Trump’s Second-Term Tariff Agenda: How Will New Tariffs Impact You?

In this third installment of our five-part trade series, we review the Trump-Vance administration’s America First Trade Policy memorandum and detail the foundational elements for imposition of tariffs to prepare importers if and when new tariffs are imposed.

While President Donald Trump did not impose “Day One” tariffs as anticipated, in a trade policy memorandum issued on Inauguration Day, he emphasized that tariffs remain a key priority for his administration. In this third LawFlash in our series on the Trump-Vance administration’s anticipated trade strategy, we discuss possible strategies for importers to mitigate or challenge new tariffs.

The fourth segment will provide an overview of enforcement risks for getting it wrong, and our fifth segment will discuss the global implications of US tariff strategy. Each subsequent LawFlash will also be accompanied by a webinar, and our lawyers are available to discuss any of these concerns in more detail.

AMERICA FIRST TRADE POLICY MEMORANDUM

On his first day in office, President Trump issued a sweeping America First Trade Policy Memorandum setting out early priorities for the Trump-Vance trade agenda. The Memorandum, which spans the purview of several government agencies, charges those agencies with reporting on perceived broad imbalances and unfair trade practices across multiple arenas. While the Memorandum stops short of implementing any changes to current US trade systems, it is an early signpost for the Trump-Vance administration’s key trade priorities in the four years to come. Here, we discuss a few of those provisions and particularly how they might influence the imposition of tariffs.

Investigation of Trade Deficits

Section 2 of the Memorandum seeks a multi-agency investigation into the United States’ “large and persistent annual trade deficits,” including an analysis of the “economic and national security implications” from those deficits. Though the Memorandum stops short of imposing any immediate new tariffs on foreign goods, it is clear that this administration-wide review of US trade practices could lead to the levying of new tariffs on a variety of goods and trade partners.

Establishment of an “External Revenue Service”
As President Trump previewed in the days leading up to his inauguration, [1] the Memorandum in Section 2(b) orders the Treasury, Commerce, and Homeland Security Secretaries to investigate the establishment of an External Revenue Service charged with collecting tariffs, duties, and other foreign trade-related revenues. Notably, these functions are currently housed in the mandate of US Customs and Border Protection (CBP), and it remains to be seen what, if any, changes would come from separating these functions into a new agency. This directive may reflect President Trump’s overall frustration that tariffs on Chinese-origin inputs may not be collected when used in third-country assembly of imported merchandise or avoidance of Section 301 tariffs.

Addressing Unfair Trade Practices
The Memorandum mandates a review of “any unfair trade practices by other countries” and a recommendation for “appropriate actions to remedy such practices.” (Section 2(c).) In addition to this more general mandate, the Memorandum specifically requires assessments of US policies regarding currency manipulation by foreign countries (Section 2(e)) and the application of antidumping and countervailing duty (AD/CVD) laws (Section 2(f)). The Memorandum tasks the Secretary of the Treasury and Secretary of Commerce, respectively, with a review of these practices and seeks recommendations on the efficacy of defenses against such actions.

Review of Mexican and Canadian Trade Relations
The Memorandum reflects President Trump’s campaign-trail statements regarding the possibility of imposing tariffs on goods from Mexico and Canada. The Memorandum tasks the US Trade Representative (USTR) with review of the United States-Mexico-Canada Agreement (USMCA) ahead of the Agreement’s pending joint review in July 2026. (Section 2(d).) Though the Memorandum does not explicitly impose new tariffs on Mexican or Canadian goods, the President notably stated on his first day in office that he planned to impose a 25% tariff on Mexican and Canadian products on February 1, 2025. [2]

Additional Measures
Section 2 of the Memorandum includes several additional measures aimed at rebalancing the United States’ foreign trade practices. The Memorandum instructs an assessment of lost tariffs and revenue from counterfeit and contraband drugs, and specifically fentanyl, that fall within the “de minimis” exemption from tariffs under 19 USC 1321 for goods less than $800 in value (Section 2(i)), as well as a review of all trade agreements (Section 2(k)), and an investigation into discriminatory taxation of US citizens or corporations abroad (Section 2(J)).

