For businesses, the immediate tariff and preferences remains unchanged. The more significant consequence is long-term uncertainty over the future rules governing trade between the three countries. Companies with integrated regional supply chains may need to reassess investment plans, sourcing strategies, and risk management as negotiations unfold.

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The Big Picture

USMCA has governed trade among the United States, Canada, and Mexico since 2020, replacing the North American Free Trade Agreement (NAFTA). The agreement preserved tariff-free trade across most goods while modernizing provisions covering digital commerce, intellectual property, labor standards, and automotive manufacturing.

Article 34.7 requires the three countries to conduct a joint review six years after the agreement entered into force. Rather than extending the agreement for another 16 years, the United States has chosen to begin the review process. Unless all three governments ultimately agree to renew or replace the pact, annual reviews will continue through 2036, creating a prolonged period of negotiation rather than an immediate withdrawal.

Administration officials have indicated they intend to use the review to pursue changes aimed at strengthening U.S. manufacturing, increasing North American production, reducing dependence on strategic imports from China, and addressing perceived trade imbalances within the region.

Why This Matters

Unlike a traditional trade agreement expiration, this decision creates uncertainty rather than immediate disruption.

Companies may continue operating under existing USMCA rules for now, but many strategic business decisions—including manufacturing investments, supply contracts, infrastructure projects, and acquisitions—are made years before facilities become operational. A negotiation process that could extend for a decade complicates long-term planning and may encourage businesses to delay major investments until there is greater clarity about the future trade framework.

Potential Business Issues

Changes to Rules of Origin

The administration has signaled that strengthening North American manufacturing requirements will be a central negotiating objective, particularly for automobiles and advanced manufacturing.

Higher regional content thresholds or revised qualification standards could require manufacturers to:

• increase North American sourcing;

• restructure supplier relationships;

• relocate portions of production; or

• reduce reliance on imported components from outside the region.

While these changes could increase production costs for some manufacturers, they may also encourage additional investment in North American production capacity.

Capital Investment Decisions

Many multinational companies selected production locations in Mexico or Canada based on the expectation of long-term stability under USMCA.

An extended period of uncertainty may influence decisions involving:

• new manufacturing facilities;

• factory expansions;

• distribution centers;

• supplier contracts;

• cross-border infrastructure; and

• mergers and acquisitions.

Companies may seek greater flexibility in future investment decisions until negotiations produce a clearer picture of the long-term trade environment.

Customs and Trade Compliance

Trade compliance teams should anticipate the possibility of evolving requirements involving:

• rules of origin;

• customs documentation;

• regional value content calculations;

• labor certification standards; and

• import compliance procedures.

Organizations that rely heavily on USMCA preferences may need to increase monitoring of regulatory developments and prepare for adjustments to internal compliance systems.

China-Related Supply Chains

One likely objective of the negotiations will be strengthening provisions designed to prevent North American supply chains from being used to circumvent U.S. trade measures on goods originating in third countries, particularly China.

Businesses that depend heavily on Asian suppliers should evaluate whether future changes to regional value content requirements or enforcement mechanisms could affect their eligibility for USMCA benefits.

Sector Implications

Automotive

Vehicle manufacturers and suppliers are likely to face the greatest scrutiny as negotiators revisit regional content requirements, battery sourcing, labor standards, and other production rules.

Manufacturing

Industrial manufacturers with integrated North American operations may need to reassess sourcing strategies and long-term capital allocation decisions.

Agriculture

Agricultural producers should monitor negotiations involving market access, sanitary and phytosanitary standards, and longstanding bilateral disputes over specific commodities.

Energy

Cross-border investment in pipelines, electricity infrastructure, refined products, liquefied natural gas, and critical minerals could become more difficult to evaluate if broader trade negotiations introduce additional regulatory uncertainty.

Technology and Electronics

Manufacturers that rely on globally sourced components should monitor potential revisions affecting regional value calculations and treatment of imported inputs.

What Companies Should Do

Companies should use the review period to strengthen strategic planning rather than wait for negotiations to conclude.

Recommended actions include:

• Review exposure across North American supply chains.

• Model alternative tariff and sourcing scenarios.

• Evaluate dependence on production in Mexico and imported inputs from Asia.

• Monitor proposed revisions to rules of origin and customs requirements.

• Reassess long-term capital investment assumptions.

• Participate in industry consultations where appropriate.

• Maintain flexibility in supplier relationships and manufacturing strategies.

Despite parliamentary approval, significant uncertainty remains. Ongoing disputes over steel and aluminum tariffs, digital regulation, forced labor-related trade measures, and potential new U.S. investigations could result in additional tariffs and trade restrictions. For businesses engaged in transatlantic trade, the agreement provides short-term stability but does not eliminate the risk of future trade disruptions.

What’s in the Agreement

The vote represents the most significant effort in recent years to stabilize U.S.-EU trade relations after a period marked by escalating tariff threats and legal challenges.

Under the agreement:

• The EU will eliminate tariffs on U.S. industrial products and selected agricultural goods.

• U.S. tariffs on many European goods will remain in place.

• Duty-free access for U.S. lobster exports to Europe is extended for five years.

• EU concessions are scheduled to expire on December 31, 2029, unless renewed.

The agreement was driven in part by concerns that failure to ratify the deal could trigger higher U.S. tariffs on European automobiles and other exports.

What Happened

The European Parliament approved the agreement by a vote of 440-151 after multiple delays.

The original framework negotiated between President Donald Trump and European Commission President Ursula von der Leyen established a 15 percent tariff rate on EU exports to the United States. However, subsequent legal challenges complicated implementation after the U.S. Supreme Court ruled portions of the tariff framework unlawful.

In response, the Trump administration relied on emergency authorities to impose temporary tariffs, resulting in effective tariff rates that exceed 15 percent on some European products, including certain food exports.

The agreement now proceeds to EU member states for final approval.

Key Outstanding Issues

Steel and Aluminum Tariffs

Although the agreement was intended to cap tariffs on steel, aluminum, and derivative products at 15 percent, some products continue to face duties as high as 50 percent. European officials have indicated that failure to resolve these tariffs could trigger retaliation or suspension of concessions provided under the agreement.

