As these lines are written we are still some weeks away from the inauguration of Donald Trump as the 47th US president and there is much that is unknown about the initiatives that he may undertake. We do know that the levy of special tariffs may be one of those projects. We know that because Mr. Trump has told us just that. (This article was written in November 2024, but its scheduled January 2025 publication was delayed)

Threats vs. Tariff Levies

To be clear, however, the actual tariff action may lie in the issuance of the threat to impose tariffs rather than the actual imposition of those tariffs. The clearest example of this Trumpean gambit is the threat to impose 25% tariffs on Mexican and Canadian goods, along with the threat to impose an additional 10% tariff on Chinese-origin goods. These notices were issued as an inducement to those countries to step up their activities to stop the mass illegal immigration and the accompanying surge in the inflow of fentanyl and other illegal drugs into the US. As was the case with the levy of Section 301 tariffs—2018 to present–the need for some measure was demonstrably long overdue.

The background for the Section 301 tariffs was the theft of intellectual property by China. In the case of these Trump-redux measures, the need to close the border after 10-15 million illegals flooded in under the Biden administration is the driving force. That the Trump game plan was to close the border was no surprise. The surprise lay in the actions being directed against foreign countries.

The 25% tariff threats are directed against both Mexico and Canada, while the fentanyl smuggling operation has its origins in China (the source of the chemical precursors and the needed laboratory equipment) via Mexico. Make no mistake—the dereliction of the Biden administration and the resultant need to close the border as a national security imperative was one of the primary motivations that drove the Trump campaign to victory in November.

Canadian and Mexican leadership anxiously reached out to Trump in an effort to forestall imposition of the tariffs. Trudeau flew to Florida to meet Trump at Mar a Lago. He and the Mexican President pledged to work with Trump. This Canadian pledge is despite the claim by the main opposition leader in Canada, Pierre Poilievre, that the Trump tariff would be “unjustified.”

In this connection, note that the USMCA allows for trade measures for the protection of its own essential security interests.^1 As a further observation, the Canadian experience with illegal immigration is not limited to simply waving the aliens through on their way south. Apparently there are some 4.9 million aliens residing in Canada on a temporary basis. On a per capita basis, the equivalent effect in the US would be something on the order of 27 million aliens. It is no wonder that Prime Minister Trudeau has called for a revamp of Canadian immigration policy.

Still, despite the self-interest in the shared benefit of curbing out-of-control immigration and the influx of illegal drugs, the political reality is that both Trudeau and/or his successor will take pains not to be seen to bend the knee to its neighbor.

As for any further actions against China, including an additional 10% tariff, there would be an additional trade impact, to be sure. At this point, however, much of the blow’s impact would be blunted by the fact that so many factory operations have already shifted away from China. There has been an enormous shift to Vietnam and other countries, including to an extent, returns to the US itself. This is the response to the cumulative effect of decades of trade remedy actions (antidumping and countervailing duty), forced labor actions and the Section 301 tariffs. To a great extent, continued sourcing from China has been somewhat limited to those products, such as pea protein powder, whose production cannot readily be shifted away from China.

The Trump Style

To return to the theme of threats vs. actual tariff levies, we learn from his Art of the Deal that the Trump approach to negotiations is to signal to the adversary, up front and in the clearest of terms and tones, that there will be consequences for hostile relations.

The following pathway is revealed:

• From the US view, the status quo is perceived as hostile and unacceptable,
• changes are needed to achieve the desired result,
• the changes will be identified,
• those changes will require action by the US and the other parties, and
• a refusal to initiate the needed changes will result in the advertised measure.

This is not an instance of a vague or ambiguous dialogue, with the other party left wondering what the negative consequences of a failed negotiation might look or feel like. This is not diplomacy as it has been traditionally practiced, of course. This is more in the blunt and aggressive style of a New York businessman—direct and to the point, in a unique blend. As a native New Yorker myself, I am very familiar with all of this, and I suspect that I am seen as more than a bit like President Trump.

And the question that might arise immediately after these observations is whether the smoother, more tactful approach, would be more effective? That may be a rhetorical question, as the environment marked by such a style had led to the underlying problem in the first place. A continuation of the same process would almost certainly guarantee a continuation of the unsatisfactory status quo.