Trade Relations with the People’s Republic of China

The US trade relationship with China is a major focus of the Memorandum. Section 3 specifically requires the USTR to review the US trade agreement with China (the “Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China”) to “determine whether the PRC is acting in accordance with this agreement.”

Section 3 also specifically mandates reviews of potential tariff modifications with respect to industrial supply chains (Section 3(b)) and a review of China’s actions pertaining to US intellectual property rights like patents, copyrights, and trademarks conferred upon PRC citizens (Section 3(e)). Finally, Section 3 instructs the USTR to investigate all other Chinese “acts, policies, and practices … that may be unreasonable or discriminatory and that may burden or restrict United States commerce.” (Section 3(c).)

In addition to Section 3’s explicit focus on China, several of the trade provisions of Sections 2 and 4 of the Memorandum are also key US priorities in its trade relationship with the PRC. The Memorandum’s focus on counterfeit goods (Section 2(h)), the importation of fentanyl (Sections 2(h) and 4(g)) and steel (Section 4(b)), and connected vehicles (Section 4(e)) are all responsive to US concerns over China’s trade practices.

Economic Security Measures

Although the majority of the Memorandum is focused on tariffs, the last substantive section, Section 4, addresses several of the Trump-Vance administration’s other trade priorities. The Memorandum charges the Secretaries of Commerce and Defense, among others, with an assessment of imports that threaten US national security. Among these, the Memorandum seeks a review of US trade policies regarding steel and aluminum (Section 4(b)), connected vehicles (Section 4(d)), and “unlawful migration and fentanyl flows from Canada, Mexico, [and] the PRC” as well as a “full economic and security review of the United States’ industrial and manufacturing base” (Section 4(a)), bolstering the United States’s export control system (Section 4(c)).

Federal Authority for Trade Policy Enforcement

President Trump has a broad set of tools for implementing new tariffs (for more on these tools, see our December 10, 2024 LawFlash), including the authority to enforce tariffs through executive action pursuant to the International Emergency Economic Powers Act (IEEPA). Notably, though no president has yet used IEEPA to impose tariffs on goods from a specific country, President Trump has already invoked IEEPA in threatening sweeping sanctions on Colombian goods. After the Colombian government agreed to accept deportation flights, the President held back on implementing the proposed tariff action. [3]

The Memorandum itself cites several provisions of the US Code for executive authority to enact tariffs. These include general tariff and retaliation provisions like 15 USC §§ 73 & 75, 19 USC §§ 1337-38, §§ 2252-53, and 50 USC § 1701, as well as issue-specific provisions like 19 USC § 4211 (dealing with currency exchange) and 19 USC § 1321 (dealing with the de minimis exemption). Among other specific provisions, the Memorandum also cites Section 301 of the Trade Act of 1974, which President Trump used to impose tariffs on Chinese goods in his previous term, and Section 232 of the Trade Expansion Act of 1962, which President Trump previously used to impose tariffs on imported steel and aluminum.

Taken together, the Memorandum’s focus on legal authority, along with President Trump’s demonstrated willingness to wield the tariff power of the presidency, make clear that although tariffs were not imposed on Day One, they are undisputably on their way. As such, importers should assess their compliance with the foundational import requirements explained below, so that they understand how new tariffs may impact them once imposed.

FOUNDATIONAL DATA ELEMENTS OF IMPORTED MERCHANDISE

CBP is primarily responsible for assessing and collecting customs duties, excise taxes, tariffs, fees, and penalties on imported merchandise. The agency was originally established in 1789 as the US Customs Service within the Department of the Treasury. In March 2003, it was renamed CBP and transferred to the Department of Homeland Security. The Customs Modernization and Informed Compliance Act [4] (the Mod Act) shifted the focus of CBP’s efforts and the importer’s responsibilities.