Forced Labor Tariffs

The United States has imposed separate 10 percent tariffs on EU goods tied to concerns regarding forced labor enforcement standards. These tariffs are expected to remain in place even if temporary emergency tariffs expire later this year.

Digital Regulation Disputes

European officials continue to face pressure from Washington regarding EU digital market and technology regulations. Future disagreements in this area could become a basis for additional trade actions.

Business Impact

Manufacturers

European manufacturers gain greater certainty regarding market access but continue to face elevated tariff exposure in key sectors, including metals and certain consumer goods.

U.S. manufacturers benefit from expanded access to the European market as EU tariffs on industrial goods are eliminated.

Agriculture and Food Producers

Selected U.S. agricultural exporters gain improved access to European markets. The extension of duty-free treatment for U.S. lobster exports provides a notable benefit for the Maine seafood industry.

However, European food exporters continue to face tariff costs in the U.S. market, reducing competitiveness relative to domestic producers.

Supply Chains

Companies with integrated U.S.-EU supply chains should expect continued compliance and tariff-management challenges. The agreement reduces the likelihood of an immediate trade escalation but does not eliminate the possibility of future tariff increases tied to separate investigations or policy disputes.

Macro Impact

The agreement helps avoid a significant deterioration in transatlantic trade relations at a time of broader global economic uncertainty.

The EU and United States remain each other’s largest trading partners, with trade flows exceeding $1 trillion annually. Preventing a new tariff escalation reduces risks to investment, manufacturing, and cross-border supply chains.

Nevertheless, the deal highlights a broader shift toward managed trade arrangements, where market access increasingly depends on negotiations over industrial policy, labor standards, digital regulation, and national security considerations rather than traditional tariff reduction alone.

What Companies Should Do

• Review U.S.-EU supply chains for products potentially affected by unresolved steel, aluminum, and derivative tariffs.

• Monitor developments related to U.S. forced labor enforcement and industrial overcapacity investigations.

• Evaluate opportunities created by reduced EU tariffs on U.S. industrial and agricultural products.

• Consider tariff contingency planning for sectors exposed to future trade disputes involving digital regulation or industrial policy.

• Track final approval by EU member states and any subsequent implementing regulations.

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Issues and Background

USTR initiated the investigations in March 2026 and found that all 60 economies failed either to impose or effectively enforce forced-labor import prohibitions. The agency proposed a 10% additional duty for economies with some forced-labor import regime, relevant trade commitments, or partial controls, and a 12.5% duty for others.

The proposal includes a public comment process, with written comments due July 6, 2026, and public hearings beginning July 7, 2026. The administration is framing the action as a response to unfair trade practices that burden U.S. commerce by allowing goods produced with forced labor to compete at artificially low costs.

Policy Impact

The proposal marks a significant escalation in U.S. tariff strategy. Rather than targeting specific products, companies, or high-risk supply chains, the action would impose broad duties based on each economy’s forced-labor enforcement framework.

That approach may strengthen U.S. leverage in trade negotiations, but it also creates legal, diplomatic, and business uncertainty. Major trading partners, including U.S. allies, are likely to challenge the premise that their forced-labor regimes are inadequate. The European Union, Canada, Mexico, the United Kingdom, Japan, South Korea, and others could seek exemptions, modifications, or reciprocal measures.

The action also signals that forced-labor compliance is becoming a core trade-policy issue, not only an ESG or customs matter.

Human rights groups and trade experts have questioned whether broad tariffs will meaningfully reduce forced labor, especially if the duties are tied to trade status rather than demonstrated labor-abuse risk.

Company Impact

Companies importing from affected economies should expect higher landed costs, more complex customs planning, and increased pressure to document supply-chain due diligence. Apparel, textiles, consumer goods, electronics, industrial inputs, and manufacturing supply chains could face particular exposure.

Businesses also should prepare for uneven implementation. Some goods may be excluded, some countries may negotiate relief, and USMCA-compliant trade may receive different treatment. This creates planning risk for pricing, sourcing, contracts, and inventory strategy.

Recommended Actions

Companies should treat labor-risk documentation as part of tariff mitigation and market-access strategy.

Companies should immediately map exposure to the 60 affected economies and identify covered import categories, supplier dependencies, contract pass-through provisions, and pricing impacts.

Importers should review forced-labor due diligence files, supplier certifications, traceability systems, and customs documentation. Businesses with material exposure should consider filing comments with USTR before the July deadline and evaluate whether exclusions or country-specific negotiations may affect their products.

Executives should also scenario-plan for three outcomes: tariffs finalized substantially as proposed, tariffs narrowed through exclusions or trade negotiations, or tariffs delayed by legal and diplomatic challenges.

Note - A June 1 follow-on proclamation extended the framework to industrial and agricultural equipment.

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Bottom line for executives: The April 2 proclamation is not a routine tariff adjustment. It changes how duties are calculated — from the metal content of a product to its full customs value — and more than doubles effective rates for many derivative goods. Middle-market companies across manufacturing, construction, energy, and distribution face materially higher import costs. The compliance burden is also expanding: customs declarations must now identify smelt and cast origin to qualify for reduced rates.

Issues and Background

Section 232 of the Trade Expansion Act of 1962 permits the President to restrict imports that threaten national security. The Trump Administration first invoked Section 232 for steel and aluminum in 2018 and extended the regime to copper in July 2025. The April 2, 2026 proclamation (Proclamation 11021) is the most sweeping modification to that framework in its eight-year history.

The central change is how duties are calculated. Prior to April 6, 2026, the Section 232 duty applied to the metal content of an import — meaning a steel component embedded in a finished product was taxed only on the value attributable to the steel, not the value of the whole product. The new regime applies the duty to the full customs value of the imported product, regardless of metal content. For highly engineered or finished goods with significant value-added processing, the effective duty increase is substantial.

The proclamation was effective for all goods entered for consumption on or after 12:01 a.m. Eastern on April 6, 2026.

Policy Impact

This proclamation consolidates and escalates a decade-long trend toward using Section 232 as a broad-based industrial policy instrument rather than a narrowly targeted trade remedy. Several features of the new structure are particularly significant for business planning.

