The return of Donald Trump to the White House as the 47th President of the U.S. marks a pivotal moment for global trade and further cements the central role that tariffs will play in U.S. domestic and foreign policy in the years ahead. Businesses around the world should begin to understand and prepare for trade dynamics that could lead to increased costs, supply chain disruptions, greater administrative burdens, and general uncertainty about traditional trade relations.
What Are Tariffs?
Tariffs (also known as customs duties) are a special kind of indirect tax levied on imported merchandise. The amount of duty assessed on any given import depends on that item’s tariff classification code under the “Harmonized System” (HS), a global nomenclature written and administered by the World Customs Organization (WCO) in Brussels, Belgium. The HS is divided into 21 sections, 97 chapters, 1,244 headings (4-digit codes), and 5,224 subheadings (6-digit codes) and is updated every five years. Each WCO member country then writes its own chapter 98 (and, in some countries like the U.S., chapter 99) tariff code descriptions for special local duties and exemptions, tariff item descriptions (8-digit codes) and, in some nations, statistical suffix breakouts (10-digit code). Each country or customs union (such as the EU) sets its own duty rates for all tariff codes as long as they do not exceed the “bound rates” each agreed to as a member of the World Trade Organization (WTO), as discussed infra.
In the U.S., the Harmonized Tariff Schedule of the United States (HTSUS) sets forth over 17,000 tariff code descriptions, each with its own corresponding duty rate, eligibility for trade preferences/duty-free entry, special admissibility rules, additional duties, etc. Most duties are assessed ad valorem (as a percentage of the declared value), but can also be based on units of measure, such as weight or volume, or a combination of both value and units of measure, so-called “compound tariffs.”
Navigating the HTSUS to arrive at the correct “landed cost,” so critical for business decision-making, is a highly technical, specialized kind of analysis that should be undertaken only with input from customs and international trade experts. Getting it wrong can have potentially significant economic consequences, especially because tariffs are “above the line” cash costs, have strict deadlines for claiming duty refunds, and will likely increase to levels not seen since the late 1800’s if President-Elect Trump’s tariff proposals discussed during the campaign come to pass.
U.S. Tariffs Come in Different Varieties
Normal Trade Relations Duties
The most prevalent kind of duties in the U.S. are known as “Normal Trade Relations” (NTR, formerly called “Most Favored Nation”) tariffs and, like income taxes, can only be imposed through legislation (i.e., by Congress) and not by the Executive Branch. However, as a member of the WTO, the U.S. cannot impose duties in excess of the maximum rates agreed to in the most current WTO “Schedule of Concessions” (which describe the treatment a WTO member must provide to goods traded with other WTO members). These “ceiling” duty rates are referred to as “bound rates.”
Antidumping/Countervailing Duties
A second category of specialized tariffs covers foreign price discrimination and foreign government subsidies; the former is offset by antidumping duties (ADD) and the latter by countervailing duties (CVD). These duties are imposed after investigations by the U.S. Department of Commerce (International Trade Administration, or ITA) on the pricing/subsidies issues and by the U.S. International Trade Commission (ITC), an independent quasi-judicial body that determines whether the domestic industry producing products like those under investigation has been materially injured (or threatened with material injury) by reason of the dumped or subsidized imports). ADD and CVD orders are issued by Commerce after preliminary and final affirmative findings by both agencies and set forth detailed descriptions of merchandise covered by the orders. ADD/CVD are thus immune from changes by Congress or by the President. Only administrative action via annual or “sunset” reviews by Commerce or judicial decisions can alter these kinds of duty rates. ADD/CVD are applied in addition to NTR tariffs.
ADD/CVD are also the only kind of duties where the HTSUS code does not determine their applicability and where the rate may change after merchandise has been imported. The description of the merchandise to which the ADD/CVD orders apply is called the “scope” and only the scope language controls the outcome of whether ADD/CVD applies to a particular imported item, not the HTSUS code. The rates in effect at the time of import can also change due to the re-calculation of the margins during Commerce’s administrative annual reviews or due to decisions by the U.S. Court of International Trade, U.S. Court of Appeals for the Federal Circuit, or U.S. Supreme Court. Many a U.S. importer has been walloped by substantial post-importation duty bills due to increased ADD/CVD margins—or findings by Commerce that merchandise already imported and thought to be exempt from ADD/CVD is in fact within the “scope” of the ADD/CVD orders.
