President Trump’s “Liberation Day” Tariffs Come Into Force

The new Executive Order issued on April 2 imposes U.S. “reciprocal” tariffs, as follows:

• All countries will to be subject to the baseline 10% tariff, effective Saturday, 5 April 2025.
• For countries with which the U.S. has the largest trade deficits, the baseline rate will increase to an individualised reciprocal tariff rate, effective Wednesday, 9 April 2025. The baseline 10% tariff will NOT be added to the individualised rate.
  • According to President Trump’s speech, the rates were calculated by averaging each country’s tariff levels (including non-monetary barriers to trade) on US goods and dividing by 2. Of interest, the list specifies duties of:
    • 34% for China,
    • 20% for the EU,
    • 46% for Vietnam,
    • 26% for India,
    • 25% for South Korea, and
    • 10% for the UK.
  • Canada and Mexico are not subject to the “reciprocal” tariffs, but remain subject to the tariffs previously announced by the Administration (see below).
• Notably, the “reciprocal” tariffs shall apply only to the non-U.S. content of a subject article, provided at least 20 percent of the value of the subject article originated in the U.S. “U.S. content” refers to the value of an article attributable to the components produced entirely, or substantially transformed in, the United States.
• With some exceptions for imports from China, duty-free de minimis treatment will remain available for goods valued at less than $800 until the U.S. is able to implement procedures to efficiently handle such imports.
• Exceptions to the “reciprocal” tariffs are listed by HTS code in a separate Annex to the Executive Order – these include:
  • polymers of propylene or of other olefins, not elsewhere specified or included, in primary forms (HTS code 39029000);
  • polymers of ethylene, not elsewhere specified or included, in primary forms, other than elastomeric (HTS code 39019090);
  • polytetrafluoroethylene (PTFE), in primary forms (HTS code 39046100);
  • copolymers of vinyl esters or other vinyls, in primary forms, containing by weight 50% or more of derivatives of vinyl acetate (HTS code 39059110);
  • polymers of vinyl esters or other vinyl polymers, in primary forms, not elsewhere specified or included (HTS code 39059980);
  • acrylic polymers (except plastics or elastomers), in primary forms, not elsewhere specified or included (HTS code 39069050);
  • steel/aluminum articles already subject to so-called ‘Section 232’ emergency tariffs;
  • autos/auto parts already subject to US ‘Section 232’ tariffs;
  • copper, pharmaceuticals, semiconductors, and lumber articles;
  • energy, energy products and other certain minerals that are not available in the United States;
  • bullion;
  • personal mail and other similar articles;
  • certain articles from North Korea, Cuba, Russia, or Belarus; and
  • any articles that may become subject to future ‘Section 232’ tariffs.

Unless otherwise specified, the “reciprocal” tariffs will be added onto any other duties already in place. They may be modified up or down in response to actions by trading partners. They will remain in effect until such a time as the President determines that the threat posed by the trade deficit and underlying non-reciprocal treatment is satisfied, resolved, or mitigated.

Continuing Tariffs on Canada and Mexico

The existing tariff orders previously announced by the Trump Administration remain in effect and are unaffected by the new Executive Order. The pause on these tariffs ended on 2 April 2025, so they are effective as of 3 April 2025. Pursuant to these measures:

• US-Mexico-Canada (“USMCA”) compliant goods will continue to receive preferential treatment;
• non-USMCA compliant goods face a 25% tariff; and
• non-USMCA compliant energy, energy resources, and potash are subject to a 10% tariff.

Tariffs on Automobiles

In addition, effective 3 April 2025, automobiles that qualify for preferential tariff treatment under the USMCA will be subject to a 25% tariff on their non-U.S. content. The 25% tariff on auto parts is effective as of 3 May 2025.

Commentary

The “reciprocal” tariffs, as well as the previously implemented tariffs against Canada and Mexico, are issued pursuant to the International Emergency Economic Powers Act (“IEEPA”). To act under IEEPA, the President must declare a national emergency. In the case of Canada/Mexico (and China), the declared emergency is fentanyl entering the US. For the reciprocal tariffs, the emergency is the persistent trade imbalance, specifically “a lack of reciprocity in our bilateral trade relationships, disparate tariff rates and non-tariff barriers, and U.S. trading partners’ economic policies that suppress domestic wages and consumption, as indicated by large and persistent annual U.S. goods trade deficits”. The legality of the tariffs is contested and the full scope of the measures is yet to be analysed - more details on the exemptions and the application of these measures will be made available when additional documents referenced in the Executive Order are published.

Countries around the world have threatened to retaliate against the US as the new tariffs fuel fears of a global economic downturn and a sharp price increases in the world's biggest consumer market. We are yet to see details of any planned response by the EU and the UK – China retaliated today (4 April 2025) with an additional 34% tariff on U.S. imports and with export control measures targeting 16 U.S. entities. It is certainly expected that some countries will target the US economy with countermeasures, some of which may be in the form of tariffs on US imports, while others may be more creative non-tariff barriers e.g. the EU has the power to impose retaliatory measures against U.S. financial services firms under its Anti-Coercion Instrument (“ACI”). The use of the ACI has not been ruled out and the EU certainly has referred to the fact that it is contemplating measures on U.S. services in retaliation (importantly, the U.S. is a net importer of services into the EU). We are watching developments closely and will be reporting on further developments in due course.

Businesses importing products into the U.S. and bearing the responsibility for paying customs duties (i.e. the declarant/importer of record) will be impacted by these new measures. Such businesses should review their contracts to identify price review mechanisms, force majeure or hardship clauses to mitigate against potential losses.