As detailed in Part I of our three-part series on Minimizing Customs Enforcement and False Claims Act Risks, the combination of the new high-tariff environment, the heightened ability of Customs (and the general public) to data mine, and the Department of Justice’s (DOJ) stated focus on using the False Claims Act (FCA) substantially increases import-related risks. In light of this heightened risk, Part II and the forthcoming Part III of this series focus on preparing for specific areas where we see heightened enforcement risk, both for Customs and FCA penalties, with this article addressing the most common FCA risks arising from submitting false Form 7501 entry summary information.

Risks Arising from Misclassifications

By far, the most common Customs errors we see relate to misclassifications on Form 7501 entry summaries. If made knowingly, these misclassifications can lead to FCA liability, as demonstrated by a high incidence of DOJ settlements based on alleged known classification errors. Relevant FCA examples include and settlements, each premised on importers knowingly misclassifying entries into lower-tariff classifications to avoid paying duties owed on the companies’ imports.

Additionally, aggressively classifying goods to avoid being subject to the China Section 301 tariffs can create the risk of FCA liability. Such opportunistic classification led to a settlement by an importer that used inaccurate classifications despite receiving repeated CBP notices informing the importer that the classifications it had been using for similar goods were erroneous. The importer continued using the incorrect classifications for over three years, even after an outside consultant confirmed the importer had been using incorrect classifications.

Customs Compliance Response

• Maintain a Regularly Updated Classification Index. Well-supported and consistent classifications are the key to avoiding these types of errors. The most important tool for ensuring accuracy in classifications is a robust and regularly updated Customs Classification Index, which should list the HTS classification for regularly imported SKUs while incorporating support for classification decisions made, including an application of the Customs General Rules of Interpretation, advisory opinions, responses to protests against liquidation, and other relevant support.

• Conduct Classification Reviews. We often find that importers leave classification decisions up to customs brokers, assuming they are experts and responsible for identifying the correct codes. Customs, however, places full responsibility for the accurate submission of all Form 7501 information on the importer of record, not the broker. Periodically review your classifications, especially for frequently imported items, to ensure accuracy.

• Evaluate Classification Accuracy in Post-Entry Reviews. Customs allows importers 310 days after entry to fix any classification errors. Conduct post-entry checks to confirm the accuracy of all submitted information, and use post-summary corrections to correct any errors, including misclassifications, before liquidation. This will help catch errors and, where corrected, undermine FCA scienter.

• Review Tariff Engineering. With tariff rates rising, Customs is aggressively looking for importers who have engaged in opportunistic classification to try to lower import charges. This includes a special focus on importers who have changed their classifications after the imposition of new tariffs. This does not mean importers should view themselves as locked into adverse and incorrect classifications. They should, however, adequately document any classification changes and be prepared to respond promptly to Customs inquiries.

Risks Arising from Misrepresenting the Physical Characteristics of Imported Goods

Making known misrepresentations to incorrectly claim a lower tariff classification can lead to FCA liability. For instance, an importer of brake parts settled an FCA case alleging it knowingly misrepresented the physical characteristics of its entries (claiming they were duty-free unmounted brake pads rather than mounted brake pads subject to a 2.5% classification) for .

Customs Compliance Response

• Confirm Accuracy of Factual Support for Classifications. In most cases, classification is determined by (1) the physical attributes of the product and, in certain cases, (2) the primary use of the product. Ensure you have accurate backup and consistent classification for each of these issues.
• Document and Retain Classification Decisions. Ensure you maintain detailed records for all classification determinations, and keep them for at least five years from the time of entry.

Risks Arising from Improper Country of Origin Declarations

Because of the imposition of special Section 301 tariffs on China, the number of importers caught making errors relating to declaring the wrong country of origin (COO) has sharply risen. The imposition of reciprocal tariffs only magnifies the importance of the COO. Generally these cases involve imported goods that were assembled in third countries using parts and components from a high-tariff country. In these situations, careful analysis is required to ensure there is sufficient manufacture, value added, and change in the name, character, and use of the product so the result is a “substantially transformed” product that is a new and different article of commerce.

FCA cases illustrate the twin risks that can arise from incorrect COO declarations. In 2021, the DOJ settled an FCA matter for , alleging the importer knowingly failed to designate that certain imports were manufactured in China, thus evading Section 301 duties.

Customs Compliance Response

• Confirm Accuracy of Substantial Transformation Analysis. One of the highest-priority areas of Customs scrutiny is to find instances of importers evading customs duties either by transshipping through lower-tariff third countries or by shipping parts and components to a third country and then engaging in only minor assembly operations (e.g., from China to another Southeast Asia country). If the goods are not substantially transformed into a new and different article of commerce, then they cannot claim the lower-tariff COO. Review all instances where parts and components from a high-tariff country, like China, are used in further manufacturing in a lower-tariff country. Ensure there is a reasonable basis for the COO declaration, and document the analysis in case of Customs inquiry.