We might recall a scene from the first Trump administration when President Trump addressed the United Nations and the German delegation laughed in glee when he warned of German dependence on Russia for its energy needs.^2 This was September 2018. Unless they are totally lacking in self-awareness, no doubt those Germans are no longer laughing dismissively in this post-Ukraine invasion environment.

I raise this event as a further example of the plain-spoken, clear-eyed expression that typifies the Trump style. That Mr. Trump was proven entirely correct by the unfolding of recent events only makes the joking about him, as well as all the hand-wringing, swooning and pearl-clutching, all the more entertaining. It reminds one of the equally wrong-headed 1980s hysteria about the Reagan strategy that resulted in the dismantling of the Berlin Wall and the Soviet Union collapse.

What Policy Goals Are Implicated?

Trade remedy measures are typically employed in a direct sense to address unfair trade actions (think dumping and subsidies), to protect domestic industry from import surges (safeguards),^3 to redress human rights abuses (forced or child labor),^4 to ensure national security for a given product sector (in the US, section 232^5) or to force a cessation of unfair treatment for US companies (Sections 301 and 337^6).

In addition to and beyond these familiar statutory programs we might cite to another policy interest that would be served by a trade remedy, balance of payments. The US trade laws allow a short-term relief—an import surcharge of duties of 15% for 150 days.^7 This authority has never been invoked, but we might see an appearance. This would certainly be a novelty. Apart from that, if the Mexican and Canadian discussions on the border end in failure, any resort to a national security basis for action would also be a novelty. This across-the-board tariff levy would be the first time that the trade action taken was not targeted, i.e., limited to a specific product sector at risk. Moreover, the risk to national security would not be posed by the legitimate importation of tangible goods at all, but by the wide-open border and the smuggling of illegal drugs.

With this last point in mind, the question arises, “What other tariff actions (or threats of tariff actions) might we expect?

Other areas where we might see some more hard-nosed discussions might be the funding of NATO. President Trump has been vocal for years that the US, which spends roughly 3.5% of gross domestic product (GDP) on defense, should not pick up the slack for the 2/3 of the other NATO members who are laggards in their commitment to pay 2% of GDP. That shortfall will increase if the commitment is raised to 3% of GDP, as is being discussed. NATO is not a nation state, so it is not a US trading partner, but it would be interesting to see if tariff increases by the US are threatened against individual NATO members who are trading partners of the US.

And we may see tariffs (or threats of tariffs) used to blunt the BRICS nations attempt to replace the US dollar as the reserve currency.

What Can You Do About All This?

There is no clear cut answer to this question for the simple reason that there is no clear definition of “all this.” Other than the announced potential Mexico, Canada and China tariffs, we don’t know what lies beyond. We are right to assume that there might well be other actions because President-elect Trump has been talking about other actions, including across the board import surcharges. We must await other events, or signals of other events.

With that cautionary note, there are a number of things that importers can do. The first is to realize that, as discussed above, there may be no tariff impositions because trade adversary will have yielded to Trump’s demands. On the other hand, if there are trade actions, there may be no safe harbors. Unlike the Section 301 tariffs, which were limited to China-origin goods, if we see an import surcharge it could be across the board. That having been said, given the strong bipartisan impetus to retaliate against China, it is safe to say that China will be at the top of the list for trade measures. Importers should take stock of their current sourcing and, given that risk, shift away from purchasing Chinese goods. The Section 301 tariff experience should be explored for work-around solutions in the event that there are trade measures.^8

Depending on future developments, the following solutions might have relevance:

• Exclusions — as provided for in the China Section 301 case and in the Section 232 steel and aluminum cases—if exclusions are granted, this may provide relief where the country of origin (COO) cannot be shifted. Bear in mind that the exclusions tend to be quite specific and narrower than its governing HTS subheading. The exclusion procedures for existing trade measures have been a total fiasco, spawning several court challenges. If tariffs are levied, and if exclusions therefrom are made available, it will be interesting to see if the federal government has learned any lessons about due process and following the statutory process set out by the US Congress.

