On February 1, 2025, the Trump Administration imposed long-expected tariffs on imports from Canada, Mexico, and China through the issuance of three executive orders (“EOs”). While some recent reporting suggested that implementation of these tariffs may be delayed to March 1, 2025, the White House confirmed on January 31, 2025 that these tariffs would be implemented according to a previously-set deadline. However, following a flurry of threats of counter-tariffs and phone calls between President Trump and his counterparts in Canada and Mexico, on February 3, 2025, the leaders of Canada and Mexico confirmed that the United States will delay tariffs for a month while both countries work towards more long-term agreements. The tariff imposed on China went into effect on February 4.
Background Underpinning Latest Tariffs
Prior to the February 1 EOs, President Trump stated that he authorized these tariffs under the International Emergency Economic Powers Act (IEEPA), which permits the president to set tariffs in national emergencies without conducting investigations or administrative proceedings. Previously, President Trump discussed tariff action under IEEPA during his first term as an attempt to curb illegal immigration from Mexico.
After his November election, President Trump stated he would impose tariffs on Mexico, Canada, and China on his first day of office. During his inaugural address, President Trump announced that these tariffs would be implemented on February 1, 2025. That same day, President Trump signed an executive order titled America First Trade Policy, aimed at prioritizing American interests in international trade. The executive order directed various agencies to explore options for future tariffs, but did not implement any new tariffs.
Tariff Details
Pursuant to IEEPA, the National Emergencies Act, and the Trade Act of 1974, President Trump on February 1 implemented a 25% tariff on imports from Mexico and Canada, and 10% on imports from China. With respect to Canadian energy or energy resources, President Trump imposed only a 10% tariff.
The EOs as to Canada, Mexico, and China all specifically state the Secretary of Homeland Security shall determine the modifications necessary to the Harmonized Tariff Schedule of the United States (HTSUS) in order to effectuate this order consistent with law and shall make such modifications to the HTSUS through notice in the Federal Register and such modifications made to the HTSUS shall be effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption.
The Trump Administration stated the tariffs for Mexico and Canada are tied to the countries’ policies on immigration and fentanyl. The White House specifically stated its 10% tariff on China is in retaliation for “the sustained influx of synthetic opioids [that] has [had] profound consequences on our Nation, including by killing approximately two hundred Americans per day, putting a severe strain on our healthcare system, ravaging our communities, and destroying our families.” The EO regarding Canada notes that should Canada retaliate against the United States in response to the tariffs, the President may increase or expand in scope the tariffs.
All tariffs were originally set to take effect on or after 12:01 a.m. eastern time on Tuesday, February 4, 2025. The proposed tariffs as to Canada and Mexico are currently paused for a period of 30 days. The proposed tariffs as to China went into effect on February 4.
Impact & Reciprocal Tariffs
Both Canadian Prime Minister Justin Trudeau and Mexican President Sheinbaum announced planned counter-tariffs on February 1. Canada responded with a 25% tariff on $155 billion ($106.5 billion) of U.S. goods in response to U.S. tariffs, specifying that $30 billion would take effect from Tuesday and $125 billion in 21 days. These tariffs impact beer, wine, lumber and appliances, among other major U.S. goods. In addition, we anticipate that Canada will challenge the tariffs through a legal case with the World Trade Organization (WTO) in the near future. Sheinbaum ordered retaliatory tariffs in response to the U.S. decision to slap tariffs on all goods coming from Mexico. Mexico had been preparing possible retaliatory tariffs on U.S. imports, ranging from 5% to 20%, on pork, cheese, fresh produce, manufactured steel and aluminum, with a possible exemption for the auto industry. After discussions between the leaders of the U.S., Canada and Mexico, which included pledges to take additional steps to secure the borders, the U.S. tariffs and the counter tariffs have been paused for 30 days while the leaders continue discussions.
In advance of the tariff going into effect, China’s Ministry of Commerce said it would file a legal case against the United States at the WTO in response to President Trump’s decision Saturday to impose 10 percent tariffs on Chinese goods. In the morning of February 4, China confirmed it referred the U.S. tariff measures to the WTO. China responded with levies of 10% to 15% on some U.S. products. Specifically, on February 10, China will impose an additional tariff of 15% on coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, large-displacement automobiles and pickup trucks. China also announced export controls on several minerals critical to the production of modern high-tech products, including tungsten, tellurium, bismuth, molybdenum and indium.
Companies that rely on imports from or market access to Mexico, Canada, or China should seek to enhance their trade compliance procedures to account for the expected increase in compliance burdens on imports and exports. These entities should also consider the increased supply chain costs, and the possibility of domestic alternatives. Companies considering mergers, acquisitions, or other investments should assess the impact of these trade policies when conducting due diligence for targets that source products from or otherwise do business in Mexico, Canada, or China. International trade with Mexico and Canada was long-considered low risk and supported by the free trade policies of first NAFTA, and more recently the USMCA. Tariffs within North American trade complicate supply chains and create new risk factors for corporate and private equity investors. When considering mergers or acquisitions buyers should fully understand the target entity’s supply chain, including any reliance on Mexican, Canadian, or Chinese imports or market access. More generally, companies engaging in international trade should recognize that the Trump Administration may impose tariffs with little or no warning in response to perceived threats to U.S. interests.
McGuireWoods is actively monitoring the rapidly evolving legal and regulatory landscape in the early weeks of the new administration. Companies or organizations impacted by these tariffs, or that wish to pursue exemptions in relation to the tariffs, are encouraged to contact McGuireWoods for legal advice and strategic support. For questions related to these tariffs, or regarding government contracts generally, contact any of the authors or another member of the McGuireWoods government contracting, International Competition & Trade or Consulting teams.