Risks Arising from Undervaluation

Failing to declare the full value of entries is another common error. Most importers use transaction value, which requires the importer to start with the price actually paid or payable, add certain mandatory additions (e.g., the value of assists and royalties), and accurately reflect any allowed voluntary deductions. Recent examples include , , and settlements of allegations relating to known under-declared entry values resulting in underpaid tariffs, as well as a of civil claims resulting from the DOJ joining an FCA whistleblower lawsuit. An additional sobering example is a settlement of claims against an importer that knowingly undervalued its goods through the remedy of .

More specifically, the known failure to include assists (i.e., customer-provided production aids such as tools, dies, and molds) within the entered value can incur FCA liability. Where a U.S. company provides such assists, it needs either to declare the full value of the assist on the first entry or set up a system to attribute the full value of the assist over the useful lifetime of the product, thus declaring it piecemeal over time. These values do not show up on commercial invoices, making it easy to forget to include this mandatory addition to entered value. But the risks of knowingly failing to do so are demonstrated by two FCA settlements of $4.3 million and for the alleged failure to include assists in the entered value.

Customs Compliance Response

• Understand How to Calculate Entered Value. Most companies use transaction value to determine the entered value. Valuation is complicated in situations involving post-entry price adjustments, cash or quantity discounts, indirect payments, exchange rate conversions, and other tricky areas. Ensure valuation is calculated correctly for all entries, including for the inclusion of off-invoice mandatory additions to value.

• Establish a System for Identifying and Tracking Assists, and Consistently Follow It. Importers should have a system for systematically identifying and tracking assists, which can be as simple as a spreadsheet. If this historically has not been done, a review of a company’s trial balance ledger can potentially identify historically provided assists. All assists either should be recognized on the first entry of the applicable universe of goods or apportioned over the expected useful lifetime of the assist. If the latter method is used, establish a system for tracking all relevant entries benefiting from assists and consistently add them when calculating the entered value. Share such information with your customs broker to implement a secondary check.

Risks Arising from Improper Claims of Preferential Treatment Under Free Trade Agreements

Another common error we see is failing to meet free trade agreement (FTA) requirements, such as failing to work through the COO requirements. Along these lines, in one FCA action an importer paid to settle allegations that, among other things, it knowingly claimed improper preferential treatment under FTAs.

Customs Compliance Response

• Always Have Certificates of Origin On Hand at Time of Entry. One of the most common errors we see in customs audits and disclosures is one of the simplest to fix: Ensure that you always have the USMCA certificate of origin available at the time of importation. Under the USMCA, it is not possible to create these after the time of entry.
• Apply Correct Country of Origin Principles. FTAs include different COO principles. These generally are based on a tariff-shift analysis, which is viewed as providing more certain outcomes than the more subjective substantial transformation test commonly applied by Customs. Certain products, such as automotive products under the USMCA, also have special rules for determining preferential status. Note as well that it may be necessary to apply FTA principles to determine the COO for purposes of paying normal Chapter 1-97 duties while applying substantial transformation principles for determining the country of origin for special tariffs, such as section 232 or 301 tariffs imposed by President Trump.

Risks Arising from Failure to Pay Antidumping and Countervailing Duty Orders (AD/CVD Orders)

In addition to the normal Chapter 1-97 tariffs, the U.S. government imposes a parallel set of duties under more than 600 AD/CVD orders. Because AD/CVD tariffs often are very high, failure to properly declare and pay all AD/CV duties can quickly run up tariff underpayments.

As a result, one of the most common Customs FCA claims is for failing to pay AD/CV duties. agreed to pay $500,000 to resolve allegations that it violated the FCA by knowingly making false statements on customs declarations to avoid paying AD duties on imports from China, with four other importers agreeing to pay , , , and based on alleged known classification failures based on the same order. Three other importers paid settlements of to settle allegations that they had knowingly evaded AD duties under the aluminum extrusions AD duty order, while another paid to resolve allegations that it knowingly misrepresented the COO to evade AD/CV duties.

Customs Compliance Response

• Use HTS Screening. The scope of an AD/CV duty is determined by its written scope, not whether it falls within any given HTS subheading. Nevertheless, every order provides HTS subheadings for the convenience of importers. Screen all entries against these HTS subheadings as an initial check, and follow up on any potential matches.
• Be Wary of Counter-Intuitive Coverage of AD Duty Orders. Be aware that certain AD/CVD orders, such as the aluminum extrusions order against China, are not susceptible to HTS screening and require individual examination. Also, consider that certain AD duty orders, such as the one on solar panels, have tricky rules for determining the product scope. Learn which orders are of particular relevance for your import profile and carefully screen all potential matches against them.