No formal product-inclusion process. Prior proclamations established a public rulemaking mechanism through which companies could petition for inclusion or exclusion of specific derivative products. Proclamation 11021 terminates that process and replaces it with a joint administrative determination by the Secretary of Commerce and the U.S. Trade Representative — a faster, less transparent mechanism. Companies can no longer rely on a predictable exclusion pathway if their products are swept into the derivative category.

Trade-agreement partners and future negotiations. The proclamation creates a new category — “Trade Agreement Partners” — that currently includes the UK, EU, Japan, South Korea, Mexico, Canada, and any future bilateral agreement partners. Drawback eligibility and certain reduced rates depend on this status. This structure is designed to give the administration leverage in ongoing trade talks, but it also means rate exposure can shift based on diplomatic developments outside a company’s control.

Canada and Mexico USMCA treatment. The June 1 proclamation introduced a special provision for USMCA-qualifying imports from Canada and Mexico: the 25 percent Annex III rate applies only to non-U.S. content, subject to a 15 percent floor. This is a meaningful carve-out for manufacturers with cross-border supply chains, but its benefit depends on accurate and defensible U.S.-content accounting. CBP is authorized to assess penalties for misrepresentation.

June 2028 cliff. The reduced rates on Annex III products (industrial machinery, agricultural equipment, HVAC systems) are explicitly temporary, expiring December 31, 2027. Companies planning capital equipment acquisitions should account for the rate reverting to 25 percent in 2028 when modeling multi-year procurement timelines.

Company Impact

The industries with the most direct exposure are those that import finished or semi-finished goods with significant aluminum, steel, or copper content — broadly: manufacturing, construction, energy infrastructure, industrial distribution, and agricultural equipment dealers.

For middle-market companies in these sectors, the practical consequences run across several dimensions. Landed costs increase immediately on covered imports, and because the duty now applies to full customs value rather than metal content, cost modeling built on prior tariff assumptions is no longer valid. Companies with contracts that include tariff pass-through provisions should review those clauses now: the change in calculation methodology may not be captured by language written under the prior regime.

Procurement teams that source from multiple countries may find new arbitrage opportunities — particularly if UK or EU sourcing qualifies for lower rates — but realizing those savings requires documentation systems capable of certifying metal origin at the smelt and cast level, not just country of manufacture.

Energy-sector companies are broadly affected. Pipeline components, electrical infrastructure, compressors, heat exchangers, and other capital goods used in oil and gas, renewables, and utilities commonly contain substantial aluminum, steel, and copper content. Given that these goods often carry significant value-added manufacturing costs over and above their raw material content, the shift to full-value tariffs is particularly impactful in this sector.

Regulatory Compliance Note

CBP now requires importers of copper articles to identify the countries where copper was smelted and cast, and to provide that information at the time of entry. Similar documentation requirements apply to aluminum and steel for companies claiming reduced rates based on U.S.-origin metal content. Companies without robust traceability systems should treat this as an immediate operational priority — the enforcement mechanism is in place and CBP is authorized to impose penalties for misrepresentation, not just to deny reduced-rate eligibility.

Key Dates

• April 2, 2026 - Proclamation 11021 signed. Full-value tariff structure announced; derivative product scope revised.

• April 6, 2026 - Proclamation 11021 effective. 50% / 25% rates on covered goods begin. All new entries subject to full-value calculation.

• June 1, 2026 - Follow-on proclamation signed. Agricultural equipment and residential HVAC added to 15% temporary category; USMCA U.S.-content rules added; U.S.-origin metal threshold lowered from 95% to 85%.

• June 8, 2026 - June 1 proclamation effective. Annex I-C products now carry 25% standard rate with country-specific blended rates for key allied trading partners.

• July 2026 - 90-day update due. Commerce and USTR must report to the President on import status, domestic production levels, and any recommended further action.

• Dec. 31, 2027 - Annex III temporary rates expire. Industrial and agricultural equipment rates revert from 15% to 25% standard rate on January 1, 2028.

Recommended Actions

• Audit your import portfolio immediately. Identify all products that contain aluminum, steel, or copper — including finished goods and components classified as derivative articles — and map them against the Annex I-A, I-B, and III product lists. Update your landed-cost models to reflect full-value tariff calculations.

• Review contracts with tariff pass-through provisions. The change from metal-content to full-value calculation is not a simple rate change — it is a methodological change. Confirm whether your contract language captures it, and negotiate updates where it does not.

• Build or upgrade supply-chain documentation systems. Qualifying for the 10% U.S.-origin rate, or for any reduced allied-country rate, requires smelt-and-cast origin certification at the supplier level. This is now a customs compliance requirement, not merely a strategic option.

• Evaluate UK and EU sourcing for rate arbitrage. Where feasible, sourcing from Trade Agreement Partner countries can reduce duty exposure materially. Model this against total cost of switching, including lead times and supplier qualification costs.

• Scenario-plan capital equipment acquisitions with the Dec. 31, 2027 cliff in mind. If your company imports industrial machinery, agricultural equipment, or HVAC systems, the temporary 15% rate provides a window. Factor the 2028 rate reversion into multi-year procurement and capital planning.

• Engage CBP proactively on compliance posture. CBP has explicit enforcement authority for misrepresentation of U.S. content and smelt/cast origin. Companies that establish documented compliance programs are better positioned in the event of audits or disputes.

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The decision in Learning Resources, Inc. v. Trump significantly narrows the scope of emergency economic powers and reaffirms that Congress — not the president — controls tariff policy under the Constitution.

The ruling reduces the likelihood that companies will face sudden tariff shocks triggered by emergency declarations.

What Companies Should Do

1. Monitor other executive trade tools. The ruling does not limit other executive trade authorities, including:

• Section 232 tariffs

• Section 301 trade actions

• Section 122 of the 1974 Trade Act

• Export controls

• Economic sanctions

2. Reassess tariff risk models. Companies should revisit supply-chain risk scenarios that assumed emergency tariff authority.