Section 301 Tariffs
A third kind of special duty attracted the most attention during the first Trump Administration: the “Section 301” duties imposed by Presidential Proclamation under the Trade Act of 1974. This law empowers the President through the Office of the U.S. Trade Representative (USTR) to investigate any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.
Although non-tariff remedies can result from these investigations, tariffs were the preferred vehicle from 2017 onwards when China was accused of practices such as forced technology transfers and intellectual property theft. Section 301 tariffs were imposed on a wide-ranging list of industrial goods (based on their HTSUS code) beginning in March 2018 in an effort to force China to end these practices, which were found by USTR to burden U.S. commerce. Other lists soon followed with groups of other tariff codes covered by these special “trade remedy” duties, which are imposed in addition to any applicable NTR duties based on the respective HTSUS code of the Chinese-originating imports and in addition to any applicable ADD/CVD. China then retaliated with import duties of its own on a wide range of imported American goods; an agreement was later reached to slightly modify both countries’ trade remedy tariffs.
It should be noted that although USTR developed a process for importers to apply for exclusions from the Section 301 tariffs in 2020, the Biden Administration kept the tariffs in place in their entirety following the conclusion of a statutorily- mandated review in 2023-2024. The review found that China had not made sufficient progress in eliminating its policies, acts, and practices, such as forcing U.S. companies to transfer technology as a condition of doing business in China. Several categories of merchandise (again, based on the tariff code) saw substantial increases in Section 301 tariffs – some up to 100% ad valorem – in September 2024. No exclusion process is currently in place.
Lastly, as of this writing, the U.S. Court of Appeals for the Federal Circuit is considering a challenge from over 4,000 importers that certain Section 301 tariffs were illegally imposed due to, e.g., violations of the Administrative Procedures Act by USTR. Any final decision by the appeals court in the HMTX v. U.S. case will likely be subject to a petition for a writ of certiorari to the U.S. Supreme Court and could potentially restrict the incoming Administration’s ability to further increase the Section 301 tariffs on Chinese-originating goods.
Section 232 Duties
Another kind of trade remedy tariff rarely used by modern U.S. presidents was invoked during the first Trump Administration. Under Section 232 of the Trade Expansion Act of 1962, the President is authorized to take actions (both tariff- and non-tariff-based) to restrict imports that have been found to threaten national security.
After an investigation by Commerce found that imports of steel and aluminum products were threatening U.S. national security, a Presidential Proclamation was issued in March 2018 imposing tariffs of 25% on steel and 10% on aluminum products (based on their tariff code). U.S. courts later upheld the imposition of these Section 232 tariffs as a legitimate use of the President’s jurisdiction over matters affecting U.S. national security. These trade remedy tariffs are in addition to NTR duties, ADD/CVD, and Section 301 tariffs as applicable.
Due to free trade agreements with the U.S., Australia, Canada, and Mexico were exempt from these trade remedy tariffs in 2018. Based on historical import levels, the U.S. also agreed to absolute quotas of steel and aluminum products from Argentina, Brazil, and South Korea, i.e., up to a certain quantity, imports from these countries were allowed into the U.S. at the NTR duty rate. For imports over that limit, no further imports were permitted.
Other countries sought relief from these Section 232 tariffs in the form of a “tariff rate quota” (TRQ). This mechanism allows a certain quantity of imports into the U.S. at the NTR duty rate, with Section 232 duties imposed after the “fill level” of the TRQ is reached. An agreement was reached with the EU in December 2021 to remove the Section 232 tariffs on imports of steel and aluminum from all EU member states and replace them with a TRQ system. Japan and the U.K. obtained similar relief in 2022.
