PilieroMazza recently published a client alert regarding executive orders imposing additional tariffs on goods from Canada, Mexico, and China. Since then, the Trump administration has imposed a series of worldwide and targeted tariffs, which are likely to have a significant impact on supply chains and costs incurred by government contractors. This blog provides contractors with (1) an update on these tariffs and (2) advice on insulating your government contract from the cost and delay impacts.
Tariffs on Steel, Aluminum, and Automobiles
On March 12, 2025, the administration imposed 25% tariffs on steel and aluminum from all countries. On March 26, 2025, a 25% tariff was imposed on imports of automobiles and certain auto parts. Like the other tariffs on Canada and Mexico, there is some USMCA protection. Importers of automobiles under USMCA will have the opportunity to certify their U.S. content and systems will be implemented such that the 25% tariff will only apply to the value of their non-U.S. content.
10% Baseline Tariffs on All Imports and Higher Reciprocal Tariffs
On April 2, 2025, the administration issued EO 14257, Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits. On April 5, 2025, 10% tariffs went into effect for all countries. The Trump administration also imposed higher individualized reciprocal tariffs ranging from 11% to 50% (replacing the 10% baseline tariffs) on countries where the U.S. has the largest trade deficits—including 57 trade partners listed in Annex I of the EO, which took effect on April 9, 2025. Some exemptions—including copper, pharmaceuticals, semiconductors, lumber, certain critical minerals, bullion, and energy goods—are provided in Annex II. However, on April 9, President Trump announced a 90-day pause on the higher reciprocal tariffs, meaning all countries, except China, are currently subject to only the 10% baseline tariff.
Tariffs on Chinese Goods and Retaliatory Tariffs by China
Retaliatory escalation between China and the U.S. has resulted in a current 145% tariff specific to China. Leading up to April 2, China, in response to the initial round of tariffs, increased certain tariffs on imports of U.S. goods and imposed export controls on rare earth minerals and other elements critical to producing semiconductors and high-tech components frequently used in U.S. military equipment. The April 2 announcement subjected Chinese goods to an additional 34% adjusted reciprocal tariffs, making the tariff rate 54%. President Trump also issued an EO (available here) specifically ending the duty-free de minimis treatment of goods from China, effective May 2, 2025. All postal items containing goods valued at or under $800—and that would otherwise qualify for the exception—will be subject to either a percentage or per item duty. China then announced it would impose a 34% tax on all U.S. imports, effective April 10, 2025. China also announced it would impose more export controls on rare earth minerals, including samarium and its compounds (used in aerospace manufacturing and the defense sector), and gadolinium (used for MRI scans), and added 16 more U.S. companies to its export control list. The U.S. and China have since announced a series of retaliatory increases, resulting in the current 145% level (with the exception of certain electronics subject to only 20% tariffs).
Current Exemption for Semiconductors
On April 11, the Trump administration issued Presidential Action Clarification of Exceptions Under Executive Order 14257 of April 2, 2025, as Amended, clarifying that the exemption for semiconductors in EO 14257 is incorporated into its later executive orders, including those regarding China. Among items that would be spared from the reciprocal tariffs were smartphones, computers, semiconductors, and other electronics. The updated guidance, however, did not address changes to the existing 20% tariff imposed on Chinese goods in response to fentanyl issues.
However, on April 14, the Trump administration published a Notice of a national security investigation into imports of semiconductor technology and related downstream goods. The President posted the previous day that the administration was “taking a look at Semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN in the upcoming National Security Tariff Investigations.” Public comments must be submitted by May 7, 2025. Thus, the current exemption may not last.
Key Considerations for Government Contractors
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 across-the-board reciprocal tariffs and retaliatory export controls now in effect. To this end, government contractors should:
- Closely 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:
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- cost recovery, such as FAR 52.229-3 and FAR 52.229-6, which may provide an avenue for recovery if taxes or duties were imposed after contract award, including in performance abroad. Economic Price Adjustment clauses can also offer some relief, though they often cap increases and include strict notice requirements, so notifying the contracting officer promptly is essential.
- excuse for schedule delays, such as FAR 52.249-8 and FAR 52.212-4, which excuse delays that are beyond the contractor’s control, including acts of the Government in its sovereign capacity.
- exemption from tariffs, such as FAR 52.225-8 and DFARS 252.225-7013, which enable duty-free entry of some goods. These may apply to items listed in specific U.S. Harmonized Tariff Schedule subchapters or goods from qualifying countries under trade agreements.
- Consider changes to supply chains to decrease reliance on foreign materials that are, or will become, costlier.
- Where supply chain changes are not possible, factor in increased cost and performance risks into future bids and proposals.
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. Special thanks to Chris Jannace for his assistance with this blog.
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