3. Strengthen policy monitoring. Trade policy risk is shifting toward legislative negotiations and formal trade investigations, which require earlier engagement from companies.

Impact on Trade Policy

1. Trade policy becomes more predictable

Emergency tariffs — potentially imposed overnight — now face legal limits. Companies can expect tariff changes to occur through established legal channels rather than through emergency declarations.

2. Congress becomes more important

The decision pushes tariff policy back toward:

• Congressional legislation

• Formal trade investigations

• Statutory trade authorities

Examples of statutory trade authorities include:

• Section 232 national security tariffs

• Section 301 trade enforcement actions

• Section 122 of the 1974 Trade Act for balance-of-payments issues.

These processes typically involve investigations and notice periods.

Background: Trump Tariff Policy

In 2025, the Trump administration imposed broad tariffs after declaring national emergencies tied to drug trafficking and persistent U.S. trade deficits. Authority for the tariffs relied on IEEPA, a 1977 statute historically used for sanctions and financial restrictions.

The tariffs included:

• 25% tariffs on imports from Canada and Mexico

• 10%–20% tariffs on Chinese imports

• 10% baseline tariff on imports from most countries

Several small businesses challenged the tariffs, arguing that IEEPA authorizes regulation of economic transactions during emergencies but does not authorize taxes such as tariffs. Lower courts agreed, and the Supreme Court affirmed that interpretation.

The Court’s key finding:

Tariffs are taxes, and the Constitution assigns taxing power to Congress under Article I. The president cannot impose tariffs unless Congress clearly grants that authority.

The Court’s Reasoning

1. Tariffs are taxes: The Constitution gives Congress the power to “lay and collect Duties, Imposts and Excises.” The Court held that tariffs fall squarely within that authority.

2. IEEPA does not mention tariffs: IEEPA allows presidents to block or regulate financial transactions during national emergencies but does not refer to tariffs or duties.

3. Major questions doctrine: The Court also applied the major questions doctrine, which requires clear congressional authorization for executive actions with major economic consequences. Allowing a president to impose unlimited tariffs under emergency powers would represent a major expansion of executive authority.

Macro Impact

1. Reinforces separation of powers. The ruling strengthens congressional authority over trade and limits executive economic powers.

2. Reshapes U.S. trade strategy. Future administrations may rely more heavily on sanctions, export controls, investment restrictions, and trade investigations rather than emergency tariffs.

3. Signals stability to trading partners. Foreign governments may view U.S. tariff policy as more predictable because it now depends more on legislation and formal trade processes.

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The Framework Agreement is intended as a first step in a process that could expand to cover additional areas and “continue to improve market access and increase their trade and investment relationship.”

The United States and the EU reached the agreement in July 2025, avoiding President Donald Trump’s threatened 30% tariffs. The agreement raised concerns in Europe about economic damage, political fallout, and the durability of the deal. (see U.S. and EU Reach Trade Agreement)

Key Details

• Tariff Reductions:

  • The EU “intends” to eliminate tariffs on all U.S. industrial goods and expand preferential access for US agriculture and seafood.

  • The U.S. will commit to limit tariffs on EU industrial goods at 15%, with MFN-only tariffs applied to key sectors such as aircraft, pharmaceuticals, and natural resources.

  • The U.S. commits to conditional reduction of Section 232 tariffs on EU automobiles and parts upon EU legislative implementation.

• Energy & Technology:

  • The EU commits to purchase $750 billion of U.S. liquified natural gas, oil, and nuclear energy products by 2028.

  • The EU “intends” to purchase $40 billion in U.S. artificial intelligence (AI) chips for computing infrastructure.

• Investment:

  • EU firms are expected to invest $600 billion in strategic U.S. sectors through 2028.

• Defense:

  • The EU plans to substantially increase procurement of U.S. defense equipment, reinforcing NATO interoperability.

• Regulatory Cooperation:

  • The is mutual recognition of automotive standards and expanded conformity assessments across sectors.

  • The EU notes U.S. concerns related to the Carbon Border Adjustment Mechanism (CBAM), Corporate Sustainability Due Diligence Directive (CSDDD), and Corporate Sustainability Reporting Directive (CSRD).

  • The EU will ease compliance burdens for U.S. exporters, especially for small and medium-sized businesses.

• Digital Trade:

  • The EU confirms it will not impose network usage fees.

  • Both sides reaffirm the WTO moratorium on customs duties for electronic transmissions.

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New tariffs rates

Some countries negotiated tariff rates that are lower rates than initially threatened:

• The EU (15%), Japan (15%), South Korea (20%), Vietnam (20%), and the U.K. (10%).

Countries that have not negotiated a deal with the United States were hit with higher rates:

• Brazil (50%), Canada (35%), Switzerland (39%), Laos (40%) and Algeria (30%) saw increases.

• India and several others remain outside deals and face high default tariffs.

· The countries and rates are listed in the annex to the executive order.

Economic impact

• Commerce Secretary Howard Lutnick said the tariffs could raise $50 billion a month in revenue.

• Economists warned of the risk of rising inflation on U.S. consumers.

Geoeconomic impact

• Trump’s tariffs are reshaping global trade and using them as leverage on issues beyond trade, particularly against Brazil, which Trump has criticized for its prosecution of former Brazilian President Jair Bolsonaro.

Legal challenges remain

• The tariffs are under legal challenges for exceeding executive authority under the International Emergency Economic Powers Act of 1977. A New York trade court sided against Trump, but allowed tariffs to stay in place pending appeal.

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Key Terms

• Tariffs:

  • 15% tariff on ~70% of EU exports — covering €780 billion in trade.

  • Includes pharmaceuticals, semiconductors, and cars (down from 27.5%).

  • U.S. imports into the EU will not face new tariffs.

• Steel & aluminum: U.S. keeps 50% tariff; Europe gets a quota deal tied to past import levels.

• Zero-tariff sectors: €70B in trade spared — aircraft, some chemicals, generics, agricultural products, critical raw materials.

• Energy & weapons: EU pledges $750 billion in U.S. energy purchases and $600 billion in U.S. investments, plus undefined defense buys.