Risks Arising from Misapplying Customs Duty-Free Exemptions

A number of Customs programs can result in duty-free entries, such as U.S. goods returned and the Generalized System of Preferences. Illustrating the risks inherent in misapplying duty-free exemptions, importers paid and to settle allegations that involved “improperly evad[ing] customs duties … breaking up single shipments worth more than those amounts into multiple shipments of lesser value in order to avoid the applicable duties.”

Customs Compliance Response

• Carefully Confirm Eligibility Under All Tariff-Saving Programs. Each tariff-saving program has its own rules, which can include special eligibility requirements. Carefully review these rules and document their applicability before claiming preferential treatment.

Risks Arising from Failure to Appropriately Value Goods from Related Parties

Another common problem is that importers either do not have a transfer pricing study in place to support the arms-length nature of their pricing when purchasing from affiliates, or they improperly rely on an IRS transfer pricing study (which is impermissible because CBP has specific standards for transfer pricing studies that differ from the IRS standards). Although we are not aware of any FCA case alleging improper pricing from related parties, this conduct is common and can potentially impact a large volume of entries, making a known misdeclaration a risk factor for potential FCA liability.

Customs Compliance Response

• Confirm the Existence of a Customs-Specific Transfer Pricing Study. If you do not have a customs-specific transfer pricing study in place, consider conducting or hiring a customs accounting specialist to prepare a bridge memorandum to analyze the underlying data. If you do not have an IRS transfer pricing study, then obtain one (and also take care of your IRS transfer pricing requirements).

• Confirm the Consistent and Accurate Application of the Results. It is important not only to have a customs transfer pricing study but also to consistently apply its results. Ensure the entered value from every import from a related party is confirmed against the conclusions of the study.

In sum, DOJ has a rich history of using a wide variety of issues to support FCA claims, especially relating to the known false submission of Form 7501 entry summary information. By considering the compliance responses outlined above, importers can ensure that their entry summary information is accurate in the first place, to best avoid known false submissions. Part III of this series will turn its focus to FCA risks arising from improper management of import operations.

If you have questions about this topic, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Should Know” about operating in today’s complicated international trade world, please sign up for our Tariff & International Trade blog —

Although we are only two months into the new administration, we have seen an array of new tariffs that have been proposed, imposed, revoked, suspended, and sometimes reimposed. It can be difficult for importers to keep up with all the proposals. So, as an aid to the importing community, we have put together an “evergreen” tariff article, which contains three key items for importers:

• A table of the tariff proposals, including their current status[1] and the key importer issues for each;
• A list of resources for importers looking for aids to cope with tariff and international trade uncertainty; and
• A list of the most common questions we are receiving from clients regarding the new tariffs and their implementation.

We will be regularly updating these resources to reflect new tariff proposals and modifications, which are in some cases being updated or changed daily.

Where Are We on the Various Tariff Announcements?

At this point, we count 12 tariff initiatives that are proposed or in play. They range from broad-based tariffs that cover all goods from a certain country (Canada, China, and Mexico), tariffs that cover certain types of goods (aluminum and steel), promises of future tariffs (automotives, semiconductor, pharmaceutical, copper, and lumber), and promised retaliatory tariffs (European wine and alcoholic beverages). Further, although we have seen more tariff announcements in the first two months of the second Trump administration than we saw in the entirety of the first one, the largest tariff shoe is yet to drop: It is likely that the announced “” tariff rollout will dwarf the tariffs imposed to date, with the countries at the greatest risk of increased tariffs consisting of:

• Countries that impose high tariffs. Notable examples include Argentina, Bangladesh, Brazil, Egypt, India, and Pakistan.
• Countries that are viewed as heavily subsidizing their manufacturers. Depending on the particular type of products, examples include China (especially) as well as Australia, Canada, and the European Union countries.
• Countries that are viewed as manipulating their exchange rate. The Department of Commerce already has issued a finding that Vietnam grants subsidies by manipulating its exchange rate, in a countervailing determination involving tires from Vietnam. As part of its semiannual report to Congress, the Treasury Department maintains a “monitoring list” of exchange rate policies that arguably confer subsidies. The included China, Germany, Japan, Singapore, South Korea, Taiwan, and Vietnam.
• Countries that have put in place import barriers aimed at high-profile, high-volume products such as automobiles. While the United States maintains tariff levels of 2.5 percent for automobile imports, most of the rest of the world .

