US Reciprocal Tariffs

Executive Order: “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits” (April 2, 2025)

Purpose and Rationale

On April 2, 2025, President Donald J. Trump issued an executive order establishing reciprocal tariffs to address large and persistent U.S. trade deficits. The order aims to promote fair trade practices, enhance economic security, and strengthen domestic manufacturing.

Declaration of National Emergency

• The order declares a national emergency under the International Emergency Economic Powers Act (IEEPA) and the National Emergencies Act (NEA).
• It states that long-standing U.S. trade deficits caused by unfair trade practices and non-reciprocal trade relationships pose a threat to national security and the economy.

Key Findings Supporting the Order

• Trade Deficits: The U.S. has suffered from persistent and growing trade deficits, leading to industrial decline, weakened supply chains, and dependence on foreign nations for defense-related goods.
• Lack of Reciprocity: Many U.S. trading partners maintain higher tariffs and trade barriers, limiting market access for American manufacturers.
• Unfair Economic Policies: Some nations use policies that suppress wages and limit domestic consumption, reducing demand for U.S. exports and increasing their global competitiveness.

Historical Context

• Since 1934, the U.S. has pursued trade reciprocity through bilateral agreements and frameworks like the General Agreement on Tariffs and Trade (GATT).
• Despite these efforts, significant trade imbalances persist, necessitating corrective measures.

Implementation of Reciprocal Tariffs

Baseline Tariff

• A universal baseline tariff of 10% applies to imports from all countries, effective April 5, 2025.

Targeted Reciprocal Tariffs (Annex I)

• Additional tariffs of 10% to 50% are imposed on 60 countries with large trade deficits with the U.S. – On hold for 90 days
• Tariffs are proportional to the trade barriers those countries impose on U.S. goods.
• Examples:
  • China: 54% combined tariff.
  • Cambodia, Laos, Vietnam: Nearly 50% tariffs.

Exemptions from Tariffs (Annex II)

• National Security-Related Goods (protected under 50 U.S.C. 1702(b)).
• Steel & Aluminum Products (already subject to Section 232 tariffs under prior proclamations).
• Automobiles & Auto Parts (covered under March 26, 2025, Section 232 tariffs).
• Critical Goods Listed in Annex II, including:
  • Copper
  • Pharmaceuticals
  • Semiconductors
  • Lumber
  • Critical minerals
  • Energy products
• Goods from Countries Subject to “Column 2” HTSUS Tariff Rates.
• Future National Security Tariffs (potential Section 232 actions).

Special Tariffs on Canada and Mexico

Canadian Goods

• Additional tariffs imposed to counter illicit drug flows across the northern border.
• Enacted under Executive Orders 14193, 14197, and 14231 (2025).

Mexican Goods

• Additional tariffs imposed to counter illegal drug trafficking and migration at the southern border.
• Enacted under Executive Orders 14194, 14198, and 14227 (2025).

Impact on USMCA-Eligible Goods

• USMCA-originating goods retain preferential tariff treatment under General Note 11 of HTSUS.
• Non-USMCA-originating goods:
  • Subject to 25% tariffs, except:
  • Energy, energy resources, and potash from Canada: 10% tariffs.

Future Adjustments to Tariffs

• If border emergency tariffs are lifted:
  • USMCA-originating goods: No additional tariffs.
  • Non-USMCA-originating goods: 12% tariff.
• 12% tariff exceptions:
  • Energy, energy resources, and potash.
  • USMCA-eligible parts or components of U.S.-assembled products.

U.S. Content Requirement for Tariffs

• Tariffs apply only to the non-U.S. content of an imported item if at least 20% of its total value originates from the U.S..
• Definition of U.S. Content:
  • Items entirely produced or substantially transformed in the United States.
• Customs Verification:
  • U.S. Customs and Border Protection (CBP) can collect documentation to verify:
    • U.S. content value.
    • Whether the product was substantially finished in the U.S.

Tariffs on Chinese Goods & Transshipment Prevention

• April 2, 2025, Executive Order on low-value Chinese imports and the synthetic opioid supply chain remains in effect.
• Transshipment Prevention:
  • China-related tariffs also apply to goods from Hong Kong and Macau to prevent tariff evasion.

Harmonized Tariff Schedule Modifications

• The HTSUS is modified as detailed in the Annexes of the executive order.
• Changes take effect on the specified dates in the Annexes.

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Modification Authority

1. Periodic Review and Recommendations

• Commerce Secretary & USTR, consulting with top officials, will assess tariff effectiveness.
• If necessary, they may recommend additional actions to address trade deficits and security threats.

2. Retaliation Response

• If a trading partner retaliates by imposing tariffs on U.S. exports, the President may increase or expand U.S. duties.

3. Adjustment for Compliance

• If a trading partner corrects its trade practices, the President may reduce or limit tariffs.

4. Manufacturing Safeguard

• If U.S. manufacturing declines, the President may increase tariffs to support domestic industries.

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