Geoeconomic impact

• Tariff leverage: Trump’s tariff threat forced the EU to make sweeping concessions.

• U.S. “win”: White House officials hailed the deal as the “biggest ever,” citing benefits for U.S. industry and security.

• A one-sided deal: The EU gains little beyond avoiding 30% tariffs.

• Not legally binding: EU officials stressed that investment and energy pledges are political commitments, not enforceable law.

• Security link: Analysts say EU leaders feared that rejecting Trump’s terms risked U.S. disengagement from NATO and Ukraine.

• WTO clash: Experts warn zero-tariff carveouts may violate global trade rules.

European Reactions

• Europe’s dilemma: Leaders say they avoided worse damage, but critics call the agreement “capitulation.”

• Germany: Economy minister Katharina Reiche admitted it was “challenging” but highlighted car and pharma relief. Chancellor Friedrich Merz warned the pact could cause “considerable damage.”

• France: PM François Bayrou called it a “dark day,” blasting agricultural concessions. Far-right leader Marine Le Pen dubbed it a “political, economic and moral fiasco.”

• Ireland: PM Micheál Martin said it brings “predictability,” but at a cost.

• Italy: Called the 15% tariff “sustainable,” emphasizing stability over conflict.

• Netherlands: “No tariffs would have been better,” said PM Dick Schoof, but he praised the Commission for damage control.

Legal challenges remain

• Legal test: U.S. courts are reviewing whether Trump exceeded his authority under the 1977 IEEPA law. A ruling against him could upend the tariff regime.

Longer Reads

• Donald Trump’s tariff blitz brings US levies to highest levels since 1930s, Financial Times, July 28, 2025

• What opponents of the EU-US trade deal get wrong, The Economist, July 30, 2025

• The trade deal with America shows the limits of the EU’s power, The Economist, July 31, 2025

• Donald Trump’s EU oil and gas deal is ‘pie in the sky’, energy experts warn, Financial Times, July 28, 2025

• Josh Lipsky, How Donald Trump remade global trade, The New Atlanticist, August 1, 2025

• Tariff roulette: inside Trump’s chaotic trade negotiations, Financial Times, August 1, 2025

• Lessons from the 1920s and 30s on tariffs and markets, Financial Times, August 3, 2025

• Trump’s tariffs leave us in the second worst of all worlds, Financial Times, August 4, 2025

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Key Facts

• Tariffs: U.S. auto tariffs lowered from 25% to 15% (still well above the original 2.5% rate). Steel and aluminum tariffs remain at 50%.

• Investment: Japan committed up to $550 billion in investment in the United States, including U.S. manufacturing, infrastructure, and supply chain projects.

• Purchases: Japan agreed to buy ~$8 billion in U.S. agricultural products, expand LNG offtake, and procure additional Boeing aircraft.

• Legal status: The deal is an executive agreement rather than a free trade agreement. Timelines for implementation are unclear.

• Trade balance: In 2024, Japan had a $70 billion surplus in trade with the United States.

Geoeconomic Impact

• The agreement demonstrates U.S. transactional trade diplomacy under which tariff relief is tied to pledges for investment and purchase.

• Japanese government officials framed the deal as avoiding harsher tariffs.

• Critics noted the lack of clarity on U.S. commitments and the lack of enforceability.

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Trump stated that China will supply upfront “full magnets, and any necessary rare earths,” Trump said. The United States will, in turn, allow Chinese students to attend U.S. colleges and universities. U.S. tariffs on imports of Chinese goods will be set at 55% and Chinese tariffs on imports of U.S. goods will be set at 10%.

Tariff rates

• U.S. 55% tariffs: The U.S. tariff of 55% is composed of the 20% fentanyl tariffs, the 10% IEEPA reciprocal tariffs, and the 25% Section 301 tariffs from Trump’s first term.

• Chinese 10% tariffs: The 10% tariffs restores the tariff rate that China agreed to in May.

Rare earth minerals and magnets

While Trump did not mention export controls on microchips in his announcement, U.S. officials stated that the administration may ease restrictions on the export of certain microchips if China complies with the agreement on critical minerals licenses for U.S. companies. The administration, however, would continue to restrict “very, very high-end Nvidia” chips used for AI. If China does not comply, the United States could impose additional controls that target critical industries or companies. An easing of microchip restrictions on China would reverse the Biden administration’s policy to prevent China’s access to U.S. technology that could have military application.

China restricted exports of rare earth minerals and magnets to the United States in April. After accusing China of violating the May agreement, U.S. official began to impose export restrictions on semiconductor design software, jet engine parts, chemicals, nuclear materials; they also began revoking visas for Chinese students.

Finalization

There are likely some disagreements still to be resolved, as the leaders of both sides must still sign off on the agreement. Given this uncertainty, there is still the risk that the tentative truce does not result in an official agreement.

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Trump imposed 25% tariffs on imports of steel and aluminum in March, relying on his previously invoked national security authority under Section 232 of the Trade Expansion Act of 1962.

Tariffs on steel and aluminum imports from the UK will remain at 25%. The Trump administration noted that changes were possible starting July 9, 2025, depending on the status of the U.S.-UK Trade Deal.

Trump stated that he increased the tariffs to protect U.S. industries and to “end unfair trade practices and the global dumping of steel and aluminum.”

Update: On June 16, 2025, the Commerce Department announced that the 50% tariffs on steel and aluminum products would cover home appliances including refrigerators, dishwashers, and washing machines.

U.S. Tariff Reductions

The United States agreed to reduce reciprocal and punitive tariffs on China:

• Reciprocal tariffs: The United States will reduce the 34% reciprocal tariff rate imposed on April 2 to 10%;

• Additional duties: The United States will remove the 125% additional duties imposed on April 8, 2025 and on April 9, 2025, when Trump increased tariffs on China and paused reciprocal tariffs for 90 days for all other countries.

Retained Tariffs

The United States retains all tariffs imposed on China prior to April 2, 2025. This includes:

• Section 301 tariffs previously imposed during the Biden administration;

• Section 232 tariffs;

• Additional 20% tariffs imposed under the International Emergency Economic Powers Act (IEEPA) in response to the fentanyl national emergency. (Trump ordered 10% additional tariffs on Chinese imports on February 1, 2025 and increased the rate to 20% on March 3, 2025.);

• 10% baseline reciprocal tariffs; and

• Tariffs on de minimis packages (less than $800).