We will be updating this article as new policies are announced, including the reciprocal tariffs. The state of play for each tariff is as follows:

Where Are We on the Trump Tariffs?
Tariff Proposal	Effective Date	Likely To Stick?	Likely To Increase?	Key Issues for Importers
2018 Section 301 Tariffs ; ; ;	In force	Yes	Probably; likely to be equalized at top level and/or raised	Review HTS classifications to ensure accuracy, particularly for List 4B products; see “New 20% China Tariffs” below
2018 Aluminum/ Steel Tariffs ;	Superseded as of 3/4/2025	N/A	N/A	N/A
New 20% China Tariffs	3/4/2025	Yes	Possibly	Use of Chinese parts and components for China+1 strategies; ensure substantial transformation of all products manufactured in +1 countries
25% Canada and Mexico Tariffs ;	3/4/2025- 3/6/2025	Superseded as of 3/6/25	N/A
	3/6/2025 (non-USMCA-Compliant goods)	Possibly	Possibly	Verify and document compliance (e.g., rules of origin, special rules for autos and textiles) for all claims of preferential treatment under USMCA; maintaining certificates of origin at time of entry. Consider Mexico duty-saving opportunities (e.g., IMMEX)
New 25% Aluminum/ Steel Tariffs ; ;	3/12/2025	Yes	Yes, by adding new derivative products	Monitor for new derivative products proposed for addition to steel and aluminum derivative products; verify potential HTS matches for aluminum and steel derivatives; look for Customs instructions regarding derivative products and apply
Reciprocal Tariffs	4/2/2025 (likely roll out in stages)	Yes	Unclear	Monitor; see above for list of high-tariff countries
Broad European Tariffs	Promised	Unclear	N/A	Monitor
25% Auto, Semiconductor, Pharmaceutical Tariffs	Promised	Yes	Subject to negotiation with Europe, Korea, Japan, and Mexico	Monitor; consider front-loading inventory for critical components
New Lumber Tariffs	Under study	Yes (if issued)	N/A	Monitor; consider front-loading inventory
New Copper Tariffs	Under study	Yes (if issued)	N/A	Monitor; consider front-loading inventory
200% Retaliatory Wine Tariffs	Threatened	No (if issued)	EU	Monitor; consider front-loading inventory
Future of USMCA	2026 review	Unclear	N/A	See Canada and Mexico Tariffs; monitor for expedited negotiations

What Resources Are Available To Help Cope with Tariff and International Trade Uncertainty?

To help importers cope with the unpredictability of the current trade environment, ąó´Ç±ô±đ˛â’s International Trade,ĚýSupply Chain, and False Claims Act Teams offer focused, practical resources to help manage international trade. These include:

Written Resources

• Six-Step Tariff Risk Management Plan: Our white paper and a six-step tariff risk-management program on “Managing Import and Tariff Risks During a Trade War.”
• Article Series: Our biweekly articles on “What Every Multinational Company Should Know” about pressing international trade topics, including the key tariff proposals. You can view all articles in that series here, and you can sign up to receive notices of upcoming biweekly emails .
• Presidential Transition Hub: To provide practical advice on dealing with all aspects of the rapid-fire announcements from the new administration, we have set up a 100 Days and Beyond: Presidential Transition Hub for frequent legal updates on new administration announcements as they occur. You can register to receive updates there as well.

Webinars

• Managing International Trade & Tariff Risks: A special webinar on “Managing Import and Tariff Risks During a Trade War” provided an up-to-date assessment of the tariff proposals that are most likely to be implemented, as well as practical advice regarding the steps that companies can take to identify, risk plan, and manage tariff-related risks throughout their supply chains and with customers. A recording of the webinar is available here.
• 2025 In-House Connect Supply Chain & Trade Law CLE Summit: This webinar contained four programs relating to the incoming administration, including tax, trade, supply chain contracting, and supply chain integrity risks as well as coverage of international trade topics relating to Mexico:
• (Promo code: IHCFOLEYSUMMIT)
• (Promo code: IHCFOLEYSUMMIT2)
• (Promo code: IHCFOLEYSUMMIT3)
• (Promo code: IHCFOLEYSUMMIT4)

Service Offerings

• Customs Audit and Supply Chain Integrity Review: A fixed-fee “Customs Audit and Supply Chain Integrity” review, which provides a thorough assessment of the state of your customs compliance and whether there are unaddressed risks that your company needs to address to avoid unwanted Customs scrutiny of your imports. More details here.
• Contract Reviews for Tariff Concerns: ąó´Ç±ô±đ˛â’s Supply Chain Team can leverage AI to assist with a review your key supply agreement for key provisions related to which party bears the costs of tariffs, including delivery terms and pricing terms.

Frequently Asked Questions

After presenting at numerous seminars and webinars, and in discussions with clients, we have noticed certain recurring questions. As an aid to the importing community, we have compiled a list of these, which include the following:

General

Do the tariffs stack?

Yes, all tariffs stack. This means an entry of steel from China would incur:

• the normal Chapter 1–97 tariff;
• the 25-percent Section 232 steel tariff;
• the original Section 301 China steel tariff (up to 25 percent); and
• the new 20-percent additional China tariff.

In addition, if the product is covered by an antidumping or countervailing duty order, then those duties also would stack.

Is the stacking compounded?

No. The tariffs add up without compounding. If both a 20-percent and a 25-percent tariff apply, then this results in a 45-percent increased tariff.

Are you seeing clients pursue a China +1 strategy to cope with the new tariffs?

