive order exempts from the new tariffs goods entered into FTZs before the deadline under “domestic status,” meaning they have already been duty-paid. Notably, goods entered into U.S. customs territory before the deadline can remain within the FTZ for processing or manufacturing while avoiding tariffs if they are later exported.

However, any goods entered into an FTZ after the tariff implementation date will be treated as “privileged foreign status,” meaning that even if they are later incorporated into another product, they will still be subject to tariffs when they exit the FTZ into U.S. customs territory.

Country of Origin. Logistics and supply chain teams should ensure that country-of-origin declarations in import documentation, particularly entry summaries submitted to U.S. Customs and Border Protection (CBP), are accurate. Importers should review certificates of origin, commercial invoices, and supplier documentation to ensure that Canada, Mexico, or China are not mistakenly listed as the country of origin (resulting in unnecessary tariffs) when another country should be declared.

In addition, the executive order references “products originating from” Canada, Mexico, and China and indicates that a definition will be issued in the forthcoming Federal Register notice. This suggests that the tariff classification may differ from standard country-of-origin rules importers are accustomed to using. Until this definition is clarified, importers should closely track upcoming guidance.

If an importer is considering whether a product’s country of origin can be legally reclassified, including through tariff engineering, they should consult legal counsel to ensure compliance with CBP regulations. Importers should also be aware that relying on third parties, including customs brokers, does not eliminate liability.

HTSUS Updates. For CBP to enforce these tariffs, the Harmonized Tariff Schedule of the United States (HTSUS) and CBP’s internal systems must be updated before collection begins. Even though tariffs take effect on Tuesday, CBP’s systems may take additional time to implement them, and errors in filings could lead to compliance issues. As such, close coordination with customs brokers and logistics teams is essential.

Record-Keeping and Preserving Future Remedies. Although drawback is currently not available, importers should maintain detailed records of tariff payments in case future legal or diplomatic actions create refund opportunities. Documentation of import classifications, tariff payments, and shipping records will be critical for supporting any potential claims.

In addition, companies may want to consider filing lawsuits related to the executive orders to preserve remedies if they are deemed unlawful. Companies that fail to preserve their rights within the applicable time period may encounter waiver of claims. By contrast, companies that do preserve their rights will have a competitive advantage as to the rest of the industry, if legal challenges are successful.

Compliance and Avoiding “Quick Fix” Schemes. CBP is expected to strictly enforce these tariffs, and importers should anticipate increased scrutiny of country-of-origin declarations. Any attempt to circumvent tariffs by improperly modifying country-of-origin claims could result in penalties or fraud investigations. For example, the scheme to issue two invoices — one that is submitted to CBP at a lower value and another that is electronically sent to the importer at a higher value — is not allowed. In addition, attempts to limit the costs of goods sold, including insurance, shipping costs, etc., by sending a separate invoice for such items may also not be allowed except under certain circumstances.  Companies should consider a detailed legal opinion related to any change in operations that is meant to avoid or minimize the impact of the tariffs.

Take a Deep Breath. As with other executive orders, regardless of the administration, or the reaction by foreign governments, companies should consider thoughtful, strategic responses, such as engaging with congressional delegations; participating in trade group efforts; submitting comments to the Federal Register notice; and ensuring a thorough understanding of the tariffs’ impact before reacting. A thoughtful response may save a company from expending significant capital resources, or changing supply chains, when the problem could dissipate quickly or be resolved through alternative means. Indeed, just a few weeks into the second Trump Administration, we have already seen rapid policy shifts that have upended the status quo (see, e.g., Colombia and TikTok).

4. Final Thoughts

These new tariffs represent a significant shift in U.S. trade policy, with broad economic and compliance implications. The absence of an exclusion process, elimination of de minimis exemptions, and restriction on duty drawback make this round of tariffs more restrictive than prior measures — pending any surprises in the Federal Register notice. Additionally, the retaliation clause means that tariff rates could increase further if trade partners respond with their own duties.

While additional guidance is expected in the Federal Register notice, importers should take action now to plan, including by moving quickly to capture any savings associated with shipments already en route, updating country-of-origin compliance, monitoring CBP enforcement updates, and adjusting supply chain planning as needed. Given the risk of further escalation, staying informed and maintaining compliance diligence will be critical in the coming weeks.