An Importer’s Responsibility

The Mod Act introduced three key concepts: informed compliance, shared responsibility, and the duty to exercise reasonable care. The principle of informed compliance means that CBP must take steps to inform importers what will be required of them prior to initiating punitive measures. The importer is responsible for correctly valuing and classifying its merchandise and determining the appropriate country of origin, and CBP is responsible for ensuring entry is properly made and for determining the amount of duties due.

The phrase “reasonable care” means that an importer has made a good faith effort to ensure that all information provided to CBP is accurate and complete. An importer’s responsibility to exercise reasonable care means that it has systems or processes in place to confirm that the information provided to CBP is verifiable and auditable. Importantly, importers may hire customs brokers to handle customs business, but they cannot outsource reasonable care obligations to brokers. Importers of record—often working with a licensed customs broker—complete and submit entry paperwork to CBP for imported merchandise. The “importer of record” is the owner or purchaser of imported merchandise or a licensed customs broker that has been appointed by the owner, purchaser, or consignee (19 USC § 1484).

Entry of Merchandise

There are a variety of types of entries that may be filed. The most common entry type is a consumption entry, which is used for merchandise that will enter directly into the commerce of the United States. Informal entry provides an exemption from formal entry requirements for certain types of merchandise (e.g., household and personal effects, low-value shipments under $2,500, and tools of trade, among others).

A temporary importation under bond (TIB) allows qualifying merchandise to enter the United States duty free for a limited amount of time. A foreign trade zone (FTZ) entry allows merchandise arriving in the United States to be transported to an FTZ, either through the ordinary in-bond procedures or by using direct delivery when authorized. Duty is not paid until goods are withdrawn for consumption. See the second LawFlash in this series for how FTZs may be used as a tariff mitigation strategy.

CBP then examines the merchandise and entry documentation to ensure proper classification and description, appropriate valuation of goods for customs purposes and dutiable status, origin and marking, prohibition on imports (e.g., counterfeit goods), correct quantity, and proper invoicing. Three key customs concepts include classification, valuation, and origin of goods, all of which contribute to determining the duties owed to CBP.

Classification

Classification of goods is the primary factor in determining duties owed on imported merchandise and is governed by the Harmonized Tariff Schedule of the United States (HTSUS), which is based on the international Harmonized Tariff System. The HTSUS is a complete product classification system, meaning that it covers all imported merchandise, consisting of 96 chapters grouped into 21 sections. It is broken down by headings, subheadings, and statistical breakouts, and classification appears in the format 1234.56.7890.

Chapter 77 is reserved for future use, and chapters 98 and 99 are reserved for national use by individual countries in the coding of provisions other than according to the Harmonized System, e.g., for special tariff programs and temporary duty suspensions or increases. Chapter 99 includes special provisions designating products subject to specific tariff regimes, like Section 301 and Section 232.

While customs brokers often offer assistance with classifying imported merchandise, importers cannot rely solely on a determination by a customs broker and must instead use reasonable care in classifying their products. The appropriate starting point for classifying imported articles is the General Rules of Interpretation (GRI) of the HTSUS, which are intended to be applied in order.

GRI 1 takes precedence over the remaining rules and requires that classification be determined first according to the terms of the headings and any relevant section and chapter notes. GRI 2 contains two sections and governs the classification of goods that as imported are (1) incomplete or unfinished, or unassembled or disassembled; or (2) composed of mixtures or combinations of materials or substances. GRI 3 provides for the classification of goods that are prima facie (or when initially considered) classifiable under two or more headings. Goods should be classified in the heading that provides the most specific description.