Notably, under then-President Trump’s direction in 2018-2020, Commerce launched additional Section 232 investigations into (1) automobiles and auto parts; (2) uranium ore and related products; (3) titanium sponge; (4) transformers and certain grain-oriented electrical steel parts; (5) vanadium; and (6) mobile cranes. The first three investigations resulted in reports by Commerce that imports of autos, uranium, and titanium threatened to impair national security, but President Trump decided not to release the reports when he declined to order Section 232 duties on these imports. Reports on transformers and vanadium were also completed and submitted, but no further details (including the reports themselves) were released.
As with the Section 301 exclusion process with USTR (now expired), Commerce developed its own exclusion process in 2018 for U.S. importers to petition for exemption from the Section 232 trade remedy tariffs. President Biden kept the Section 232 duties on steel and aluminum products and the exclusion process in place when he assumed office in January 2021.
Unlike the USTR exclusion process, the Commerce exclusion process is still available and can be utilized by importers that demonstrate, among other factors, that the imported merchandise is not produced in the U.S. in sufficient and reasonably available quantities, so resort to foreign sourcing is required. In addition, General Denied Exclusions (GDEs) and General Affirmative Exclusions (GAEs) exist.
Finally, together with ADD/CVD, Section 232 tariffs are the only trade remedy duties that are ineligible for duty drawback (a refund of U.S. Customs duties paid on imported merchandise that is later exported in some form or destroyed after importation.)
Section 201 “Safeguard” Tariffs
The final category of trade remedy tariffs is grounded in Section 201 of the Trade Act of 1974 and permits the use of Presidential Proclamations to impose these special tariffs when surges in imports are a substantial cause of serious injury or threaten serious injury to U.S. industries. Unlike the Section 301 and Section 232 trade remedies (which can impose non-tariff relief measures), Section 201 investigations can only result in additional duties. Because these investigations are typically prompted by requests from USTR, the President has considerable influence over which foreign products/industries will be targeted.
However, trade associations, private firms, unions, and groups of workers otherwise representative of a domestic industry may also petition for relief. Resolutions from the Senate Finance Committee or the House Committee on Ways and Means can also prompt an investigation. Even the ITC itself (which conducts the investigations) can self-initiate a petition.
During the first Trump Administration, Section 201 duties were imposed on two categories of merchandise: large residential washing machines and solar cells and modules. Duties on the former were imposed from 2018-2020. For the latter, safeguard duties were first imposed in 2018 (with a TRQ for certain kinds of solar cells) and have continued in place in the Biden Administration. They are now scheduled to expire in February 2026. These special duties are imposed in addition to any of the other tariffs discussed above as applicable to each imported item.
Trump Tariff Policy and Proposals
Throughout his campaign, Trump emphasized his commitment to revamping U.S. trade policies to prioritize American manufacturing and reduce trade deficits. Central to this strategy is the imposition of new tariffs, which are viewed as a tool to negotiate concessions from U.S. trading partners and address perceived trade imbalances, as well as to protect domestic industries by incentivizing the return of manufacturing jobs to the U.S.
Specific tariff proposals and their prospective path to becoming law are discussed below.
NTR Duties
President-Elect Trump has proposed imposing NTR tariffs of 10%-20% on imports from all countries (presumably including those with which the U.S. already has a free trade agreement in place, such as the U.S.-Mexico-Canada Agreement (USMCA) that his first Administration was able to negotiate, and which Congress enacted effective July 2020). These new NTR duties would be in addition to those already in place (although many products are duty-free when imported into the U.S., such as merchandise related to information technology.) The prospects for these tariff increases rest entirely with Congress given that they are considered revenue measures which, under Article 1, Section 8 of the Constitution, must originate with legislation proposed in the U.S. House of Representatives and be passed by both the House and U.S. Senate. The President has no authority to unilaterally raise NTR duty rates.
With both the House and the Senate under control by the GOP, Congress must be mindful of the commitment the U.S. made as a WTO member not to exceed the bound rates (ceilings) established in the most recent WTO Concession Agreements. If Congress decides to nonetheless raise NTR tariffs above the bound rates, it invites retaliation by all WTO member states to raise their own normal duty rates on goods of U.S. origin by similar percentages and, in prior years, may have led to a request for dispute resolution by the Appellate Body at the WTO’s headquarters in Geneva, Switzerland.
