President-Elect Trump Announces Tariff Plans for Largest U.S. Trading Partners

President-Elect Donald Trump on Nov. 25, 2024, announced his intention to impose additional 10 percent tariffs on China, as well as additional 25 percent tariffs on Mexico and Canada. He has not yet indicated which authority (given to the president by Congress) he would use to impose these tariffs.

Making the announcement via Truth Social, President-Elect Trump indicated that these tariffs would be part of his first Executive Orders on Jan. 20, 2025, the date of his inauguration. President-Elect Trump's posts further indicated that the tariffs would continue until China, Mexico and Canada addressed the movement of drugs and undocumented immigrants across the U.S. border. President-Elect Trump's posts did not detail the legal basis for these tariffs.

These tariffs, if imposed, would significantly impact trade relations with the United States' largest trading partners. Per the U.S. Census Bureau, imports of goods to the U.S. from China totaled $426.9 billion in 2023, a decrease of 20.4 percent ($109.4 billion) from 2022. Imports of goods to the U.S. from Mexico totaled $475.2 billion in 2023, an increase of 5.1 percent ($23.2 billion) from 2022. Imports of goods to the U.S. from Canada totaled 418.6 billion in 2023, a decrease of 4.3 percent ($18.8 billion) from 2022.

President-Elect Trump's announcement telegraphs an international trade strategy consistent with that of his first presidency. During his first administration, then-President Trump frequently cited national security provisions within trade law to justify tariffs and promote an aggressive "America First" trade agenda. He sought to use these tariffs as leverage in trade negotiations, although the nation's trade deficit rose during his four years in office.

The president-elect's announcement also could affect the required review of the U.S.-Mexico-Canada Agreement (USMCA), set for July 2026. The tariffs, if imposed, may violate USMCA provisions. Canada and Mexico responded quickly to President-Elect Trump's announcement, saying they would retaliate with tariffs on U.S. products if tariffs on their U.S. exports were imposed.

Regarding China, it is possible that President-Elect Trump intends to increase the tariffs already in place under Section 301 of the Trade Act of 1974 (Section 301), but he provided no details in his announcement. Legislation was recently introduced in Congress to end China's Permanent Normal Trade Relations, which would automatically increase tariffs on Chinese imports. As with Canada and Mexico, the Chinese government has indicated it would respond to U.S. tariffs with retaliatory tariffs.

Manufacturers should review their supply chains to assess vulnerability to tariffs on imports from these countries. They should also consider the likelihood that retaliatory tariffs will impact their exports. Depending on the justification for the tariffs President-Elect Trump seeks to impose, exemptions and exclusions may be available to qualifying U.S. businesses.

Can He Do That? Tariff Tools Available to the President

President-Elect Trump's announcement that he will impose tariffs on imports from the largest U.S. trading partners prompts many questions. President-Elect Trump's trade policy agenda during his first term provides valuable insights. Breaking with the policy approach of his predecessors, President Trump used tariffs to punish perceived bad actors and seek concessions from trading partners. He imposed nearly $80 billion in tariffs on around $380 billion in imports during his four years in office, using Sections 201 (solar panels, washing machines) and 301 (Chinese imports) of the Trade Act of 1974, along with Section 232 of the Trade Expansion Act of 1962 (steel and aluminum), as the basis for these tariffs.

International Emergency Economic Powers Act

In 2019, President Trump similarly announced that he would impose escalating tariffs of up to 25 percent on all goods imported from Mexico, unless Mexico addressed immigration issues at the border. The president proposed these tariffs pursuant to the International Emergency Economic Powers Act (IEEPA) of 1977.

It remains unclear whether President Trump actually had the authority to impose those tariffs under the statute, which traditionally has been used to sanction adversarial nations and deter terrorist financing. Before the debate could be settled (and the tariffs imposed), the Trump Administration announced that the two countries had reached an agreement on additional measures that Mexico would take to enforce the border.

The IEEPA allows the president to "prohibit transactions" and "regulate" the importation and exportation of goods during a time of emergency presenting an "unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States." It has been argued that those terms could be interpreted to include tariffs. Once the president declares such an emergency, the president must "consult" with Congress before taking action and transmit a report to Congress "immediately" upon taking such action. The IEEPA does not require an investigation by a federal agency prior to action.

