During the first Trump Administration from 2017–2021, the United States increased the use of import duties (i.e., tariffs) against a range of products. These tariffs were largely left in place during the Biden Administration. During the 2024 U.S. presidential campaign, now president-elect Trump repeatedly promised to dramatically increase the use of tariffs as a means of promoting American manufacturing and/or impacting the U.S. trade deficit. President-elect Trump has several mechanisms to impose tariffs, including: Section 301 of the Trade Act of 1974, which counters unfair trade practices; Section 201 of the Trade Act of 1974, which safeguards domestic manufacturers from import surges; Section 232 of the Trade Expansion Act of 1962, which counters national security threats; and continued use of anti-dumping and countervailing duties.
Though it remains to be seen how tariffs will be deployed from January 2025 onwards, president-elect Trump has expressed interest in applying increased tariffs on imports into the United States, including tariffs of:
- Up to 60% on all goods entering the U.S. from China;
- 25–100% on all goods entering the U.S. from Mexico;
- 10–20% on all goods entering the U.S. from any location; and
- Up to 100% on all goods entering the U.S. from the BRICS nations.
Any such application of tariffs could significantly increase the price of goods entering the U.S., and consequently impact businesses importing goods into the U.S. and global supply chains more broadly. Further, it is likely that countries becoming subject to increased tariffs for goods entering the U.S. will apply retaliatory tariffs on U.S. goods as well.
Impacts
Uncertainty
The scope and magnitude of such tariffs remain unclear. Importers therefore face considerable uncertainty in the coming months. This makes forecasting costs around maintaining import-driven supplies for project development, manufacturing, retail, and other sectors difficult.
Cost and broader economic impacts
If tariffs along the lines of those apparently under consideration by the incoming Trump Administration are applied, importers of record for any affected goods may face significantly increased costs.
As a result of increased costs to importers, sectors particularly reliant on imports, especially imports from China, may experience broader challenges. This could, for example, lead to cancellation or postponement of projects reliant on imported goods (e.g. solar development) or decreased sales of goods that have become more expensive due to passed-down tariff costs.
Supply chain disruption
Companies may seek to avoid tariffs by routing impacted supply chains away from tariff-targeted jurisdictions (e.g., China). This may cause both challenges and opportunities as global supply chains are reworked.
Mitigation strategies
At the outset, it is critical that companies dependent on imports into the U.S. carefully evaluate their supply chains to proactively assess potential risk from increases in tariffs. Any companies importing materials into the U.S., or which are dependent on their suppliers doing so, may consider mapping upstream supply chains as much as is reasonably feasible. Supply chains connected to China or certain jurisdictions linked to tariff circumvention by Chinese companies (e.g. Southeast Asian nations such as Cambodia, Malaysia, Thailand, and Vietnam), or is otherwise tied to Chinese suppliers may pose especially elevated risk. Imports from Mexico, Canada, and the BRICS countries (i.e., Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, the United Arab Emirates, and, if applicable, Iran) may also face elevated risk. Each of these jurisdictions have been varyingly subject to threatened tariffs by the incoming administration, and companies will need to closely monitor developments to gauge escalating risks.
In some cases, it may be possible to avoid tariffs altogether. Some companies may be able to achieve this by re-routing portions of impacted supply chains into the United States. Where domestic production of source materials or products is a realistic (and commercially feasible) option, this may be particularly attractive. Alternatively, routing supply chains to non-U.S. jurisdictions not currently, or, to the extent discernible, imminently, subject to relevant tariffs can reduce risk. Free Trade Zones (FTZs) may be another option, particularly for products being processed in the United States for reexport overseas.
Avoiding risk of increased tariffs entirely may be impractical or impossible for some companies and supply chains. At-risk companies may reduce risk exposure with strategic use of appropriate contracting mechanisms in supply agreements, development contracts, and other commercial arrangements. Companies that are serving as importer of record, and thus responsible for tariffs levied against imports, may seek reimbursement for some or all associated costs from their counterparties in procurement and other agreements, especially when triggered by sudden, unexpected increases in applicable tariffs. Upstream entities, as well as financiers, may likewise seek to hedge against unexpected tariff-related costs. Tariff-triggered termination rights may also be prudent, though parties considering exercising such rights will need to carefully consider whether terminated supply arrangements will lead to material or equipment shortfalls if alternative suppliers cannot be practically arranged.
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Companies reliant on importing goods into the United States—especially Chinese imports—should begin evaluating risk exposure and planning mitigation strategies now. A&O Shearman’s international trade regulatory team would be happy to consider these issues in greater depth with impacted companies.
