With President-elect Donald Trump securing a second term, the tariffs and trade landscape is poised for significant changes.
President-elect Trump campaigned on imposing a 10% universal tariff and a targeted 60% punitive tariff on Chinese-originating goods, with the stated goals of decoupling U.S. dependency from China, increasing the U.S. manufacturing base especially with critical industries such as steel and aluminum production, and opening market access abroad for U.S. exports. Although trade was a focal point of Trump’s 2016 campaign, it took nearly 18 months for the Trump administration to impose Section 232 tariffs on imported steel and aluminum and Section 301 tariffs on Chinese-originating goods. It is uncertain whether the strategy will be to impose tariffs immediately and seek concessions after the fact or if it’s to use the threat of tariffs as a ploy to get trading partners to the table quickly to negotiate. Regardless, companies engaged in international trade should consider exploring duty minimization opportunities now.
As with the Section 232 and Section 301 tariffs first imposed in 2018, it is expected that the Trump administration will provide the opportunity for the trade community to petition the U.S. trade representative and U.S. Department of Commerce for temporary exclusions. The Trump administration also used a phased-in approach with the imposition of Section 301 tariffs in 2018 through the publication of four separate lists of Chinese-originating goods over a year-long period. It is unknown at this time whether a phased-in approach would be used for the proposed 10% universal tariff, but it’s expected that the existing Section 301 lists will be used for imposing additional Section 301 tariffs on Chinese-originating goods.
While many companies are hedging their bets looking at dual sourcing and nearshoring as possible tariff mitigation solutions, the United States-Mexico-Canada Agreement (USMCA) is slated for review in July 2026, and member countries may decide to opt out, leaving the future of the USMCA in question. This shift could have a significant impact, especially on capital-intensive manufacturing operations that have been enjoying preferential duty privileges first under the North America Free Trade Agreement starting in 1994 and through the newly implemented USMCA in 2020. Furthermore, Mexico’s proposed judicial reforms and the recent election of a self-proclaimed socialist as president are raising eyebrows with multinationals that operate in the country.
To further dissuade trade with China, the U.S. Congress has prioritized implementation of the Uyghur Forced Labor Prevention Act (UFLPA) by significantly increasing funding for U.S. Customs and Border Protection (CBP) through a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region or by an entity on the UFLPA entity list are prohibited from U.S. importation under Title 19 U.S. Code Part 1307. Since June 2022, CBP has reviewed more than 9,000 shipments worth more than $3.5 billion, and targeting has greatly expanded during the last year to now include electronics, apparel, footwear, textiles, agricultural goods, auto parts, and industrial and manufacturing materials.
Tariffs on Chinese products like solar panels, aluminum, and steel, along with potential tariffs on U.S. companies producing in Mexico, could drive a shift toward nearshoring and onshoring. While this move might boost domestic manufacturing and job creation, it also could significantly increase labor and material costs compared to Mexico and China, adversely affecting profit margins. Furthermore, the capital investment required to establish or expand nearshored facilities presents a substantial financial challenge. Businesses might face a choice between paying a premium for offshored operations due to potential tariffs or investing in nearshored operations with higher operating costs. As policymakers and businesses consider these factors, the future landscape of U.S. manufacturing and global trade relations remains uncertain, with potential adverse impacts on operating costs, capital expenditures, supply chain resilience, and consumer prices.
Crowe observation
International tax implications, such as the impact on a company’s global intangible low-taxed income or foreign-derived intangible income position, as well as transfer pricing, must be considered with any potential move and will become clearer as tax policy discussions in Washington develop.
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