President-Elect Trump may have a few different avenues to declaring a national emergency. The Biden Administration declared, pursuant to the IEEPA, a national emergency on illicit drug trafficking, including fentanyl. On Dec. 15, 2021, President Joe Biden issued an Executive Order declaring a national emergency to impose sanctions on foreign persons involved in or benefitting from drug trafficking. Further, President-Elect Trump has already expressed willingness to declare a national emergency on immigration (in the context of using military assets to conduct mass deportations). Also, he may declare a national emergency on the reasoning that U.S. trade deficits present an unusual and extraordinary threat to the nation, requiring the imposition of tariffs. If President-Elect Trump relies on this statute to impose the threatened additional tariffs, the lack of procedural requirements means that he may act quickly.

Section 301

Additionally, during his first administration, President Trump relied heavily on Section 301 to impose tariffs on Chinese goods. He imposed tariffs ranging from 7.5 percent to 25 percent across four lists of imports totaling $550 billion in value. Tariffs on a fifth list (List 4B) were never implemented. The Section 301 tariffs were largely maintained by the Biden Administration. Following the completion of the statutory four-year review in May 2024, the Biden Administration kept the tariffs and increased them on products such as electric vehicles and solar panel cells. A 2023 ruling by the U.S. Court of International Trade upheld the legality of the tariffs. Oral arguments for the appeal before the U.S. Court of Appeals for the Federal Circuit are scheduled for Jan. 8, 2025.

The imposition of tariffs under Section 301 must be preceded by an investigation by the Office of the U.S. Trade Representative (USTR). The investigation must find that foreign countries have violated U.S. trade agreements or engaged in acts that are "unjustifiable" or "unreasonable" and burden U.S. commerce. The investigation may take several months.

For China, President-Elect Trump may look to increase the tariffs on the existing lists of imports from China. He may also look to List 4B, which included various chemicals, handbags, gloves and wooden items, in implementing additional tariffs on China.

Section 232

Similarly, in March 2018, President Trump invoked Section 232 of the Trade Expansion Act of 1962 (Section 232) to impose tariffs on imports of steel (25 percent) and aluminum (10 percent) on most U.S. trading partners. However, President Trump later lifted the tariffs on imports from Canada and Mexico in favor of a joint monitoring and consultation system. The courts upheld President Trump's Section 232 tariffs on steel imports.

The imposition of tariffs under Section 232 must be preceded by an investigation by the U.S. Department of Commerce. The investigation must find that imports threaten to impair U.S. national security. Similar to Section 301, the investigation may take several months.

President-Elect Trump may rely on Section 232 to reimpose tariffs on steel and aluminum from Mexico and Canada.

Section 338

Section 338 of the Tariff Act of 1930 (Section 338) has gained more attention in recent years after falling into obscurity in the 1940s.

Section 338 allows the president to impose new tariffs (up to 50 percent) upon a finding that a foreign country has taken unreasonable or discriminatory actions that disadvantage U.S. commerce. Where such unreasonable or discriminatory actions continue following the imposition of tariffs, the president may block imports from that country.

President-Elect Trump may impose new tariffs if he determines that China, Canada or Mexico has taken unreasonable or discriminatory actions that disadvantage U.S. commerce. Similar to the IEEPA, if President-Elect Trump relies on this statute to impose the threatened additional tariffs, the lack of procedural requirements means that he may act quickly.

Section 122

Section 122 of the Trade Act of 1974 (Section 122) was passed by Congress after President Richard Nixon used the Trading with the Enemy Act (IEEPA's predecessor) to impose a 10 percent surcharge on U.S. trading partners. The tariff was intended to address rising U.S. trade deficits and the overvaluation of the dollar under the Bretton Woods gold standard system.

Section 122 allows the president to impose new tariffs (up to 15 percent) on imports for 150 days. The president must find that the U.S. has "large and serious" balance-of-payments deficits or aim to prevent an "imminent and significant" depreciation of the dollar.