Yes. Many clients have been pursuing a strategy of adding additional capacity outside of China since the imposition of the original Section 301 duties. These efforts appear to be accelerating, as there is a growing realization that high tariffs on China are the new normal. In this regard, it is important to note the original Section 301 tariffs remained in place even under the Biden administration. Further, China is likely to see the greatest amount of increased tariffs under the reciprocal tariff proposal because it hits so many categories — it heavily subsidizes its industries, it has been tagged as a currency manipulator by the Department of Treasury for years, and there are numerous countervailing duty findings by the Department of Commerce that provide a clear roadmap to identify subsidy programs.

One caution is that when companies move production out of China, they often continue to use Chinese-origin parts and components. Companies pursuing this strategy need to do a careful analysis to ensure they are “substantially transforming” the product by doing enough work and adding enough value in the third country to create a new and different article of commerce with a new name, character, or use, thus giving it a new, non-Chinese country of origin.

Will there be exceptions for goods like medical devices in the proposed tariffs?

Unclear. But the tariffs have veered toward being universal. Further, one of the purposes of the aluminum and steel tariff announcement was to wipe out the list of accumulated product-specific exceptions that had grown over the years. These factors work against an announcement of tariff-specific exceptions.

Are there any discussions relating to potential tariff relief for certain sectors (Defense, Navy, etc.)?

So far, the only somewhat industry specific reprieve has been the lifting of tariffs on USMCA compliant goods until April 2, 2025, as a result of the U.S. auto manufacturer concerns. While this is intended to apply to a lot of automotive imports, the lifting of the tariffs on USMCA compliant items is not exclusively tied to automotive imports. If discussions regarding tariff relief for other sectors have been occurring, they have not been announced.

Will the Executive Orders on tariffs be challenged in litigation?

Almost certainly, yes. But in general, the Court of International Trade and the Court of Appeals for the Federal Circuit tend to defer to the Executive in matters of international trade policy. Also, the imposition of special tariffs in the first Trump administration were generally upheld by the trade courts.

Have you heard of any plans to change Foreign Trade Zones (FTZ) laws?

In general, no. Specific tariff announcements, however, have contained provisions relating to the FTZs, such as stating any goods that go into Foreign Trade Zones need to enter in “privileged foreign status.” This means the duty rate is fixed at the time the goods enter the zone, meaning even if the goods are further manufactured within the FTZ, the duty will be based on the original classification when they entered the FTZ.

Steel and Aluminum Tariffs

How have the Section 232 aluminum and steel tariffs changed from the original 2018 version?

• The aluminum tariffs increased from 10 to 25 percent.
• All negotiated tariff-rate quotas for the EU, Japan and the United Kingdom, as well as the quotas negotiated with Argentina, Brazil, and South Korea, are no longer applicable. The previous exemptions for Australia, Canada, Mexico, and Ukraine no longer apply.
• All product-specific exemptions that had been granted under the original aluminum and steel program are revoked.
• The “derivative articles list” is considerably expanded.

Are Chapter 72 articles still subject to 25-percent tariffs?

Yes. Certain headings in Chapter 72 that were previously subject to the original Section 232 tariffs are still covered. All exclusions that previously applied to certain Chapter 72 products are now revoked.

Are iron products covered?

Based on the description of the covered products in the Executive Orders, carbon alloy steel products, not iron, are covered by the exclusions.

How should we treat imports that fall under the “derivative articles” HTS codes but do not actually contain any aluminum or steel?

In some cases, certain HTS classifications that are on the derivative aluminum and steel HTS classifications can cover types of products that may not contain any aluminum or steel. For example, certain types of metal furniture are covered, but if these are made out of a metal other than steel then they would not be covered even though they fall within an HTS that is listed in Annex 1 of the steel proclamation. In these cases, it would be appropriate to have the foreign producer include a statement on the commercial invoice to state that the product does not contain aluminum or steel, to support why the tariffs are not due on the entry.

After the elimination of the product-specific exemptions, are there any remaining exemptions?

The only exemption remaining is for derivative articles that are manufactured from steel melted/poured in the United States or aluminum smelted/cast in the United States. For such products, the importer should request a statement on the commercial invoice stating that the product contains aluminum smelted/cast in the United States or steel that was melted/poured in the United States. In case of Customs inquiry, it would be appropriate to include copies of steel mill certificates or aluminum certificates of analysis in the 7501 Entry Summary packet.

For derivative articles, is the 25-percent tariff paid on the full value of the article?

The Executive Orders state that the 25-percent tariff is paid on the “value” of the aluminum or steel “content” of the “derivative article.” There are, however, no instructions as to how this value should be calculated. In accordance with normal Customs requirements, the value should be calculated using a reasonable method that is supportable. This could potentially be based on a calculation from the foreign supplier. Frequent importers of derivative products should monitor CSMS announcements to see if CBP issues instructions on this issue.

Is duty drawback available for the aluminum and steel tariffs?

No, the Executive Orders state that duty drawback cannot be used.

