PilieroMazza recently published a client alert (linked here) regarding three executive orders issued on February 1, 2025, imposing additional tariffs on products from Canada, Mexico, and China that were to be effective February 4, 2025. This client alert provides an update on these tariffs as well as tariffs on steel and aluminum and reciprocal tariffs that were announced last week.
To summarize, products from Canada and Mexico were set to be subject to 25% tariffs, except for “energy or energy resources” from Canada, which were set to be subject to 10% tariffs. These tariffs have been delayed for 30 days (until March 6) following commitments from Canada and Mexico to enhance their border security efforts. Should the tariffs go into effect down the road, retaliatory measures from both Canada and Mexico are likely.
The 10% tariffs on products from China went into effect on February 4. In response, as of February 10, 2025, China began imposing an additional 15% tariff on coal and natural gas imported from the U.S., along with an additional 10% tariff on crude oil, agricultural machinery, large cars, and pickup trucks. China also announced 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. Products most likely to be affected include electronics, home supplies, car parts, and low-cost apparel and accessories. Finally, China filed a lawsuit against the U.S. with the World Trade Organization (WTO) to challenge the tariffs and the removal of the duty-free exemption for de minimis imports; however, the U.S. has blocked the appointment of new judges to the Appellate Body of the WTO which has limited the WTO’s ability to issue final decisions. The Trump Administration has not yet announced an increase in tariffs on China in response to China’s retaliatory duties, but President Trump has indicated further increases are likely.
While the executive order imposing tariffs on Chinese products suspended the de minimis exception to the tariffs, which allows packages valued under $800 to be processed without duties or tariffs, President Trump walked this back (temporarily) on February 7. The suspension of the de minimis exception went into effect on February 5, 2025, which led to the U.S. Postal Service (USPS) temporarily halting inbound packages shipped by China and Hong Kong posts. Later that day, however, the USPS reversed its decision, stating it would continue to accept such packages, creating confusion as to how items would be inspected. On February 7, President Trump amended the February 1 executive order to restore the de minimis exception until “adequate systems are in place to fully and expediently process and collect tariff revenue.”
President Trump has also announced other significant tariffs. On February 10, President Trump announced steel and aluminum tariffs on all countries, which are scheduled to go into effect on March 12. The proclamations imposing these tariffs are aimed at closing loopholes and exemptions to restore a true 25% tariff on steel and elevate the tariff on aluminum from 10% to 25%. The action notably closed existing exemptions for Argentina, Australia, Brazil, Canada, Japan, Mexico, South Korea, the European Union, Ukraine, and the United Kingdom.
Finally, on February 13, President Trump signed a Presidential Memorandum ordering the development of a comprehensive plan for imposing reciprocal tariffs and correcting trade imbalances. These tariffs are intended to ensure the U.S. is treated evenly with other countries and help reduce the budget deficit. It remains to be seen exactly what shape the tariffs will take, but President Trump has indicated an intent to match foreign duties on American products dollar-for-dollar. The Memorandum provides a framework for moving toward reciprocal trade, but it does not set a timeframe for reciprocal tariffs to take effect. Certain federal agencies are required to submit reports on international trade relationships and policies by April 1, and then the U.S. Secretary for Commerce and U.S. Trade Representative will prepare a report for the President with proposed remedies. So, reciprocal tariffs are several months, at minimum, from implementation.
How Can Government Contractors Protect Themselves?
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 the China tariffs now in effect, steel and aluminum tariffs set for March 12, reciprocal tariffs on the horizon, and implementation of the Canada and Mexico tariffs likely if agreements are not reached during the one-month delay. 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.
- Where supply chain changes are not possible, 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. Special thanks to Chris Jannace for his assistance with this client alert.
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