However, the first Trump Administration blocked all nominees to the WTO Appellate Body and the last member’s term expired in November 2020. Thus, the WTO’s Appellate Body remains non-functional and cannot hear appeals until more members are appointed. It is unlikely that the incoming Trump Administration will reverse course on this issue so the WTO will remain largely absent from any dispute over the imposition of additional NTR tariffs should Congress adopt them.
USMCA
President-Elect Trump has also proposed increasing tariffs by 25%-75% on goods originating in Mexico and has gone further by proposing additional tariffs of 100% on automobiles assembled in Mexico and 100% or higher on merchandise produced in Mexico by U.S. companies that have shuttered factories in the U.S. and relocated to Mexico (presumably to take advantage of lower labor costs).
Unlike the Section 301 investigative process that would otherwise be used against countries with practices that are accused of burdening U.S. commerce, USMCA contains a special provision for consultations concerning any bilateral dispute. If unsuccessful, binational panels can be convened to rule on the dispute (as has already happened with the U.S.-Canada TRQ on dairy and softwood lumber products). Thus, the proper forum for resolving any issues with Mexico is under the USMCA rules.
Nonetheless, Congress (by statute) will be actively involved in a review and potential overhaul of UMSCA in 2025. With complete control of Congress by the GOP in January, President-Elect Trump will have a cooperative legislature to enact whatever tariff (or non-tariff) measures are deemed appropriate vis-à-vis Mexico (or even Canada with respect to its Digital Services Tax, which is already the subject of formal USMCA consultation) (for prior coverage of the Canadian DST, see our article on this topic).
With respect to additional tariffs on merchandise produced by U.S.-owned companies operating in Mexico, the USMCA process cannot cover this scenario as it would involve private parties. However, the ADD/CVD process is available to any U.S. industry that feels it is threatened with material injury or has been materially injured by reason of dumped or subsidized imports from Mexico. But if U.S. companies own those factories in Mexico putatively producing such merchandise, it is unlikely they would request a ADD/CVD investigation from the U.S. government. In the final analysis, these kinds of re-location decisions are most likely made for pure business reasons and are not actionable via “punitive” tariffs.
Section 301 Tariffs
The initial focus on trade remedy tariffs by the incoming Administration will probably center, once again, on the Section 301 tariffs imposed on goods of Chinese origin. President-Elect Trump has proposed increasing the current tariff rates of mostly 25% or 7.5% (depending on the tariff code) to ad valorem rates ranging between 60%-100%. (Some items such as electric vehicles from China already pay 100% in Section 301 tariffs.)
As noted above, the Biden Administration completed its review of the original 2017 investigation in May 2024 and concluded that China’s policies and practices were continuing to burden U.S. commerce. All of the original List 1, 2, 3 (25%), and 4.a. (7.5%) duties were retained, and modifications were made to certain products, e.g., syringes and electric vehicles were hit with additional duties up to 100%.
Whether President-Elect Trump can further modify the current levels of Section 301 tariffs by raising them even more on goods of Chinese origin remains an open question due to the pending HMTX v. U.S. case litigation at the U.S. Court of Appeals for the Federal Circuit. Central to that case is whether USTR exceeded its statutory authority by modifying the original List 1 and 2 items by adding the List 3 and 4.a. items, which more than quadrupled the value of targeted items from $41 billion to over $300 billion. Recent case law (such as that involving student loans) has held that an agency can only modify its original action when that modification is “modest.” No one would likely characterize the quadrupling of the value of goods subject to the Section 301 tariffs as “modest.”