Per the U.S. Census Bureau, the largest U.S. trade deficit is with China, at $279 billion in 2023. Similarly, in 2023, the U.S. trade deficit with Mexico was $152 billion and $64 billion with Canada. President-Elect Trump may impose new tariffs on China, Mexico and Canada upon finding that the U.S. trade deficit is large and serious. However, these tariffs would be limited to 150 days, unless Congress extends them. Similar to the IEEPA and Section 338, if President-Elect Trump relies on this statute to impose the threatened additional tariffs, the lack of procedural requirements means that he may act quickly.

But What About the USMCA? Dispute Resolution and the USMCA Review

President-Elect Trump's announcement of additional tariffs on Mexico and Canada occurs against the backdrop of the USMCA, the President Trump-negotiated replacement of the North America Free Trade Agreement (NAFTA), which came into force in 2020. It establishes a free trade area between the U.S., Mexico and Canada and prohibits the imposition of duties outside of those provided for in the agreement. The U.S.' imposition of additional tariffs on Mexico and Canada may be an apparent violation of the USMCA.

However, the USMCA provides for an exception for "essential security." Specifically, Article 32.2 provides that the USMCA does not preclude a party from applying measures that it considers "necessary for the fulfilment of its obligation with respect to maintenance or restoration of international peace or security, or the protection of its own essential security interests." President-Elect Trump may rely on the essential security exception in implementing the threatened additional tariffs.

The Apparent Violation of the USMCA

Mexico and Canada would likely pursue state-to-state dispute settlement through the USMCA. The USMCA allows member states to bring claims against each other before an ad hoc arbitral panel. The panel is drawn from a roster that the member states maintain. The dispute settlement process is scheduled to take approximately five months. At the end of the dispute settlement process, the panel issues a report.

The report contains 1) findings of fact, 2) determinations of whether the measure at issue is or would be inconsistent with a party's obligations under the agreement or nullifies or impairs benefits that a complaining party or parties could reasonably have expected under the agreement or that a party has otherwise failed to carry out its obligations under the agreement, 3) any recommendations the panel might offer to resolve the dispute if the disputing parties have jointly requested them and 4) the reasons for the panel's findings and determinations.

The parties to the dispute must seek to resolve the dispute within 45 days after they receive the report. The parties are not bound by the panel report's recommendation for how to resolve the dispute. The parties may negotiate their own terms, such as by requiring amendment of a USMCA-inconsistent law or providing compensation. If a resolution is not reached within 45 days, then the complaining party may suspend benefits to the responding party to the extent that the suspension has an "equivalent effect" as the measure or conduct found to be a violation of the USMCA. This suspension of benefits may include imposing higher tariffs than allowed under the USMCA.

However, the suspended benefit should be in the same sector as the subject of the dispute, unless this would be ineffective or impracticable. If the responding party believes the suspension of benefits is manifestly excessive or that it has cured the violation, it may request that the original panel consider the issue. If the original panel concludes that the suspension is manifestly excessive, it must provide its views regarding the level of benefits it considers to be of equivalent effect. If the panel finds that the violation has not been cured, then the complaining party may suspend benefits up to the level determined by the panel.

Therefore, following a USMCA panel report, Mexico and Canada could legally impose retaliatory tariffs against the U.S. However, this would likely launch a trade war, rendering the USMCA meaningless.

The USMCA Review

The USMCA requires a review by the parties every six years and will terminate in 16 years without successful review and agreement by the parties to any amendments. President-Elect Trump's tariff announcement complicates this review because the tariffs are potentially a violation of the agreement's provisions. All three countries are preparing for the review, and U.S. stakeholders are encouraged to identify priorities for review and work with Holland & Knight's Public Policy & Regulation and International Trade groups to help ensure these priorities are conveyed to U.S. government officials in advance of the review.

Under USMCA Article 34.7, the parties must review the agreement every six years and either renew for another 16 years or negotiate and agree to revisions. Parties can amend the agreement under Article 34.4 and withdraw from it under Article 34.6 with six months advance written notice to the other parties. Though President-Elect Trump is unlikely to withdraw from an agreement he lauded as a vast improvement over NAFTA, he will likely seek to amend the agreement through the review process.