Does Chapter 98 provide relief from the 25-percent aluminum and steel tariffs?

The Executive Orders do not list any Chapter 98 exceptions for the new tariffs. This is consistent with the original Section 232 tariffs, which also did not contain any Chapter 98 exceptions.

Will there be an exclusion process?

None has been announced or established. It is unlikely that the Trump administration would wipe out all product-specific exemptions only to build them back up again.

Could the list of “derivative articles” expand?

The Executive Orders directed the Department of Commerce to establish a process by May 11, 2025, to consider requests to add additional “derivative articles.” We anticipate that U.S. aluminum and steel manufacturers will aggressively use this process to push for additional excluded derivative products.

USMCA/Canada and Mexico Tariffs

Will the reciprocal tariffs replace the Canadian and Mexican tariffs? Or will they stack?

The reciprocal tariffs have not been announced yet. But because all of the other tariffs stack, there is a high likelihood that the reciprocal tariffs also will stack on top of the existing 25-percent tariffs rather than replace them where they overlap. Also, the 25-percent tariffs were announced as being imposed due to concerns about fentanyl and unauthorized immigration, which is an entirely separate issue from the tariff equalization that is the goal of the reciprocal tariffs.

How will tariffs effect the IMMEX/Maquiladora imports from Mexico?

Because the Maquiladora, Manufacturing, and Export Services Industry (IMMEX) Program is a figure of Mexican law, we anticipate Mexico will do all that it can to protect companies that operate using the Program. Although uncertain, as per previous experiences in imposing retaliatory measures, Mexico will most likely establish tariffs on US sumptuous goods and/or finished products, and hardly to raw materials used by IMMEX/Maquiladora companies.

Will the Canada and Mexico tariffs be lifted when the USMCA review occurs?

Unclear. We do note, however, that the United States lifted the prior aluminum and steel tariffs as part of the negotiation of the USMCA under the first Trump administration. The second Trump administration, however, is taking a much harder line on tariff and international trade issues.

Reciprocal Tariffs

What are reciprocal tariffs?

“Reciprocal tariffs” are intended to equalize tariff rates, such as when a foreign country imposes a higher tariff on the United States than the United States does for the same product category. Because the United States generally has low tariffs, this means that there are a great many HTS classifications that likely will increase, with the impact varying by country. Moreover, because the announcement of the coming reciprocal tariffs states that it will take into account any form of discrimination against U.S. companies or programs that favor foreign companies, then calculated reciprocal tariffs will likely be very high. For example, most countries have Value Added Taxes that rebate any VAT payments when goods are exported; the Trump administration has indicated that this would be considered a form of subsidy that should be counteracted with reciprocal tariffs. So would subsidized electricity, currency manipulation, and so forth. Adding these concepts on top of equalizing tariffs across HTS categories leads to likely major increases in tariffs.

When will they be announced?

The reciprocal tariff announcement is expected for April 2, 2025. The Trump Administration also announced that it would proceed to consider countries with major trade deficits with the United States first, so it is possible that April 2^nd will be the start of a rolling set of reciprocal tariff announcements.

Force Majeure and Surcharges FAQs

The Â鶹´«Ă˝ Supply Chain team also has published a set of FAQs regarding contractual issues, which we are repeating here for convenience.

What are the key doctrines to excuse performance under a contract?

There are three primary defenses to performance under a contract. Importantly, these defenses do not provide a direct mechanism  for obtaining price increases. Rather, these defenses (if successful) excuse the invoking party from the obligation to perform under a contract. Nevertheless, these defenses can be used as leverage during negotiations.

Force Majeure

Force majeure is a defense to performance that is created by contract. As a result, each scenario must be analyzed on a case-by-case basis, depending on the language of the applicable force majeure provision. Nevertheless, the basic structure generally remains the same: (a) a listed event occurs; (b) the event was not within the reasonable control of the party invoking force majeure; and (c) the event prevented performance.

Commercial Impracticability (Goods)

For goods, commercial impracticability is codified under UCC § 2-615 (which governs the sale of goods and has been adopted in some form by almost every state). UCC § 2-615 excuses performance when: (a) delay in delivery or non-delivery was the result of the occurrence of a contingency, of which non-occurrence was a basic assumption of the contract; and (b) the party invoking commercial impracticability provided seasonable notice. Common law (applied to non-goods, e.g., services) has a similar concept known as the doctrine of impossibility or impracticability that has a higher bar to clear. Under the UCC and common law, the burden is quite high. Unprofitability or even serious economic loss is typically insufficient to prove impracticability, absent other factors.

Frustration of Purpose

Under common law, performance under a contract may be excused when there is a material change in circumstances that is so fundamental and essential to the contract that the parties would never have entered into the transaction if they had known such change would occur. To establish frustration of purpose, a party must prove: (a) the event or combination of events was unforeseeable at the time the contract was entered into; (b) the circumstances have created a fundamental and essential change; and (c) the parties would not have entered into the agreement under the current terms had they known the circumstance(s) would occur.