• Change country of origin (COO) — if country A goods are subject to increased tariffs but goods from Country B are exempt from the additional tariffs, examine whether the goods may be sourced with a Country B COO. Some importers have been successful in avoiding Section 301 tariffs by means of their vendors shifting manufacture from China and even avoiding the Column 1 normal duties by virtue of eligibility under a Free Trade Agreement (FTA), such as the DR-CAFTA. This latter circumstance is obviously the best of all tariff worlds. Bear in mind, however, that US Customs and Border Protection (CBP) has been focused on such production shifts and has demanded proof that the last substantial transformation took place in Country B and/or the FTA eligibility rule has been met. Anecdotally, there has been a marked jump in CBP inquiries into the validity of FTA claims.

• Change HTS — if there is some specificity set forth in the trade measure based upon tariff classification, i.e., one subheading attracts an increased tariff while another subheading is exempt, then the importer will want to closely examine the tariff classifications and perhaps re-classify the goods. The importer might seek a ruling from CBP to confirm the validity of its position, although rulings are normally not necessary if the importer can demonstrate independently that its position has a reasonable care basis.

• Lower the Customs Valuation — as something of a last resort, if the COO cannot be changed and if the tariff classification is also fixed, then the importer might look at customs valuation planning strategies. These might include, among others, a First Sale for Export program or a shift in the purchasing strategy, where the foreign seller or its affiliate acts as importer of record with a changed sales term, so that title passes to the US customer on a post-entry, domestic sale basis. But CBP is guaranteed to closely examine all such strategies if and when they come to its attention. Special caution is owing in those circumstances where there are post-import payments for various services, e.g., marketing or technical support, from the importer to the seller or a party related to the seller. In the complete absence of services being provided or where the level of provided services is not commensurate with the fees being paid, the risk is that CBP would see such payments for separately invoiced fees as being disguised additional payments for the imported goods. The fee payments would then be an integral element of the price actually paid or payable for the imported goods (the PAPP). The net effect is to increase the customs value.

Beyond these affirmative actions, there lies only one other approach, which is to hope for the best and perhaps say a prayer that we don’t see the return of additional tariffs. That is because such tariff measures can trigger retaliations from trading partners.

The Tariff Boomerang: What Goes Around, Comes Around

The primary focus here has been on the impact of additional tariffs on imports into the US, with the primary impact felt by importers. Naturally, some of the higher costs represented by those tariffs will be passed on to US customers and ultimately to US consumers. There is a fear that this will dampen efforts to eradicate the inflation primarily caused by drunken sailor-level government spending over the past several years.

Another consequence of an actual imposition of additional tariffs will be the retaliation by trading partners of the US. For example, there is already talk of a restriction on exports of Canadian oil to the US if additional tariffs are imposed. Until the US is able to overcome yet another of the Biden follies—the hamstringing of US domestic energy production—this would be problematic. Other examples lie in the measures taken against US products by China in response to the Section 301 tariffs and to the retaliatory actions taken by the EU, India and others to the national security-inspired steel and aluminum tariffs imposed by the US. These hit US exporters, especially Harley-Davidson,^9 hard.

1 USMCA, Section 32.2(b).
2 Trump at UN, German reaction and recent report Europe cuts ties with Gazprom (2024).
3 Title XIX of the GATT; Section 201 of the Trade Act of 1974, codified at 19 USC § 2251 ff.
4 19 USC § 1307.
5 Section 232 of the Trade Expansion Act of 1962, codified at 19 USC § 1862.
6 19 USC §§ 2411 and 1337, respectively.
7 Section 122 of the Trade Act of 1974, 19 USC § 1322.
8 See Neville, China Trade Sanctions: What to do?, 29 JOIT 26 (Sept. 2018) and Neville, Sales for Export from China: Customs Valuation Plays, 30 JOIT 32 (Sept. 2019).
9 Judgment of 21 November 2024, Harley-Davidson, Case C-297/23 P, ECLI:EU:C:2024: 971 (shift of production to Thailand determined to be not economically justified, COO of finished motorcycles is the US, subject to additional duties).

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