President-Elect Trump Announces Further Proposed Tariff Hikes on “Day One” and Export Controls on China Ramp Up

In a further sign that President-Elect Trump has embraced tariffs as a central tool for advancing U.S. domestic and foreign policy goals, he recently announced major planned tariff increases on goods from Canada and Mexico to be implemented on “day one” of his Administration commencing on January 20, 2025. He also announced additional tariffs on goods of Chinese origin and later added sweeping tariff increases on goods from the “BRIC” nations of Brazil, Russia, and India and others. New export controls on China were also announced by the Biden Administration and China swiftly retaliated. 

Canada and Mexico

With respect to goods imported into the U.S. from Canada and Mexico, the proposed tariffs will be imposed at the rate of 25% ad valorem. The stated reason for this proposal was to induce these close trading partners to do more to control the flow of illegal drugs, especially fentanyl, and undocumented immigrants into the U.S.

The 25% tariffs will apply to all goods exported from Canada and Mexico to the U.S.; most experts believe the usual “country of origin” determinant of duty liability will be replaced by the “country of export” criterion. These tariffs will have a major impact on business planning and continued viability for all Canadian and Mexican exporters to the U.S. given that the majority of goods they ship to the U.S. are currently duty-free under the US-Mexico-Canada Agreement (USMCA).

BRICs

Shortly after announcing the 25% tariffs on goods from Canada and Mexico, President-Elect Trump also threatened to levy tariffs of 100% ad valorem on all imports from the “BRIC” nations. This group was originally made up of Brazil, Russia, India, China, and South Africa and has been joined by Egypt, Ethiopia, Iran, and the United Arab Emirates. According to the President-Elect, his proposal was triggered by the efforts of India and other BRIC nations to replace the U.S. dollar as the world’s reserve currency.

China

Absent the BRIC tariff increases, the proposed tariff hike on goods from China will amount to an additional 10% ad valorem and was stated to be directed at inducing China to do more to control the flow of fentanyl into the U.S. Most expect that this additional tariff will also be imposed based on the country of export criterion and will be assessed on top of the other duties that might apply, e.g., Normal Trade Relations duties (based on country of origin), Section 301 trade remedy tariffs (based on tariff code/origin), or antidumping and countervailing duties (ADD/CVD, based on the origin and “scope” of the ADD/CVD order, not tariff code).

Legal Basis for Tariff Increases

As detailed in our recent article, U.S. tariffs come in many varieties but almost all of them require legislation by the U.S. Congress or agency investigations prior to becoming effective. The new “day one” tariffs proposed by President-Elect Trump are thus outside the ambit of all existing U.S. trade laws and administrative procedures. Most experts have concluded that the only legal basis for imposing these tariff hikes rests on the International Emergency Economic Powers Act (IEEPA). This law was enacted in 1977 and was cited in 2019 during the first Trump Administration as the basis for threatened tariff increases of 25% on all goods exported from Mexico unless Mexico addressed illegal immigration issues at the border. This dispute was resolved during the negotiations that led to the USMCA in 2020 and the threatened tariffs never materialized.

Legal experts have questioned whether IEEPA can really form the legal basis for any “emergency” tariffs, especially because historically, the law stems from the Trading With the Enemy Act passed in 1917 after the U.S. entered World War I and sits at the center of the U.S. sanctions regime. The first use of IEEPA was under the Carter Administration in 1979 following the taking of U.S. hostages by Iran. That “national emergency,” which prompted numerous U.S. sanctions against Iran is still in effect 45 years later because some of the former Shah’s assets are actively being contested by Iran. As of March 25, 2022, Presidents had declared 67 national emergencies invoking IEEPA, 37 of which are ongoing.

Under IEEPA, the President can "prohibit transactions" and "regulate" the import and export of merchandise during a time of emergency presenting an "unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States." The statute does not specifically mention tariffs as one of the measures that can be imposed to combat the cited threat. IEEPA also requires that the President "consult" with Congress before taking action, but no specific congressional approval or any agency investigation is needed. The statute permits the President to impose these tariffs immediately upon transmitting a report to Congress. Only a Joint Resolution by both houses of Congress can terminate the President’s invocation of a “national emergency.” Whether IEEPA will indeed be the law that President-Elect Trump invokes to impose these tariffs remains to be seen.

Export Controls

In addition to these proposed tariff increases under the incoming Trump Administration, the U.S. government under the Biden Administration has been tightening U.S. export controls on advanced technology to China since 2021. A significant upgrade to these restrictions was announced on December 2, 2024 by the U.S. Department of Commerce Bureau of Industry and Security (BIS). BIS stated that the new rules are “designed to further impair the People’s Republic of China’s capability to produce advanced-node semiconductors that can be used in the next generation of advanced weapon systems and in artificial intelligence and advanced computing, which have significant military applications.”

In response, China not only launched an antitrust investigation of a large U.S. chip maker but also announced on December 3, 2024 that it would begin banning the export of several rare minerals to the U.S. necessary for production of semiconductor chips, batteries, advanced electronics, and solar panels. The "dual use" banned materials include gallium, germanium, antimony, and superhard materials. The announcement also included stricter export controls for items related to graphite, a highly conductive "wonder material.”

How BDO Can Help

For further assistance and detailed analysis tailored to your business needs, please contact our team of international trade experts at BDO. We are here to help you assess key vulnerabilities, ensure compliance with new measures, and identify opportunities for tariff relief and supply chain diversification moving forward.