Can we rely on force majeure (including if the provision includes change in laws), commercial impracticability, or frustration of purpose to get out of performing under a contract?

In court, most likely not. These doctrines are meant to apply to circumstances that prevent performance. Also, courts typically view cost increases as foreseeable risks.  Official comment of Section 2-615 on commercial impracticability under UCC Article 2, which governs the sale of goods in most states, says:

“Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com. Cas. 55 (1915, K.B.D.).)” (emphasis added).

That said, during COVID and Trump Tariffs 1.0, we did see companies use force majeure/commercial impracticability doctrines as a way to bring the other party to the negotiating table to share costs.

May we increase price as a result of force majeure?

No, force majeure typically does not allow for price increases. Force majeure only applies in circumstances where performance is prevented by specified events. Force majeure is an excuse for performance, not a justification to pass along the burden of cost increases. Nevertheless, the assertion of force majeure can be used as leverage in negotiations.

Is a tariff a tax?

Yes, a tariff is a tax.

Is a surcharge a price increase?

Yes, a surcharge is a price increase. If you have a fixed-price contract, applying a surcharge is a breach of the agreement.

That said, during COVID and Trump Tariffs 1.0, we saw many companies do it anyway. Customers typically paid the surcharges under protest. We expected a big wave of litigation by those customers afterward, but we never saw it, suggesting either the disputes were resolved commercially or the customers just ate the surcharges and moved on.

Can I pass along the cost of the tariffs to the customer?

To determine if you can pass on the cost, the analysis needs to be conducted on a contract-by-contract basis. ąó´Ç±ô±đ˛â’s Supply Chain team can leverage AI to pull key provisions (including delivery terms, pricing, and taxes) from your contracts and analyze them to see what each contract says about tariff responsibility.

If you increase the price without a contractual justification, what are customers’ options?

The customer has five primary options:

Accept the price increase:

An unequivocal acceptance of the price increase is rare but the best outcome from the seller’s perspective.

Accept the price increase under protest (reservation of rights):

The customer will agree to make payments under protest and with a reservation of rights. This allows the customer to seek to recover the excess amount paid at a later date. Ideally, the parties continue to conduct business and the customer never seeks recovery prior to the expiration of the statute of limitations (typically six years, depending on the governing law).

Reject the price increase:

The customer will reject the price increase. Note that customers may initially reject the price increase but agree to pay after further discussion. In the event a customer stands firm on rejecting the price increase, the supplier can then decide whether it wants to take more aggressive action (e.g., threaten to stop shipping) after carefully weighing the potential damages against the benefits.

Seek a declaratory judgment and/or injunction:

The customer can seek a declaratory judgment and/or injunction requiring the seller to ship/perform at the current price.

Terminate the contract:

The customer may terminate part or all of the contract, depending on contractual terms.

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[1] Please note that the implementation of the various tariff programs remains in flux, and thus the status of these program should be monitored closely. The included table is current as of the date of publication of this article.

Mexican cartels dominate large swaths of the Mexico-United States border and the Bajío region (an area encompassing relevant parts of Queretaro, Guanajuato, Aguascalientes, San Luis Potosí, Jalisco, and Michoacán), and they control significant economic segments/activities in these territories. These are the same areas in which multinational companies maintain significant manufacturing operations.

In an Executive Order issued on January 20, 2025[1], the White House announced a shift toward increased enforcement of the Immigration and Nationality Act (INA) and International Emergency Economic Powers Act (IEEPA), which are key statutes in the United States’ fight against terrorism. Though these statutes are not new, the Trump Administration plans to broaden U.S. enforcement activity to cartels and transnational criminal organizations (TCOs) by allowing for the designation of cartels or TCOs as Foreign Terrorist Organizations and/or Specially Designated Global Terrorists. This new focus of enforcement resources, along with the expansive inclusion of cartels or TCOs within the purview of the INA and IEEPA, creates a heightened risk for multinational companies doing business in Mexico and other areas where cartels operate, as the companies can be perceived as — and then prosecuted for — engaging in terrorism or aiding terrorists, as explained below.

Under the INA, the Secretary of State can designate groups as Foreign Terrorist Organizations (FTOs)[2] based on an assessment of the State Department’s Bureau of Counterterrorism regarding the group’s terrorist activity. Once a group has received an FTO designation, multinationals subject to U.S. jurisdiction — which is interpreted very broadly by U.S. regulators — may face strict criminal and civil penalties under 18 U.S.C. § 2339B (the Antiterrorism Act or ATA) if they knowingly provide, or attempt or conspire to provide, “material support or resources” to the FTO.[3]

The State Department currently designates more than 60 organizations as FTOs. Trump’s January 20, 2025, Executive Order directs the State Department to scrutinize drug cartels — especially Mexico-based drug cartels and two cartels mentioned by name, Tren de Aragua (TdA) and La Mara Salvatrucha (MS-13) — for designation as FTOs. Since the order, Secretary of State Marco Rubio already has designated eight cartels as FTOs, most of which have operations in Mexico. We anticipate this number will sharply rise as the administration works together with OFAC to identify additional cartels and TCOs. This raises a number of concerns for companies that operate in areas known to have cartel or TCO activities, because the following types of regularly conducted business activities may be viewed through the lens of providing material support or resources to an FTO:

• Making payments to secure employee safety or the ongoing operation of a physical plant;
• Engaging in business dealings with local companies that themselves are in business with cartels or that are making such payments; and
• Recording payments to said local companies or to cartels in the books and records of publicly traded companies.

