The U.S. government is scheduled to begin collecting considerably higher tariffs on most imports on August 7. Companies need to adapt their compliance arrangements to a new, high-tariff environment.
An appendix to this alert provides a summary of new “reciprocal” tariffs to be imposed on major trading partners, as specified in a July 31 executive order. The White House indicated that reciprocal tariff rates might change as the U.S. government negotiates with additional countries.
In addition, the administration is adjusting or considering adjusting separate tariffs on imports from Canada, China and Mexico purportedly imposed to address narcotics trafficking.
1. Higher Customs Compliance Risk: With new reciprocal tariff rates ranging from approximately 10% to 40% on imports from most countries, companies should be mindful of intensified risk of penalties for tariff non-payment or underpayment, including the risk of civil or criminal False Claims Act liability.
2. Establishing Aggregate Tariff Rates: Newly imposed tariffs (reciprocal and anti-narcotics tariffs) are generally in addition to other tariffs. Consequently, aggregate tariff levels can be far higher than newly imposed tariff levels. It is crucial to understand aggregate tariff rates for imports.
3. Treatment of Critical Trading Partners:
- European Union: In accordance with negotiated commitments, as of August 7 most imports from the EU are to be subject to a 15% reciprocal tariff.
- Canada: Effective August 1, the U.S. government raised an anti-narcotics tariff on Canadian imports from 25% to 35%. Merchandise covered by the U.S.-Mexico-Canada Agreement (USMCA) remains exempt from this tariff.
- China: Negotiations with China are ongoing with a current deadline of August 12, at which point a reciprocal tariff of 34% is scheduled to be imposed on most China-origin goods, in addition to the current 20% anti-narcotics tariff.
- Mexico: The President has extended negotiations with Mexico. For most imports from Mexico, the anti-narcotics tariff rate is expected to remain at 25%. As with Canada, merchandise covered by the USMCA remains exempt from this tariff.
4. In-Transit Exemption: Goods from countries loaded onto a vessel and in transit before August 7 and imported before October 5 are to be subject to pre-August 7 reciprocal tariff levels.
5. Termination of De Minimis Treatment for Commercial Imports: Effective August 29, duty-free de minimis treatment (the threshold below which imported goods can enter the U.S. duty-free) for commercial imports valued at less than $800 is scheduled to expire.
6. Positioning for Possible Refunds: There is a good chance that the courts will definitively rule against reciprocal and other tariffs purportedly based on emergency statutory authority. Importers should position themselves optimally for tariff refunds.
Broader Analysis
1. Higher Customs Compliance Risk
Over the 50 years following World War II, multilateral negotiations yielded low import tariff rates. In just a short period, however, tariff levels are shooting up to historically high levels. Regardless of the political party in power in the United States, there is no sign of a return to low tariff rates. Apart from higher costs, this phenomenon will have decisive compliance implications with which companies need to grapple.
As an immediate matter, as of August 7 average U.S. import tariff levels will be dramatically higher than they have been for many decades. For companies that rely on imports, the risk of liability for customs violations will likewise increase dramatically. This is true for at least two reasons:
- First, with import duties representing an expanded cost element, businesses will be intensely motivated to reduce that element by misrepresenting imports’ dutiable value, tariff classification or country of origin. Perhaps in anticipation of these tariff evasion risks, the July 31 executive order provides that imported goods found to have been “transshipped” to evade applicable reciprocal tariffs will be subject to a reciprocal tariff rate of 40% with additional penalties possible.
- Second, the U.S. government will be intensely motivated to enforce tariff obligations. When tariff rates were generally low, tariff enforcement did not have a material impact on the federal fisc. With higher tariff rates, the federal government will come to rely heavily on import tariffs as a revenue source. Even before higher rates take effect, news sources report tariff revenue on imports has grown dramatically this year, rising to over $150 billion through July, roughly double compared to the same period in 2024. As a result, we expect the government to prioritize tariff enforcement the way that it prioritizes income tax enforcement.