If the goods cannot be classified according to GRIs 1 to 3, then an importer must resort to GRI 4, which requires that goods “be classified under the heading appropriate to the goods to which they are most akin.” GRI 5 has two sections that deal with various types of containers presented with the articles for which they are intended. GRI 6, the final GRI, prescribes that, for legal purposes, GRIs 1 to 5 govern mutadis mutandis (with the necessary changes) classification at the subheading levels within the same heading. In other words, GRIs 1 to 5 are reapplied to determine the classification at the subheading level.

The Explanatory Notes (EN), issued by the World Customs Organization Council, represent the official interpretation of the Harmonized Tariff Schedule at the international level and facilitate classification under the HTSUS by offering guidance in understanding the scope of the headings and the GRIs. CBP has also published several Informed Compliance Publications, including documents on classification generally and specific classification of certain types of merchandise. CBP also publishes binding rulings concerning a variety of topics, including classification of imported merchandise. While a ruling is binding only on the submitting party, published rulings are instructive and often outline CBP’s considerations in determining that a particular classification is most appropriate based on material, use, or other characteristics.

Identifying the appropriate classification of imported merchandise is paramount to assessing the impact of new tariff regimes. Understanding the supply chain and classifications of various inputs can also be important for strategic tariff engineering to shift classification to reduce tariff liabilities.

Country of Origin

Unless excepted by law, every article of foreign origin (or its container) imported into the United States must be marked with the country of origin conspicuously, legibly, indelibly, and as permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the United States the origin of the product. [5] The ultimate purchaser is generally the last person in the United States who will receive the product in the form in which it was imported. [6] If an imported article is to be sold at retail in its imported form, the ultimate purchaser is the retail customer. If the article is used in the manufacture of another good, that manufacturer may be the ultimate purchaser.

If a product is determined to be of US origin based on further manufacturing in the United States, it is not required to be marked. However, for a product to be marked with US origin, it must satisfy the Federal Trade Commission’s Made in USA standard. Other groups are excepted from marking, including but not limited to articles incapable of being marked, articles not intended for sale, and certain specific types of merchandise. [7]

The country of origin of merchandise is not necessarily the country from which the goods are shipped (the country of export). The origin determines the good’s eligibility for trade programs and treaties and is generally considered the country of manufacture, production, or growth of an article.

There are two basic types of rules of origin: preferential and non-preferential. While preferential rules apply to determine eligibility of merchandise under trade agreements or special legislation, non-preferential rules of origin generally apply in the absence of trade agreements, including China. In the United States, non-preferential rules of origin employ the “wholly obtained” criterion for goods that are wholly the growth, product, or manufacture of a particular country. [8]

For goods that consist of materials from more than one country, the rules employ the “substantial transformation” criterion, which is typically based on a change in name, character, and use—meaning an article is considered a product of the country in which it has been substantially transformed into a new and different article of commerce with a name, character, and use distinct from that of the article(s) from which it was so transformed.

In determining whether combining certain parts or materials constitutes a substantial transformation, the primary factor is the extent of operations performed and whether the parts lose their identity and become an integral part of the new article. Assembly operations that are simple and minimal as opposed to complex and meaningful generally do not result in a substantial transformation. If the manufacturing or combining process is merely a minor one that leaves the identity of the imported article intact, a substantial transformation has not occurred. Ultimately, whether a substantial transformation occurs when components of various origin are combined into a finished good depends on the totality of the circumstances.

As noted in our January 7, 2025 LawFlash and webinar, geographic diversification of imported merchandise allows importers to take advantage of a flexible supply chain to mitigate tariff exposure. Setting up alternative and secondary sources and strategic planning for shipment schedules can allow importers to remain resilient in an uncertain environment.

Valuation

The appraised value serves as the basis for assessment of applicable duties, taxes, and fees on imported merchandise and, as with other data elements, an importer must use reasonable care to determine the value of its merchandise. There are several methods of valuation, all of which are designed to determine the “commercial reality” of the transaction. [9]

Transaction Value

Transaction value is the preferred method of appraisement and is the price actually paid or payable for merchandise when sold for exportation to the United States. [10] It consists of the total payment, either direct or indirect, made by buyer to seller, excluding international freight, insurance, and other cost, insurance, and freight charges.