This leaves the effective U.S. tariff rate on most imports from China at 40%.

Chinese Tariff Reductions

China agreed to reduce the retaliatory tariffs it announced since April 4, 2025 and will suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025. This effectively reduces the tariff rate from 125% to 10%. This includes:

• Retaliatory tariffs: China agreed to reduce its 34% retaliatory tariff rate on U.S. goods announced on April 4, 2025 to 10%;

• Additional duties: China will remove additional duties imposed on U.S. goods after April 2, 2025. This includes tariffs of 84% and 125% on U.S. imports as countermeasures against the U.S. “reciprocal tariffs.”

• Nontariff measures: China also agreed to suspend or remove nontariff countermeasures taken against the U.S. since after April 2, 2025. This includes, most notably, restrictions on the export of critical minerals and restrictions on U.S. companies designated as “unreliable entities.”

Ongoing Negotiations

The United States and China will establish a mechanism to continue discussions about economic and trade relations. Treasury Secretary Scott Bessent said “neither side wants a decoupling” and said the recent tariffs had reached the “equivalent of an embargo.” Despite this sentiment, there is no guarantee that the 90-day pause will produce a trade war settlement, and there is uncertainty as to what a deal might include.

Trump has stated that he would raise tariffs if the parties do not reach a deal. Notably, current tariff levels correspond to Trump’s campaign proposal for a 10% to 20% tariffs on all countries and a 60% “surcharge” on imports from China.

The agreement and planned discussions solidify the view that the global trading system has moved away from multilateralism based on the World Trade Organization to a bilateral system based on negotiations between individual countries.

Most significantly, the tariff reductions indicate that the Trump administration’s trade policy toward China is focused on reducing the trade deficit with China and addressing nontariff barriers rather than on “decoupling” economies.

Geopolitically, the United States is currently negotiating trade agreements with 16 other countries. These countries increasingly must choose between aligning with either the United States or China. This indicates that these negotiations will ultimately restructure the global economy and global balance of power along geoeconomic lines.

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Tariffs

• UK tariffs: The UK will reduce its tariffs on U.S. goods from 5.1% to 1.8%.

• Autos: The United States will agree to an alternative arrangement for the Section 232 tariffs on UK autos. Under the deal, the first 100,000 vehicles that UK manufacturers import into the United States each year are subject to the reciprocal rate of 10%, down from 25%, and any additional vehicles each year are subject to 25% rates.

• Steel: The United States also recognizes the UK’s economic security measures to combat global steel excess capacity and will remove the 25% Section 232 tariffs on steel and aluminum and negotiate an alternative arrangement.

• Reciprocal tariff: The 10% reciprocal tariff the United States imposed on the UK on April 2, 2025 remains in effect.

Additional Measures

Trump stated that the deal will increase access for U.S. beef, ethanol, and agricultural products. Trump also announced that the UK “will reduce or eliminate numerous non-tariff barriers that unfairly discriminated against American products. As part of the agreement, the UK will purchase $10 billion in Boeing airplane parts.

According to a White House fact sheet, the trade deal:

• Includes access for more than $700 million in ethanol exports and $250 million in other agricultural products, like beef;

• Commits the countries to work together to enhance industrial and agricultural market access;

• Closes loopholes and increases U.S. firms’ competitiveness in the UK’s procurement market;

• Ensures streamlined customs procedures for U.S. exports;

• Establishes high standard commitments in the areas of intellectual property, labor, and environment;

• Maximizes the competitiveness and secures the supply chain of U.S. aerospace manufacturers through preferential access to high-quality UK aerospace components;

• Creates a secure supply chain for pharmaceutical products.

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1. Reindustrialize U.S and Revive Manufacturing: Trump views high tariffs as a way to reduce U.S. reliance on foreign manufacturing and to encourage domestic production. Trump believes that free trade agreements and global supply chains have hollowed out U.S. industry and shifted manufacturing jobs overseas. Trade and manufacturing advisor Peter Navarro and Commerce Secretary Howard Lutnick view tariffs as a long-term tool to rebuild U.S. industry. Trump’s broader strategy involves using tariffs to compel foreign central banks to lower their interest rates. This would devalue their currencies against the dollar, effectively making their exports cheaper and offsetting the price hikes from U.S. tariffs. In Trump's view, this tactic would let U.S. consumers avoid paying more, while shifting the burden to foreign governments.

2. Generate Revenue to Offset Tax Cuts: Trump’s second major stated reason for imposing tariffs is to generate federal revenue. He has often discussed tariff revenue as a way to offset the impact of broad tax cuts on the national debt. Peter Navarro has estimated that universal tariffs could generate up to $600 billion in revenue annually. Many economists, however, argue that tariffs are an unreliable revenue stream. Higher tariffs often lead to higher prices for U.S. consumers and businesses, reducing any economic gain from the tariffs.

3. Use as Leverage in Trade and Foreign Policy Negotiations: Trump also views tariffs as a powerful tool in international diplomacy. While traditional U.S. trade policy has reserved the use of tariffs primarily for trade-related disputes, Trump has used them to address broader foreign policy issues, including immigration, drug trafficking, and currency manipulation. Director of the National Economic Council Kevin Hassett and Treasury Secretary Scott Bessent seemingly view tariffs more as bargaining tools. Trump’s views on using tariffs as negotiable leverage contradict using tariffs to increase revenue, as the revenue impact of tariffs would be temporary if the tariffs are used as leverage in negotiations.

Risks in Trump’s Strategy

Trump’s trade strategy risks triggering a global trade war. High U.S. tariffs could lead trade partners to impose retaliatory tariffs on the United States. They could also lead to geo-economic shifts in which former trading partners align with U.S. geopolitical rivals.

Trump’s trade strategy also risks damaging the U.S. economy. Tariffs risk consumer price inflation and long-term harm to global supply chains. The Tax Foundation projects that Trump's tariff proposals could shrink U.S. GDP by 0.4% and raise taxes by $1.2 trillion between 2025 and 2034.

