Trump’s Return to Trade: Preparing for the Tariff Battles

By Brett W. Johnson, T. Troy Galan, Cole Craghan, and Kristen N. Iteen

President-elect Trump has indicated that he will immediately increase tariffs as to imports from multiple countries, most notably China, Mexico, and Canada. However, companies involved in international trade are closely analyzing what his return could mean for a host of cross-border business operations and compliance issues. It is very difficult and time consuming to change a global supply chain. As such, companies that begin preparing now for expected changes to international trade laws, including as to tariffs, could have a competitive advantage.

The Recent History of U.S. Tariffs

While tariffs have long been a part of U.S. international trade policy, Trump’s first administration stood out for its aggressive use and enforcement, particularly in the use of Section 301 tariffs targeting Chinese-origin goods. These included a 25 percent tariff on roughly $250 billion of imports and a seven and a half percent tariff on another $112 billion of imports, impacting sectors from electronics to consumer goods.

This tariff regime created complex compliance challenges for companies, with frequent rate adjustments, trade negotiations, and evolving exclusion lists requiring constant monitoring. The Biden administration largely maintained Trump-era tariffs, especially those on key Chinese-origin imports, reflecting policy continuity in the ongoing decoupling from Chinese manufacturing. Biden’s use of Section 301 tariffs on products like electric vehicles, semiconductors, and solar cells underscored this continuity, signaling a steady U.S. focus on reducing dependence on Chinese manufacturing.

Trump’s Proposed Tariff Expansions

In an expansion from his prior administration’s policies, Trump is now considering sweeping tariffs that would fundamentally alter the landscape of U.S. international trade, including a 25 percent tariff on all imports from Mexico and Canada, and an additional 10 percent tariff on all imports from China. Beyond targeting China, Trump’s current proposals would affect close trade partners in Mexico and Canada, using tools such as Section 232 national security tariffs to impose duties on goods perceived as threats to U.S. national security.

If implemented, U.S. Customs and Border Protection (CBP) is expected to heighten enforcement, potentially through increased audits, penalties, and seizure of non-compliant goods.

Key Steps for Businesses

1. Ensure Products are Properly Classified for International Trade

Every product that is imported into the United States has a particular Harmonized Tariff Schedule code. For purposes of export, the product also has an export classification under the Export Administration Regulation or the International Traffic in Arms Regulation. And, the product has a Schedule B classification for the U.S. Bureau of Census. These classifications significantly impact not only who you can do business with globally, but also the correct tariff or other tax/duty that is placed on the product not just by the United States, but other countries. Simply, to avoid a potential increased tariff, companies should consider conducting a classification analysis to ensure they are using the correct codes. In addition, a company may be eligible for a clawback of past duties if the codes that were used were incorrect.

2. Assess Protection From Existing Trade Agreements

While the President holds significant authority to impose tariffs, this power is tempered by trade agreements that have been ratified by the U.S. Senate and thus carry the force of law. For example, the United States-Mexico-Canada Agreement (USMCA) restricts unilateral tariff changes on specific goods, including agricultural products, textiles, and vehicles. As such, unlike its predecessor, the North American Free Trade Agreement (NAFTA), under the USMCA, certain originating goods from Mexico or Canada are insulated from new tariffs or tariff increases unless specifically excepted. Therefore, a blanket tariff against Mexico and Canada will likely be subject to legal challenges, and may be struck down without Congressional approval.

The United States has similar free trade agreements with 20 countries, each with unique provisions that may limit new tariff impositions. Companies should review their cross-border operations to determine if any existing agreements provide protections that could mitigate the impact of potential new tariffs.

3. Prepare for More Tariff Volatility on Chinese Imports

President-elect Trump initiated a significant increase of tariffs on Chinese products during his first term and then President Biden doubled down. It is clear that President-elect Trump’s initial target will be China for increased restrictions on international trade, in particular to increasing tariffs.

With no trade agreement in place with China, the United States has broader authority to unilaterally impose tariffs on Chinese-origin goods. As part of Trump’s proposed “four-year plan to phase out all Chinese imports of essential goods,” this could include removing China’s most-favored-nation (MFN) status, leading to significantly higher tariffs. While such action may require Congressional approval, it would allow the U.S. to impose tariffs on Chinese goods that exceed current levels.

To address this risk, companies should evaluate their supply chains and, if applicable, their own foreign manufacturing operations to assess whether the impact of increased Chinese tariffs can be mitigated.

Specifically, understanding the “country-of-origin” for imported goods is crucial. A common misconception in international trade is that the last country of manufacturing determines a good’s country-of-origin. However, under CBP rulings and U.S. Court of International Trade decisions, the origin of imported merchandise is determined by a legal analysis of where “substantial transformation” occurs, rather than the final assembly location. This legal analysis may classify a good as originating from a third country even if assembled in China, which could affect tariff applicability.

4. Ensure Country-of-Origin Accuracy for Compliance

Companies should also consider revisiting past country-of-origin determinations to confirm their accuracy. As such determinations are fact- and product-specific, companies should update these analyses regularly to stay compliant with evolving CBP regulations. Inaccurate reporting can lead to penalties, particularly as CBP enforcement ramps up under a second Trump administration.

To mitigate the risk of penalties, companies must ensure that these analyses are up-to-date and accurately reported to CBP.

Conclusion

Trump’s second term brings the potential for dramatic shifts in U.S. international trade policy. With expanded tariffs on the horizon, companies involved in international trade should consider a proactive stance, leveraging protections from existing trade agreements, reassessing their supply chains, and updating compliance practices in anticipation of heightened enforcement. By acting on these strategies, businesses can reduce exposure to sudden tariff hikes, manage compliance risks, and position themselves to navigate what may be a turbulent trade landscape.