As detailed in our Insight earlier today, this weekend President Trump ordered the imposition of duties on U.S. imports of products of Canada, Mexico, and China effective tomorrow, February 4, 2025. However, following talks with President Sheinbaum of Mexico and Prime Minister Trudeau of Canada, President Trump this afternoon announced a “pause” of the implementation of the duties against Mexico and Canada for a one-month period. By contrast, the additional 10 percent ad valorem duties on all products of China remain slated to be imposed on products entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Time on February 4, 2025.
Also today, U.S. Customs and Border Protection (CBP) released pre-publication versions of Federal Register notices that further detail the planned duties on imports from Canada and China. No comparable notice was issued with respect to planned duties on imports from Mexico, and it remains to be seen whether or when such a notice might be released in light of the “pause” on the duties on goods from Mexico.
Leveraging Tariff Policy as a Negotiation Tool
President Trump held discussions with Mexican and Canadian leaders today to negotiate regarding the proposed tariffs against each country. Following these discussions, President Trump agreed to pause the implementation of tariffs against Mexico and Canada by one month in exchange for tighter border security:
- President Sheinbaum announced that Mexico will immediately reinforce the U.S.-Mexico border with 10,000 National Guard troops to combat drug trafficking from Mexico to the United States, particularly fentanyl.
- Prime Minister Trudeau announced that Canada agreed to deploy 10,000 frontline personnel to secure the U.S.-Canada border, appoint a “Fentanyl Czar,” list drug cartels as terrorists, and launch a Canada-U.S. Joint Strike Force to combat organized crime, fentanyl, and money laundering. Prime Minister Trudeau also announced that he signed a new intelligence directive on organized crime and fentanyl backed with $200 million.
This series of events suggests that President Trump may continue leveraging tariff policy as a negotiating tool to extract certain concessions from U.S. trading partners.
“Products of Canada” Defined
Although duties on imports from Canada are delayed by at least one month, CBP’s notice clarifies the definition of “products of Canada” subject to future potential duties. Specifically, the notice explains that “products of Canada” consist of products which qualify as originating from Canada either (i) pursuant to part 102, title 19 of CBP’s regulations, i.e., country of origin for marking purposes regulations, or (ii) are considered to be “substantially transformed” in Canada. To be clear, the additional duties will apply to goods that originate in Canada, regardless of the country from which they are exported to the United States. By the same token, goods shipped from Canada to the United States having a country of origin other than Canada will not be subject to the new duties on products of Canada.
“Products of China”
The rules of origin in part 102 of CBP’s regulations do not apply to shipments from China. Thus, only the substantial transformation test applies for determining whether products qualify as articles of China for purposes of the additional duties. CBP’s notice concerning China also clarifies that products of Hong Kong origin are considered articles of China for purposes of the additional duties.
Time Limited Exception for Goods “in Transit”
The executive orders allow for exceptions to additional duties for goods that were loaded onto a vessel at the port of loading (“loaded on a vessel”) or in transit on the final mode of transport (“in transit”) prior to entry before 12:01 a.m. Eastern Time on Saturday, February 1, 2025.
CBP’s China notice clarifies that the exception for goods already loaded on a vessel or in transit is time limited to prevent importers from abusing the provision. As such, the exception for products of China applies only to goods loaded on a vessel or in transit before 12:01 a.m. Eastern Time on February 1, 2025, and entered for consumption, or withdrawn from warehouse for consumption, on or after February 4, 2025, and before 12:01 a.m. Eastern Time on March 7, 2025.
Exceptions for Goods Classified in HTSUS Chapter 98
The additional duties do not apply to goods for which entry is properly claimed under a provision of chapter 98 of the Harmonized Tariff Schedule of the United States (HTSUS) pursuant to applicable CBP regulations. Chapter 98 covers a wide variety of special classification provisions, including certain products returning to the United States (subheading 9801.00.10), and temporary importations under bond (TIBs) (heading 9813). However, for goods classified in HTSUS subheadings 9802.00.40, 9802.00.50, or 9802.00.60, the additional duties will apply to the value of repairs, alterations, or processing performed in Canada or China, as applicable, and for goods classified in subheading 9802.00.80, the additional duties will apply to the value of the article assembled in Canada or China, as applicable, less the cost or value of U.S. content.
Formal Entry for Mail Shipments
As outlined in the executive orders, the additional duties apply to all products of Canada or China, as applicable. The duty-free de minimis exemption for low-value shipments under $800 does not apply to articles subject to the additional ad valorem duties.
To enforce this provision, CBP has determined that importers must file formal entries for all international mail shipments from Canada or China, as applicable. The notices explain that regardless of value, “no mail shipments . . . will be cleared or released by CBP unless and until formal entry is properly filed.”
* * *
Further tariff actions by the Trump Administration are expected in the coming weeks and months. Contact us if you have any questions about these new developments, including how to evaluate whether your imports may be subject to additional duties and what supply chain changes may offer relief from such duties.