Changing the Global Trade System

Overall, Trump’s use of tariffs reflects his desire to remake the post-World War II global economic order of free trade, globalization, and multinational cooperation. In his view, this system has allowed countries like China to exploit global trade rules while the U.S. shoulders the burden. By using tariffs aggressively and unilaterally, Trump aims to upend this system and force a new, more favorable arrangement.

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Trump also announced on Truth Social that he is raising tariffs on China to 125%, effective immediately. “Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” Trump wrote. “At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable.”

Trump granted the pause for reciprocal tariffs “based on the fact that more than 75 Countries have called Representatives of the United States…to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs, and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States…”

The 10% baseline global tariff, which became effective April 5, 2025, remains in effect. The reciprocal tariffs are now scheduled to take effect July 8, 2025.

For background, see Trump Imposes Global Tariffs with “Reciprocal” Tariffs for 57 Countries.

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Trump imposed the tariffs under the International Emergency Economic Powers Act (IEEPA). Trump cited “underlying conditions, including a lack of reciprocity in our bilateral trade relationships, disparate tariff rates and non-tariff barriers, and U.S. trading partners’ economic policies that suppress domestic wages and consumption, as indicated by large and persistent annual U.S. goods trade deficits” as an “unusual and extraordinary threat to the national security and economy of the United States.” He declared a national emergency “arising from conditions reflected in large and persistent annual U.S. goods trade deficits, which have grown by over 40% in the past 5 years alone, reaching $1.2 trillion in 2024.”

America First Trade Policy

Trump’s tariff plan is part of his effort to reshape the global economy. It marks the end of the era of free trade and is the most dramatic change in U.S. trade policy since the 1930s. Trump has argued that free trade has undermined the U.S. manufacturing base at the expense of the U.S. working class and has allowed other countries to take advantage of the United States. “We will supercharge our domestic industrial base, we will pry open foreign markets and break down foreign trade barriers,” Trump said. He also called April 2, 2025 “one of the most important days…in American history.”

Trump announced his plan to impose reciprocal tariffs back in February in a memorandum calling for "fair and reciprocal" tariffs on every country that charges duties on U.S. imports. The memorandum ordered the Director of the Office of Management and Budget (OMB) to assess the trade effects of non-reciprocal trade arrangements, including tariff and nontariff measures, using the country-by-country review requested in the America First Trade Policy Memorandum.

A Focus on Trade Deficits

Trump stated in his executive order that “[l]arge and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; inhibited our ability to scale advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.” He argued that these deficits are “caused in substantial part by a lack of reciprocity in our bilateral trade relationships…evidenced by disparate tariff rates and non-tariff barriers that make it harder for U.S. manufacturers to sell their products in foreign markets.”

Trump also cited “economic policies of key U.S. trading partners insofar as they suppress domestic wages and consumption, and thereby demand for U.S. exports, while artificially increasing the competitiveness of their goods in global markets.” Trump stated that “[t]hese conditions have given rise to the national emergency that this order is intended to abate and resolve.”

Key Details

Formula for Determining Tariff Rates

The administration determined each country’s tariff rate by calculating each country’s trade-in-good deficit with the United States as a share of their total exports to the United States and dividing that number in half. The calculation, it notes, assumes that tariff and non-tariff factors lead to persistent trade deficits and that tariffs work through direct reductions of imports. The administration states that this calculation provides the “tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners.”

"For nations that treat us badly, we will calculate the combined rate of all their tariffs, nonmonetary barriers and other forms of cheating,” Trump said. “And because we are being very kind, we will charge them approximately half of what they are and have been charging us. So the tariffs will be not a full reciprocal. I could have done that. Yes. But it would have been tough for a lot of countries.” This calculation assumes that a bilateral trade deficit is an accurate quantitative measure of unfair trade practices, including non-tariff barriers. The global tariff of 10% still applies to countries with which the United States has a trade surplus.

Countries with Highest Tariffs

Rates for key trading partners include 49% for Cambodia, 48% for Laos, 46% for Vietnam, 37% for Thailand, 34% for China, 32% for Taiwan, 24% for Japan, and 20% for the EU. For China, the 34% comes in addition to the 20% previously imposed.

Mexico and Canada

Imports from Mexico and Canada that comply with the United States-Mexico-Canada Agreement (USMCA) are not subject to the global tariff or reciprocal tariffs. Non-compliant goods will be subject to the previously announced tariffs of 25% and non-compliant energy and potash will be subject to the previously announced tariffs of 10%. The baseline 10% tariffs will apply to non-USMCA goods if the current tariffs are removed.

Exemptions

The reciprocal tariffs will not apply to strategically important industries that are subject to separate tariffs, notably tariffs under Section 232. These include:

• Donations and informational materials under 50 U.S.C. 1702(b)

• Autos and auto parts, which are already subject to the new 25% tariff.

• Aluminum and steel, which are already subject to a 25% tariff.

• Products listed in Annex II of the order. This includes copper, pharmaceuticals, semiconductors, lumber, certain critical minerals, and energy and energy products.

• Goods from countries listed in column 2 of the Harmonized Tariff Schedule of the United States (HTSUS), which are countries with which the United States does not grant Most Favored Nation (MFN) status. This includes Cuba, North Korea, Russia, and Belarus.

• Goods that may become subject to duties pursuant to future national security actions under Section 232.

• The U.S. content of a good if at least 20% of the value of a good comes from U.S. content. The tariffs will apply to the full value of goods that do not have 20% of their value from U.S. content.

Duration

If a country takes “significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters,” the president could “decrease or limit in scope” the tariffs imposed under the order. This opens the possibility that Trump could use the tariffs as leverage for either economic or national security purposes.

De Minimis

Trump also issue an executive order ending the de minimis rules that provides a duty-free treatment of up to $800 in imports from China beginning May 2, 2025. Shipments sent through the international postal network will be subject to a 30% tariff or a $25 tariff per postal item (increasing to $50 on June 1) in place of the tariffs. Shipments not sent through the international postal network will be subject to regular tariffs.