We have already witnessed a sharp increase in False Claims Act litigation. The False Claims Act imposes liability on persons defrauding governmental programs. Persons found to have submitted false claims to the U.S. government can be liable for three times the amount of damages caused to the government, as well as additive civil penalties.
In July the DOJ entered into two multi-million-dollar False Claims Act settlements resolving companies’ civil liability for allegedly misclassifying the nature or value of goods to avoid or reduce import tariffs, and filed one complaint under the False Claims Act against a third company alleging that it fraudulently undervalued imported goods to reduce customs duties. The False Claims Act also enables private citizens to file suit on behalf of the federal government.
Additionally, after announcing in May that it would prioritize trade and customs fraud, DOJ reportedly instructed several of its units to pursue customs fraud cases and reassigned significant personnel to these efforts. Thus, while CBP has historically been the key agency that investigates customs fraud, we expect increased enforcement risk from both DOJ and private litigants.
Given these developments, customs compliance programs that might have been adequate before likely are no longer sufficient. Effective design and implementation of customs compliance programs should assume a priority that they likewise did not have previously. Companies should consider comprehensive customs risk assessments to facilitate informed decision-making about design and implementation of compliance programs.
2. Establishing Aggregate Tariff Rates
For any given avenue of imports, expertise and careful review of the facts are needed to resolve the aggregate tariff rate owed upon importation.
Any number of tariffs might, on their face, apply to any given import. Reciprocal tariffs now apply to most imports. But there are also, among many others, “Section 232” national security tariffs applicable to imports of steel and aluminum products, automobiles and automobile parts and copper products. New Section 232 tariffs are expected to result in additional tariffs in sectors such as semiconductors, lumber and pharmaceuticals. The plethora of types of import tariff is now a patchwork quilt.
There are some tariff exemptions, and multiple types of tariffs are not necessarily “stacked” even if they all ostensibly apply to the same import. In this regard:
- Reciprocal tariffs do not apply to (a) Canadian or Mexican goods (which are subject to anti-narcotics tariffs), (b) some goods covered by Section 232 tariffs or (c) specified energy products.
- Chinese, Canadian and Mexican goods subject to Section 232 automobile tariffs are not subject to anti-narcotics or Section 232 steel or aluminum tariffs.
- Standard, preexisting customs duties on EU goods are not added to the 15% reciprocal tariff on EU goods.
3. Treatment of Critical Trading Partners
European Union
In accordance with negotiated commitments, as of August 7 most imports from the EU are to be subject to a 15% percent reciprocal tariff. The 15% tariff applies to imports of most merchandise that is generally subject to Section 232 tariffs (e.g., automobiles and auto parts), meaning that such goods will face a total tariff of 15%.
Imports of steel, aluminum and copper products are to remain subject to a 50% Section 232 tariff instead of the 15% reciprocal tariff. The EU has advised that tariff rates will be 0 for U.S.-EU trade in aircraft and aircraft parts, certain chemicals, certain generic medications, semiconductor equipment, some agricultural products, natural resources and raw materials.
Canada
Imports from Canada are generally subject to the anti-narcotics tariff implemented in February. There is no reciprocal tariff imposed on Canadian goods. A July 31 executive order increased the anti-narcotics tariff rate on Canadian goods from 25% to 35% as of August 1.
Imports covered by the USMCA are exempt from this tariff. In addition, imports of certain goods from Canada, such as steel and aluminum products, are also subject to Section 232 product-specific tariffs.
China
As negotiations with China continue, the administration has not adjusted tariff treatment of imports from China. Setting aside tariffs pre-dating President Trump’s second term and duties imposed under antidumping and countervailing duty proceedings, imports of China-origin goods generally remain subject to a combined 30% rate—a 10% reciprocal tariff and a 20% anti-narcotics tariff.
The deadline for completing negotiations is August 12. If the negotiating deadline is not extended, the combined reciprocal and anti-narcotics tariff rate on most imports from China is expected to increase to 54%.