The USMCA review process is governed by the implementing legislation in the U.S. The executive branch (the president and USTR) represent the U.S. in the Joint Review. USTR will seek stakeholder/public input in 2025 and report its Joint Review recommendations to Congress by the end of 2025. The parties deliver their recommendations to each other no less than one month before joint review date, which is July 1, 2026.

The Key U.S. Players

Several developments will impact the USMCA review. First, President-Elect Trump selected Jamieson Greer as his USTR. Greer served as chief of staff for Robert Lighthizer, USTR during President-Elect Trump's first term and is expected to continue his predecessor's (and the president-elect's) support for tariffs as tools to influence trading partner behavior and secure concessions in trade agreement negotiations. Greer's selection is conditional on Senate confirmation.

Second, it is unclear what role the Commerce Department will play in USMCA review. President-Elect Trump, in announcing Howard Lutnick as his pick for U.S. Commerce Secretary, indicated that Lutnick would have "direct responsibility" for USTR, which currently reports directly to the president.

Third, Congress will play a role in USMCA review and could also seek to rein in President-Elect Trump's power to impose tariffs. Democrats introduced the Prevent Tariff Abuse Act, which would prevent the president from bypassing Congress when implementing broad tariffs. Though the bill's future is uncertain in this or the next Congress, some Republicans, wary of the retaliation the proposed tariffs may provoke, may be interested in regaining some measure of control over trade policy, which the legislative branch has ceded to the president over the past several decades.

Congressional Action

Though the U.S. Constitution generally empowers Congress to set tariffs, Congress long ago delegated rate setting to the executive branch. As a result, Congress has limited powers to check President-Elect Trump's tariff plan without the will to do so legislatively. Though Republicans will control both houses of the 119th Congress, its members are divided between a more populist wing that supports increased tariffs and a more traditionally conservative wing that is skeptical of their economic effects. As a result, the next Congress is likely to limit its oversight and critiques of the proposed tariffs to side conversations with the administration rather than direct opposition or criticism.

What Now? Reactions from Canada, Mexico and China

During the first Trump Administration, Canada, Mexico and China responded to President Trump's tariffs with their own tariffs against U.S. exports. China's tariffs principally targeted U.S. agricultural exports, including horticultural products, pork and tree nuts. Those tariffs, impacting more than $22 billion in U.S. products, remain largely in place. Canada and Mexico also targeted U.S. agricultural products with their retaliatory tariffs. With the signing of the USMCA, the three trading partners created an import-monitoring mechanism for steel and aluminum. In turn, Canada and Mexico lifted their retaliatory tariffs in May 2019.

As noted above, all three countries have indicated they would retaliate with tariffs against U.S. exports if President-Elect Trump follows through on his campaign pledge and recent announcements to impose tariffs. Depending on the mechanism President-Elect Trump uses to impose these tariffs, trading partners and U.S. stakeholders should identify and use any and all opportunities to engage with the federal government in advance of negotiations that could greatly impact these parties.

Mexican President Claudia Sheinbaum's initial response to President-Elect Trump's threat has been characterized as "bristly." She indicated that tariffs would cause inflation and job losses for both countries, highlighting the auto industry specifically. President Sheinbaum and President-Elect Trump reportedly had a call on Nov. 27, 2024, after which President-Elect Trump posted to Truth Social indicating President Sheinbaum had agreed to "effectively close the Southern Border." President Sheinbaum clarified that they had discussed immigration and fentanyl trafficking but stressed that she had not agreed to close the border.

Canada's Prime Minister Justin Trudeau had what he characterized as a "good call" with President-Elect Trump in the immediate aftermath of the announcement. Prime Minister Trudeau also held an emergency meeting with the leaders of Canada's provinces and territories to discuss the tariff threat. He also met with President-Elect Trump and members of the incoming Trump Administration at Mar-a-Lago in Florida last week.

The Chinese government highlighted cooperation with the U.S. on law enforcement operations against narcotics and that China-U.S. economic and trade cooperation is "mutually beneficial in nature."

Leaders of the aforementioned countries all have indicated their willingness to work together. President Sheinbaum affirmed that there was "no possibility of a tariff war" between Mexico and the U.S. Similarly, the Chinese embassy in Washington, D.C., asserted that "No one will win a trade war or a tariff war."

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Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.