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Products

The 25% tariff will be applied to imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, as well as key automobile parts (engines, transmissions, powertrain parts, and electrical components). There will be a process to expand tariffs on additional parts if necessary.

USMCA

Automobiles and parts imported under the United States-Mexico-Canada Agreement (USMCA) can request to apply the 25% tariff only to the value of the non-U.S. content of the automobile, calculated by subtracting the value of the U.S. content from the total value. The proclamation stated that U.S. content “refers to the value of the automobile attributable to parts wholly obtained, produced entirely, or substantially transformed in the United States.” Canada and Mexico account for about half of U.S. auto imports, the Wall Street Journal reported.

Auto Imports and National Security

Trump based his decision to impose the tariffs on a 2019 Commerce Department report that found that “automobiles and certain automobile parts are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.” He invoked authority under both Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, which allows the president to adjust imports if they threaten national security.

Trump stated in a fact sheet that the tariffs are part of the administration’s actions to “end unfair trade practices that jeopardize U.S. national security.” These new tariffs, Trump stated “aim to ensure the U.S. can sustain its domestic industrial base and meet national security needs.”

Trump noted that legislation, existing trade agreements, revisions to the U.S.-Korea Free Trade Agreement, and trade negotiations “have not sufficiently mitigated the threat to national security posed by imports of automobiles and certain automobile parts.” Trump stated that foreign automobile industries, “bolstered by unfair subsidies and aggressive industrial policies, have expanded, while U.S. production has stagnated.”

Additional Details

• If the Customs and Border Protection (CBP) assesses that the value of the U.S. content is overstated, the 25% tariff shall apply to the full value of the automobile, regardless of the actual U.S. content of the automobile. This will apply retroactively from April 3, 2025, to the date of the inaccurate overstatement and prospectively from the date of the inaccurate overstatement to the date the importer corrects the overstatement.

• The 25% tariffs will not apply to automobile parts that qualify for preferential treatment under the USMCA until a process is established to apply the tariff exclusively to the value of the non-U.S. content and a notice on the process is published in the Federal Register.

• No duty drawback is available.

The memorandum orders the Director of the Office of Management and Budget (OMB) to assess the trade effects of non-reciprocal trade arrangements, including tariff and nontariff measures, using the country-by-country review requested in the America First Trade Policy Memorandum. The reviews are due April 1, 2025. The OMB will then calculate an additional tariff rate for each country.

The proposed reciprocal tariffs replace the universal tariffs of 10% to 20% that Trump proposed during his campaign. Universal tariffs would apply to all imports at the same rate, while reciprocal tariffs would match the tariffs that other countries impose. This would potentially keep tariffs lower on some imports.

The Fair and Reciprocal Plan would be a significant change in U.S. policy. The United States currently matches the tariffs on goods imported into the United States regardless of the country of origin. Under Trump’s approach, the United States would charge different tariffs based on the country of origin.

Background: “Large and Persistent” Trade Deficit

The memorandum states that United States “has been treated unfairly by trading partners.” This “lack of reciprocity is one source of our country’s large and persistent annual trade deficit in goods,” the memorandum noted, as “closed markets abroad reduce United States exports and open markets at home result in significant imports.”

The memorandum states that the “trade deficit of the United States threatens our economic and national security, has hollowed out our industrial base, has reduced our overall national competitiveness, and has made our Nation dependent on other countries to meet our key security needs.” More reciprocal and balanced trade can “reduce the trade deficit; grow the United States economy; and improve our trade relationships with trading partners to the benefit of American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”

Trump declares that the policy of the United States is to “reduce our large and persistent annual trade deficit in goods and to address other unfair and unbalanced aspects of our trade with foreign trading partners.” The Fair and Reciprocal Plan will counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner.

Definitions: Non-Reciprocal Trade Arrangements

In addition to tariffs on U.S. products, the memorandum defines “non-reciprocal trade arrangements” broadly to include:

• Unfair taxes: Non-reciprocal trade arrangements include “unfair, discriminatory, or extraterritorial taxes, including a value-added tax.” The memorandum defines a “value-added tax” as “a type of consumption tax that is levied on the incremental increase in value of a good or service at each stage of the supply chain.”

• Nontariff barriers: The memorandum also includes nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies and “burdensome regulatory requirements” on U.S. businesses operating in other countries. The memorandum defines a “nontariff barrier” or “measure” as “any government-imposed measure or policy or nonmonetary barrier that restricts, prevents, or impedes international trade in goods, including import policies, sanitary and phytosanitary measures, technical barriers to trade, government procurement, export subsidies, lack of intellectual property protection, digital trade barriers, and government-tolerated anticompetitive conduct of state-owned or private firms.”

• Exchange rate manipulation: Non-reciprocal trade arrangements also include exchange rate policies and practices that “cause exchange rates to deviate from their market value, to the detriment of Americans.”

• Wage suppression: The memorandum cites wage suppression and “other mercantilist policies that make U.S. businesses and workers less competitive.”

• Any other practice: Lastly, non-reciprocal trade arrangements include “any other practice that U.S. officials judge to impose any unfair limitation on market access or any structural impediment to fair competition with the market economy of the United States.”

The memorandum also states that it will factor in “losses as a result of measures that disadvantage the United States as applied, regardless of what they are called or whether they are written or unwritten.”

An accompanying fact sheet provided examples of nonreciprocal trading practices that the policy aims to address, including Brazil’s ethanol tariff, India’s tariff on U.S, motorcycles, the EU’s ban on U.S. shellfish from 48 U.S. states, the EU’s automobile tariff, and Canada’s and France’s digital services taxes.

Impact on Trade Policy

Reciprocal tariffs would be a sea change in U.S. trade policy. Under the current “most-favored-nation” global trading system, countries apply negotiated tariff rates to other World Trade Organization (WTO) members without discrimination. This multilateral system was intended to reduce tariffs globally, although it did not necessarily achieve this goal. The reciprocal trade plan would move the United States, and potentially its trading partners, to a system in which the country negotiates tariffs on a country-by-country basis. This could lead to higher tariffs globally.