PilieroMazza recently published a client alert regarding executive orders issued on February 1, 2025, imposing additional tariffs on products from Canada, Mexico, and China, and the decision to delay the tariffs on Canada and Mexico until March 6, 2025. This client alert provides government contractors with an update on these tariffs—which may increase the cost of performance or lead to supply shortages, resulting in delays—and how to insulate your business.
To summarize, products from Canada and Mexico were subject to a 25% tariff, except for “energy or energy resources” from Canada, which were subject to a 10% tariff. These tariffs were delayed for 30 days, until March 6, 2025, following commitments from Canada and Mexico to enhance their border security. It was noted that retaliatory measures from both Canada and Mexico were likely if the tariffs went into effect. The tariffs on Chinese products went into effect on February 4, 2025, resulting in retaliatory action by China.
On March 3, 2025, President Trump announced that 25% tariffs on products from Canada and Mexico, along with a 10% tariff on Canadian energy products, such as oil and electricity, will go into effect on March 4, 2025. While the time of the original delay has not yet elapsed, President Trump stated there was “no room left for Mexico or for Canada” to avoid the tariffs. In response, on March 4, 2025, Canada imposed tariffs on $30 Billion worth of U.S. products. Canada previously published a significant and diverse $30 Billion list of products on which it would impose a 25% tariff.[1] Canadian Prime Minister, Justin Trudeau, also announced that, by March 25, 2025, Canada would impose an additional $125 Billion tariff on U.S. products. Mexican President, Claudia Sheinbaum, has vowed to announce retaliatory tariff and non-tariff measures next Sunday.
President Trump also re-emphasized that the tariff rate on products from China would double to 20% on March 4, 2025, as well. In response, on March 4, 2025, China announced further retaliatory measures, including: imposing 15% tariffs on chicken, wheat, corn, and cotton; imposing a 10% tariff on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products; and adding 15 U.S. companies to its export control list. To review, the retaliatory measures already in place include: an additional 15% tariff on coal and natural gas; an additional 10% tariff on crude oil, agricultural machinery, large cars, and pickup trucks; and export controls on rare earth minerals and other elements critical to the production of semiconductors and other high-tech components, including tungsten, tellurium, bismuth, molybdenum, and indium.
Other planned tariffs remain in development. The announced steel and aluminum tariffs on all countries is still scheduled to go into effect on March 12, 2025. Also, the Secretary of Commerce is still scheduled to prepare a report with proposed reciprocal tariffs after April 1, 2025.
As we previously wrote, government contractors should stay informed about the current status of the tariffs, understand how the tariffs may impact their business, and take steps to protect their interests. This remains the case with increased China tariffs now in effect, Canada and Mexico tariffs now in effect, steel and aluminum tariffs set for March 12, and reciprocal tariffs on the horizon. To this end, government contractors should:
- Continue to monitor and assess how the tariffs and export controls may increase the cost of performance or lead to supply shortages, resulting in delays.
- Review contract terms to determine if any provisions provide a mechanism for cost recovery or excuse for schedule delays. FAR 52.229-3, Federal, State, and Local Taxes, provides for the contract price to be increased by the amount of any new tax imposed after the date of bid opening or the effective date of the contract for negotiated contracts. If performing on supplies or service contracts outside the United States, pay close attention to FAR 52.229-6 as it may provide an avenue for recovery of after-imposed taxes or duties experienced abroad. Economic Price Adjustment clauses are another potential avenue for relief. Many clauses contain strict notice requirements, so prompt notice to the contracting officer is critical.
- Consider changes to supply chains to decrease reliance on foreign materials that are, or will become, costlier.
- When supply chain changes are impossible, factor increased cost and performance risks into future bids and proposals.
- Stay abreast of updates to the tariffs which are evolving rapidly.
If you have questions about President Trump’s executive orders and how they may impact your business, please contact Jackie Unger or another member of PilieroMazza’s REAs, Claims, and Appeals or Government Contracts practice groups. Also visit our Government Contract Executive Orders resource center for additional coverage. Special thanks to Chris Jannace for his assistance with this client alert.
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[1] List of products from the United States subject to 25 per cent tariffs effective February 4, 2025 (link), Dep’t of Finance, Gov’t of Canada (Feb. 3, 2025).
