Editor’s note:This is an evolving situation, and we will continue to update this information brief as the facts change.
UPDATE: Tariffs were initially slated to take effect on February 4, 2025, however after leaders of the respective North American countries met, tariffs on imports from Mexico and Canada will be paused for one month while the countries negotiate.
On February 1, 2025, the White House announced that President Trump has signed executive orders imposing the long-promised tariff increases to China, Canada, and Mexico. In response to what the White House categorizes as an ”extraordinary threat posed by illegal aliens and drugs,” the President imposed an additional 10% tariff on all imports from China, and a 25% tariff on imports from Canada and Mexico. Energy resources imported from Canada will carry a lower tariff at 10%. In addition, the executive order closed the ‘de minimus ’ loophole, commonly used by e-commerce and drop-ship businesses to avoid tariffs on shipments under $800. The next day, Mexico and Canada announced plans for retaliatory tariffs, while China vowed to seek legal remedy through the World Trade Organization. Tariffs were initially slated to take effect on February 4, 2025, however after a meeting between President Trump and President Sheinbaum of Mexico on February 3, tariffs on imports from Mexico will be paused for one month.
Key Considerations for Impacted Businesses
While the situation is expected to be fluid, many manufacturing, industrial and consumer product businesses now find themselves with substantial uncertainty. Below is a non-exhaustive list of matters businesses impacted by this announcement should consider:
- Review supply chain options and impacts:
- Optimize trade compliance – discuss with suppliers the possibility of sourcing products/raw materials domestically or from non-impacted countries. Consider new supplier relationships from historically uncompetitive price markets, as pricing landscape has now changed.
- Begin negotiations with impacted suppliers to determine whether it is possible for them to absorb any of the tariff costs via price concessions or volume discounts.
- Open lines of communication with suppliers and logistics providers on anticipated timing delays due to additional customs administration at the borders, particularly for Canada and Mexico.
- For manufacturers, review investment, incremental cost and timing of reshoring possibilities.
- Engage with customs & tariffs consultants: engage as soon as possible with consultants that specialize in this area. Country of origin rules, product classification and exemption requests were critical components of effective strategy when President Trump imposed tariffs during 2018.
- Engage with transfer pricing experts: businesses engaging in cross-border operations, should contact their transfer pricing and international tax experts to understand how these tariffs impact their transfer pricing strategy.
- Review contracts: particularly for businesses with long-term pricing commitments, review contracts for force majeure and other provisions which could provide opportunity for re-negotiation.
- Develop communication strategy: leadership teams should quickly align on communication strategy and ensure consistency in messaging. Suppliers and customers should be an integral part of this strategy, but businesses should not overlook the importance of internal stakeholder communication as well.
Leaders of China, Canada and Mexico are expected to meet with the Trump Administration early this week, and the landscape is expected to change rapidly. We will continue to share updates and guidance as events unfold.
This article aims to provide an unbiased and balanced perspective. We strive to present factual information and avoid any partisan bias. We do not endorse or oppose any political figure or party. Our commitment is to neutrality and fairness, ensuring that our analysis is objective.