The price paid or payable also includes amounts equal to packing costs, selling commissions, assists, royalties or license fees, and proceeds of subsequent resale. Assists include certain materials or design work provided by the importer to the foreign seller free of charge or at a reduced cost for use in the production or sale of imported merchandise. These include materials, components, parts, tools, dies, molds, and engineering or design work performed outside the United States.

These amounts are added only to the extent that each is not included in the price and is based on information accurately establishing the amount. If sufficient information is not available, then the transaction value cannot be determined, and the next basis of appraisement must be considered. In other instances, use of transaction value may be limited—for instance, if the buyer and seller are related parties and the relationship influences the price.

Transaction Value of Identical or Similar Merchandise

If transaction value cannot be determined, use the transaction value of identical merchandise. [11] Identical merchandise is that which is identical in all respects to and produced in the same country as the merchandise being appraised and exported to the United States at or about the time that the merchandise being appraised is exported to the United States. Minor differences in appearance do not preclude otherwise confirming merchandise from being considered identical.

If no identical merchandise exists, the next basis of appraisement is the importation of similar merchandise, which is merchandise produced in the same country and by the same person as the merchandise being appraised, that is like the merchandise in characteristics and component material, and commercially interchangeable with the merchandise being appraised. If no similar merchandise is produced by the same person as the merchandise being appraised, merchandise produced in the same country as, but not by the same person, may be treated as similar merchandise. The quality of the merchandise, its reputation, and whether it is trademarked are factors that are considered in determining whether merchandise is “similar.”

Deductive and Computed Value

The next two valuation methodologies are deductive value and computed value, and the importer may opt to use either in the valuation hierarchy. Deductive value is a calculated roll-down approach to valuation that begins with the retail price in the United States after importation and deducting certain items, like normal commissions or profit; general expenses connected with sales in the United States; transportation and insurance costs; customs duties and federal taxes; and the cost of further processing in the United States should the merchandise not be sold in its imported conditions. [12]

Computed value is the converse of deductive value and is a calculated roll-up process. [13] It calculates the total of materials and processing costs involved in the production of the imported product, profit and general expenses, assists if not already included, and packing costs. If none of the above methodologies can be used to appraise the merchandise, then the customs value may be based on a value derived from one of the five methods, reasonably adjusted as necessary. [14]

If none of these valuation methodologies is appropriate, CBP will turn to a “fallback” method, based on a value derived from one of the above methods, reasonably adjusted to the extent necessary to arrive at a value.

Related Party Considerations

CBP closely scrutinizes and applies special valuation rules to transactions between related parties. In these situations, the price paid or payable is an acceptable measure of the value of the merchandise only if the relationship between the parties did not influence the price, and CBP may question transfer prices declared by related parties on import paperwork to ensure that no improper influence occurred.

In most cases, the customs valuation is multiplied by an ad valorem rate of duty (e.g., 25%) in order to arrive at the amount of duty payable on an imported item. As such, properly calculating the customs value is essential to determine the total duty to be paid on an imported good and to avoid underpaying or overpaying duties and tariffs.

CONSIDERATIONS

While the President’s first executive action on trade stops short of imposing any new tariffs, or other changes to existing US trade policy, it introduces a host of uncertainties for countries and companies that trade in the United States. In the coming months, the agencies tasked with review of President Trump’s trade priorities will submit closely watched reports that could lead to major policy shifts.

Understanding the foundational elements of your imported merchandise will help importers immediately grasp the effect of tariffs when they are imposed. Enhanced risk planning related to classification, country of origin, and customs valuation can create opportunities for importers to mitigate the impact of new tariffs by adjusting production through a flexible supply chain, taking advantage of duty-saving strategies through use of foreign trade zones, or engaging in tariff engineering or customs valuation planning.

STAY INFORMED

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