Significant New Tariffs on All U.S. Imports Create New Challenges for Companies Engaging in International Trade

President Trump has declared a national emergency arising from “large and persistent annual U.S. goods trade deficits,” and issued an Executive Order authorizing new tariffs on imports into the United States, with some narrow exemptions.

The new tariffs include a 10% baseline tariff on imports of goods from all countries, effective April 5, and an “individualized reciprocal higher tariff” on 60 countries with which the United States has the largest trade deficits, effective April 9. The applicable tariff for each of these countries is available here, and ranges from 11% to 50%. These include tariffs on imports from close allies that are significant trading partners, including the EU (20%), South Korea (25%) and Japan (24%).

These new tariffs are additive to the existing base tariff rate for any imported product, as well as any additional tariffs that have been imposed, such as Section 301 tariffs or anti-dumping duties. Most notably, China is subject to a new tariff of 34%, which combined with the existing 20% “fentanyl” tariffs imposed on China in February mean that imports from China will be subject to a 54% tariff. 

The Trump Administration has described the tariffs as “reciprocal,” meaning that they are intended to level the playing field between the United States and each individual trading partner by taking into account all tariff and non-tariff barriers to trade that a U.S. exporter faces in that country. Media analysts have observed that the formula used to calculate the tariff in most cases appears to be to divide the total U.S. trade deficit with the individual country by the value of that country’s exports to the United States and then halve that percentage. For example, the United States’ trade deficit with South Korea is $66 billion and South Korean exports to the United States in 2024 were $131.5 billion (66/131.5 = 50, and the “reciprocal tariff” is 25%).

There are two categories of exemptions to these new tariffs. First, for the time being, they do not apply to Canada and Mexico. Imports from Canada and Mexico that are “USMCA-qualified” goods (meaning, subject to the existing trade agreement) are exempt from the new tariffs and will continue to be tariff-free. Other goods from those countries will continue to be subject to a 25% tariff (other than energy products, which are subject to a 10% tariff).

Second, certain products are also exempt from the tariffs, including steel and aluminum products and automobile and auto parts that the Trump Administration has already targeted with tariffs in recent weeks, as well as products identified in Annex II to the Executive Order, including certain pharmaceuticals, metals, semiconductors, lumber and energy products. Many of those additional products are not made in the United States or are in short supply.

Possibility of a Legal Challenge 

As with tariffs imposed on Canada, Mexico, and China in February (See our prior client alert – Implications of the Trump Administration’s Tariff Executive Orders for U.S. Importers), these new tariffs were issued under the authority of the International Emergency Economic Powers Act (“IEEPA”). This use of IEEPA authority as a basis for tariffs is as-yet untested in the courts, and may prompt court challenges by companies whose interests are impacted by the new tariffs.

Implications

Barring any changes to the scope of the Executive Order or a successful legal challenge, the economic effects of the new tariffs will be significant. The Executive Order states that the United States’ existing average duty rate for imported products is 3.3%. The new duties will accordingly increase the duty on the import of most goods by at least three-fold, with significantly higher multipliers for some key trading partners.

Companies that manufacture outside the United States for the U.S. market will not be directly responsible for paying these increased duties – those costs are borne by the importer. Beyond managing the obvious pricing impacts, exporters will be assessing whether the Trump Administration is open to negotiations – either on the country level or company level – perhaps reducing tariffs in return for commitments to manufacture in the United States in the longer term.

The new tariffs also potentially increase legal risk for importers. Importers are legally affirmatively required to engage in “informed compliance” in reporting accurate information on the entry form submitted to the Bureau of Customs and Border Protection (“Customs”). Any inaccuracies that result in failures to pay correct duties can result in civil and criminal penalties. The greater the overall amount of duty, the greater the potential penalties, since penalties are typically tied to the amount of duty that an importer should have paid. Knowing failures to pay duties can also result in False Claims Act liability, which is an area of recent increased enforcement. 

The new tariffs thus present for importers a good opportunity to reassess the accuracy of their customs entries.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta L. Nightingale, an O’Melveny partner licensed to practice law in the District of Columbia; David J. Ribner, an O’Melveny partner licensed to practice law in the District of Columbia and New York; Pamela A. Miller, an O'Melveny partner licensed to practice law in New York; Steven J. Olson, an O'Melveny partner licensed to practice law in California; Jennifer B. Sokoler, an O'Melveny partner licensed to practice law in New York; and Meaghan VerGow, an O'Melveny partner licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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