However, it is possible that the new Administration could revive the “List 4.b” items that were originally slated for 15% Section 301 tariffs in 2019. Tariffs of 7.5% were imposed on “List 4.a” items in 2020 when the List 4.b tariffs were dropped as a concession to China during 2019 negotiations (after China retaliated with tariffs on U.S. imports to counter the List 1, 2, and 3 Section 301 tariffs imposed in 2018). In theory, those 15% tariffs could be imposed immediately on all merchandise (by tariff code) which first appeared in 2019. Nonetheless, because the List 4.b. items consist almost entirely of consumer goods, adding these tariffs to the “landed cost” would significantly raise the prices for these goods when sold at retail. Such an action would tend to validate what critics of these proposals have been saying, i.e., that increasing tariffs of any kind will raise prices for consumers and lead to increased inflation. Thus, raising Section 301 duties on the List 4.b. items is not likely to occur.
Instead, and for “intellectual honesty,” the incoming USTR (at the direction of the President) could simply launch a new Section 301 investigation of China’s continuing policies, acts, and practices that burden U.S. commerce. Given that USTR is a member of the President’s cabinet and is part of the Executive Office of the President, any investigation would almost certainly recommend a Presidential Proclamation in 2025 to impose new Section 301 tariffs on goods of Chinese origin. The only open question would be “how much” of an increase would be ordered, not “if” such an increase would take place.
Finally, congressional support of any new Section 301 tariffs on goods of Chinese origin would almost be guaranteed, because aggressive action against China on all fronts is a priority for both chambers of Congress. A bipartisan Select Committee on the Chinese Communist Party already exists, and when the Uyghur Forced Labor Prevention Act (aimed at eradicating forced labor practices for good produced in whole or in part in the Xinjiang region of China) passed in 2021, the Senate adopted it by unanimous consent without even needing a vote and it passed by 428 to 1 in the U.S. House of Representatives (see our article on global forced labor eradication laws). This kind of bipartisanship in Congress on any issue has rarely existed in the 21st century.
Section 232 Tariffs
President-Elect Trump made no mention of these trade remedy tariffs of imports of steel and aluminum products during his campaign. One can thus presume that these kinds of tariffs will continue at their current levels (25% on steel and 10% on aluminum), especially given that countries with major producers of these items have already reached agreements or TRQs with the U.S. to be exempt from the Section 232 tariffs.
However, many believe that expansion of the Section 232 tariffs on steel and aluminum will take place by including derivative (downstream) products made of these materials, primarily because, during the first Trump Administration, items were added (by tariff code) to the lists of covered items even after the deadline to add items had expired.
Other Trade Remedy Tariffs
Except for the fact that a political appointee oversees the Commerce Department’s ITA, i.e., the Assistant Secretary for Import Administration, ADD/CVD are insulated from direct actions by the President. However, domestic industries are always the petitioners in ADD/CVD proceedings and necessarily have influence over the administration and enforcement of ADD/CVD cases. Increases in ADD/CVD cases can be expected to continue to rise under the second Trump Administration, just as they have during the Biden Administration.
And for U.S. industries facing large increases in imports of merchandise from foreign competitors, Section 201 remains a viable trade remedy. However, as with ADD/CVD, these “safeguard” tariffs can only be imposed after a thorough investigation by the independent ITC. Although the current commissioners hail from both major U.S. political parties (as required by statute), no Presidential Proclamation imposing these kinds of tariffs can be issued without an affirmative finding of serious injury (or threat of serious injury) by the ITC following an in-depth investigation. The standard of “serious” injury coupled with a requirement that surging imports are a “substantial cause” of this injury also presents a high bar to overcome for importers considering this remedy.
Other Statutes as Trade Remedies
As Trump and his advisors demonstrated during the first Administration, they were willing to use existing statutes in novel ways to create new tools for implementing trade policy goals, in particular, those involving U.S. national security where courts have traditionally been deferential to Executive Authority. With a second Trump Administration almost upon us, policy advisors have begun floating renewed use of long-dormant trade laws, such as the Section 122 Balance of Payments Authority of the Trade Act of 1974 (which allows the President to impose quotas and tariffs against countries with balance-of-payment surpluses). President Nixon was the last chief executive to invoke this statute in 1971 when he imposed a temporary 10% duty on all imports. Nixon also tried – and failed – to get the U.S. to temporarily suspend all free trade agreements under Section 221.
