On Feb. 1, President Donald Trump signed orders implementing tariffs on Canada, Mexico and China, as promised. The tariffs are set to go into effect Feb. 4, meaning payments will start becoming due for imports as of 12:01 a.m. Tuesday, Feb. 4. Here is what you need to know regarding these tariffs.
Tariffs Imposed
- Canada: A duty rate of an additional 25% will be applied across the board on all Canadian imports entering the U.S. for consumption and withdrawn from warehouses for consumption, except “energy” imports which will have a 10% additional tariff imposed. It is not yet entirely clear what will be included in the energy imports category, but we can expect that oil, gas and electricity will likely be subject to these lower 10% tariffs. Update: We’re expecting more information on Canada’s tariffs after Canada and the U.S. meet this afternoon.
- Mexico: An additional 25% will be imposed across the board, period. There are no lower tariffs on any specific categories for Mexico. All Mexican imports will have an additional 25% tariff imposed. Update: As of today, Feb. 3, there is indication that the tariff increases for articles from Mexico may be paused for a month.
- People’s Republic of China (PRC): An additional 10% will be applied across the board, period. Like Mexico, there are no exceptions or other categories of tariffs for PRC imports. As of this writing, these additional tariffs seem to refer only to mainland PRC and not to Hong Kong and Macau.
- All of these tariffs will be imposed on top of any existing tariffs or duties on the goods being imported.
- No more de minimis exception for goods imported by one person in one day under $800.
- A full list of HTSUS codes covered by the executive order will be published on the Federal Register.
Who Pays
Tariffs are paid by the importer of record. The importer of record is the entity that is responsible for meeting all the requirements for customs and other legal requirements for importation of a good into the U.S. Tariffs are not paid by foreign countries.
Who Absorbs the Costs in the Supply Chain
While the U.S. government will collect the tariffs from the importer of record, which entity in the supply chain absorbs the costs of the tariffs will depend on the terms of supply in the supply chain for that good.
Incoterms/Delivery Terms: The first indicator of who pays in the supply chain is the applicable Incoterm or delivery term for the goods at issue. Practically all but one Incoterm, Delivered Duty Paid (DDP), makes the buyer of the good rather than the seller responsible for import fees/duties/tariffs.
Contract Terms for Taxes/Duties/Tariffs: The second indicator is how the parties have contracted for absorbing the costs associated with payment of taxes, duties, tariffs and other such costs. Most contracts and sets of terms and conditions will have provisions addressing taxes, duties and tariffs, and some even have specific provisions addressing costs of importation and responsibilities for importation. These terms could determine whether the costs of these new tariffs can be passed up the chain once paid by the importer of record.
Price Change Provisions: Depending on your contract terms for price, companies in the supply chain that must absorb some or all the costs of these new tariffs may be able to recover those costs through a price change or surcharge if the contract terms allow for it.
What to Do Next
It is nearly impossible these days to be in business with a supply chain that does not in some way touch imports from Canada, Mexico or PRC. More likely than not, these tariffs will hit at some level in your supply chain. It is time to dust-off those contracts and terms and conditions to see how you may be affected by these tariffs, and how you may be able to pass on those costs to others.
Importer of Record: If you are the importer of record for goods coming from Canada, Mexico or PRC, you will be responsible for paying the tariffs as of 12:01 a.m. on Tuesday, Feb. 4. Look at your delivery terms and other terms to see if the tariff costs can then be invoiced to your customers.
Exemptions and Energy: While not entirely clear at this time, in the coming days and weeks as these tariffs are imposed and payments become due, there will be analysis of whether any exemptions may apply to these tariffs. Presently, exempt are products that were in transit to the U.S. before 12:01 a.m. on Feb. 1, 2025. Further, as the “energy” category for Canada is further defined, categorization of your goods in the tariff schedules will be key if your goods could potentially fall within the lower 10% tariff being imposed on energy products from Canada. These exemptions and energy categorizations could provide significant savings if applicable.
Buyer of Imported Goods: If your seller supplies goods to you imported from Canada, Mexico or PRC, look at your delivery terms. A delivery term of DDP will require your seller to pay these tariffs. Other delivery terms — regardless of whether you are picking up goods from a warehouse or seller located in the U.S. — may still impose tariff-related financial obligations on you. Even if you are not directly responsible for remitting payment to the government as the importer of record, you still may be liable for these costs through your seller. This liability could be reflected in the delivery invoice or passed along as part of the total purchase price, depending on the agreed-upon terms of sale and the seller’s own obligations under customs regulations.
Top of the Chain or Tier 1s: If you are not directly importing goods or directly receiving imported goods, your suppliers’ sub-suppliers that pay the tariffs or pay them to a supplier as part of their delivery term may seek to push those costs to you. Be ready by reviewing your agreements now. And to the extent you agree to pay some or all of these new costs, review your agreements with your customers to determine if you can push the costs upwards as well.
We sent out an update on tariffs through an eAlert communication today as well. Read the eAlert here.