Mexico
On July 31, the White House announced that tariff treatment of imports from Mexico will remain unchanged during continued negotiations for up to 90 days “or longer.” Imports from Mexico of certain products are subject to the 25% anti-narcotics tariff announced in February. There is no reciprocal tariff imposed on Mexican goods.
As with Canada, imports covered by the USMCA are exempt from this tariff, and imports of some goods are also subject to Section 232 product-specific tariffs.
Japan
In accordance with negotiated commitments, as of August 7, most imports from Japan are to be subject to a 15% reciprocal tariff. In accordance with Executive Order 14257, Japanese goods subject to Section 232 tariffs and certain Japanese goods listed in Annex II to the executive order should be exempt from the 15% reciprocal tariff.
United Kingdom
In accordance with negotiated commitments, as of August 7, most imports from the UK are to be subject to a 10% reciprocal tariff. In accordance with Executive Order 14257, UK goods subject to Section 232 tariffs and certain UK goods listed in Annex II to the executive order should be exempt from the 10% reciprocal tariff.
Brazil
Brazil has been assigned a 10% reciprocal tariff. On July 30, the President issued an executive order to impose a special tariff of 40% on imports of most goods from Brazil effective August 6. Excluded from the special tariff are various energy products, civil aircraft parts and components and raw materials (including orange juice and pulp and Brazil nuts). There is to be stacking of this new special tariff with the 10% reciprocal tariff and preexisting, standard customs tariffs on imports from Brazil, but not with Section 232 tariffs.
4. In-Transit Exemption
As was the case for some earlier 2025 tariff increases, there will be a “grandfathering” exemption to the reciprocal tariffs and the Brazil special tariff for in-transit merchandise. The reciprocal tariff exemption will cover “goods loaded onto a vessel at the port of loading and in transit on the final mode of transit” before August 7 as long as they are imported before October 5. The Brazil special tariff exemption will cover “goods loaded onto a vessel at the port of loading and in transit on the final mode of transit” before August 6 as long as they are imported before October 5. The term “vessel” is crucial here—the government confirmed that the prior in-transit exemption applied only to ocean-going transport and not to goods transported by air or other means.
5. Termination of De Minimis Treatment for Commercial Imports
For decades, relatively low-value imports, including for commercial purposes, have generally been able to enter the United States tariff-free. Today, the de minimis value is $800.
On July 30, the President issued an executive order providing for termination of the de minimis exception for commercial shipments effective August 29. This action follows termination of the commercial de minimis exception for imports from China earlier this year, and legislation that requires termination of the commercial de minimis exception effective July 2027.
6. Positioning for Possible Refunds
When imposing reciprocal tariffs, anti-narcotics tariffs and, most recently, the special tariff on imports from Brazil, the President has purported to act under authority of the International Emergency Economic Powers Act (IEEPA). A federal court of appeals is scrutinizing a ruling by the U.S. Court of International Trade that these IEEPA-based tariffs are invalid. Reports regarding a July 31 hearing in the appeal suggest the appellate court is similarly skeptical about the tariffs’ legality. This matter is expected to ultimately be decided by the U.S. Supreme Court.
For importers who have paid IEEPA-based tariffs, it is important to assess how best to position themselves for possible refunds if the courts definitively reject reciprocal and other IEEPA-based tariffs. The law on whether and how tariff amounts would be refunded is murky. But there is precedent suggesting that—apart from the parties that brought the successful court challenges—other importers would need to file their own judicial challenges to be eligible for tariff refunds.
Appendix: Table of New Reciprocal Tariff Rates for Major Trading Partners
[1] As detailed in the alert, the tariffs on Canadian and Mexican goods are actually anti-narcotics tariffs, not reciprocal tariffs, and merchandise covered by the USMCA remains exempt from those tariffs. In addition, the anti-narcotics tariff on Mexican goods is subject to change in late October.
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