Another long-unused statute still on the books is Section 338 of the Tariff Act of 1930. This law bears further scrutiny because it may present the clearest case for President-Elect Trump in his new Administration to impose “new or additional duties” on merchandise originating in countries that have discriminated against the commerce of the U.S.
Tariffs under Section 338 are imposed after an investigation, presumably by the ITC. (The last use of this statute was in 1949, when investigations were conducted by the U.S. Tariff Commission, which was re-named the ITC in 1974. Reports of those investigations were not made public.) For the President to issue an Executive Order raising tariffs up to 50% on offending countries’ products as the statute allows, the ITC would have to issue an affirmative finding that a foreign country has either (1) imposed an “unreasonable charge, exaction, regulation, or limitation” on U.S. products which is “not equally enforced upon the like articles of every foreign country”; or (2) “[d]iscriminate[d] in fact” against U.S. commerce “in respect to customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition” so as to “disadvantage” U.S. commerce as compared to the commerce of any foreign country. If the foreign commercial discrimination continues despite the imposition of these additional trade remedy tariffs, the President is then authorized to ban imports of the affected foreign goods entirely.
This statute thus seems to be the basis for Trump’s proposals to levy Section 338 tariffs on merchandise from foreign nations with duty rates that exceed NTR duties on those very same articles of merchandise when imported into the U.S. Whether imposing additional tariffs under this trade remedy law (as with all other trade remedy laws) would violate the WTO Schedule of Concessions by exceeding the “bound” rates the U.S. agreed to for trade with other nations remains an open question. This is because Article XX of the General Agreement on Tariffs and Trade (GATT) allows WTO members to impose WTO-inconsistent measures if they are taken to further public policy goals and satisfy certain other conditions. Thus, in theory, if these additional tariffs under Section 338 were to be imposed, they may be allowed under the GATT rule if the conditions in Article XX are fulfilled.
In the final analysis, though, then-President Trump essentially sought to nullify the influence of the WTO (and all of the GATT Agreements it adopted when the WTO was created in 1995) during his first Administration, e.g., all candidates nominated to the Appellate Body were blocked by the U.S. There is no reason to think this policy will change in a second Trump Administration.
Conclusion
While many of President-Elect Trump’s tariff proposals may eventually come to pass, the path from proposal to enactment is not without challenges. Because the Constitution vests Congress with the authority to impose tariffs and regulate trade with foreign nations, former Presidents have usually engaged with the legislative branch on these matters, especially when seeking new free trade agreements via “Trade Promotion Authority” (TPA) that empowers the Executive Branch (through USTR) to negotiate trade agreements with foreign countries and to provide “fast-track” approval by Congress of these agreements. The TPA expired in 2021 and the incoming Administration shows no interest in any new free trade agreements; hence, TPA renewal is unlikely.
Nevertheless, only Congress can raise NTR duties, and the other statutory mechanisms that might be available to raise tariffs by Executive Order are not guaranteed to produce the desired policy results – and may run afoul of the U.S.’s commitments as a member of the WTO.
As the new tariff and trade policy proposals move forward, it is likely that industries vital to national security will be the main beneficiaries: extractive industries producing critical minerals (many found only in China), computer chips and parts, and the automotive industry which consumes large amounts of steel and aluminum. Even so, other industries such as electronics and agriculture may also be targeted. Any imports into the U.S. from any country may be subject to additional tariffs.
Companies should consider taking proactive measures to, at a minimum, confirm the correctness of their products’ HTSUS codes and that a “substantial transformation” has taken place in the place of production/assembly to verify the true country of origin. And for companies with related party sales (which account for about 80% of world trade), significant tariff increases could distort transfer pricing analyses since profits (if any) will largely rest on the amount of tariffs paid and not on any traditional function/risk analysis.
The election of Donald Trump to a second term as President signals that tariffs will be a primary tool to advance U.S. foreign and domestic policy goals in the coming years, especially against China, over “traditional” trade protocols and practices. This new state of affairs may be a goal in and unto itself as the rest of the world adapts to an “America First” trade policy approach that seems to have resonated with the electorate.
Written by Damon V. Pike. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com