The expansion of enforcement scrutiny also may expand the types of risks facing companies, including:

• Combined OFAC and DOJ investigations of conduct that potentially violates both the INA and OFAC regulations;
• Matters that formerly would have been dealt with as civil matters by OFAC can become criminal matters pursued by DOJ;
• New designations can be combined with anti-money laundering laws to expand the potential violations of U.S. laws; and
• The expansion of the reach of OFAC designations to non-U.S. companies, since the material support statute has extraterritorial effect.

The January 20 Executive Order also heightens the risk of private civil litigation for multinationals doing business in Mexico. The ATA creates a civil remedy for U.S. national victims and their estates or heirs against defendants alleged to have caused an “injury arising from an act of international terrorism committed, planned, or authorized by an organization that had been designated as a foreign terrorist organization under section 219 of the [INA]” where “liability may be asserted as to any person who aids and abets, by knowingly providing substantial assistance, or who conspires with the person who committed such an act of international terrorism” (emphasis added). Under the ATA, “[a]ny national of the United States injured in his or her person, property, or business by reason of an act of international terrorism, or his or her estate, survivors, or heirs, may sue therefor in any appropriate district court of the United States and shall recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” 18 U.S.C. § 2333(a). The line of culpability under this section remains unsettled, as lower courts attempt to apply recent Supreme Court precedent regarding the “knowing” provision of “substantial assistance” to FTOs.[4] But the designation of cartels and TCOs as FTOs exposes companies that operate in countries with heightened cartel activity to litigation under the ATA.

For several years, Mexican cartels have shifted revenue sources from drug smuggling into the United States to racketeering in Mexico. The latter typically consists of Mexican cartels extorting regular payments from small-to-medium-sized businesses, many of which provide goods or services to larger companies such as the multinationals operating in Mexico. In addition to direct extortion, cartels engage in behaviors such as forcing suppliers on companies that in turn do business with multinational companies, establishing “front” entities to provide miscellaneous services, selling protection against rival organizations, establishing prices for goods or services, and receiving payments for not carrying out threatened violence.

Multinational companies in Mexico are thus in constant risk of having indirect contacts with these cartel FTOs within their local supply chain and, even if they are unaware of such touch points, multinationals must guard against being seen as actively complicit or willfully blind if they fail to take reasonable precautions.

To safeguard against these risks, multinationals subject to U.S. jurisdiction that do business in Mexico should take precautions such as:

• Conducting due diligence on all business counterparties, especially when onboarding new suppliers or other new business partners;
• Updating due diligence and requiring certifications of compliance with the laws prohibiting conducting business activities with TCOs and FTOs;
• Conducting routine OFAC and FTO screenings to assess the company’s risk profile with respect to potential touchpoints with cartels and TCOs;
• Mapping supply chains, including for sub-suppliers, to confirm zero contact with cartel or TCO activities throughout the supply chain;
• Based on risk assessments, following up and conducting audits to ensure the company’s supply chain is in compliance with the updated legal requirements;
• Implementing and maintaining vendor management systems for payments to suppliers and other business partners;
• Conducting financial audits on suppliers or other business partners to identify potential payments to cartels or TCOs;

• Alerting suppliers or other business partners regarding their potential connections to cartels or TCOs and help monitor to avoid risk; and
• Incorporating prohibitions on cartel and TCO connections, in addition to FTO restrictions, into agreements with third parties.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

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[1] “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” Executive Order (Jan. 20, 2025) available at .

[2] Though this article focuses on the FTO designation under the INA, the Specially Designated Global Terrorist designation under IEEPA creates a separate set of enforcement issues for multinationals, as well as additional sanctions under IEEPA for FTOs. IEEPA is the governing authority for most economic sanctions overseen by the Office of Foreign Assets Control (OFAC), which has long maintained robust restrictions on U.S. persons, or any other person subject to U.S. law, to the primary U.S. economic sanctions. OFAC has sanctioned numerous drug cartels, as well as companies and individuals, using its authorities under its Significant Narcotics Traffickers program pursuant to Executive Order 12978 and the Kingpin Act. Because OFAC uses an expansive definition of U.S. jurisdiction, restrictions under these designations include the activities of non-U.S. persons that take place on U.S. territory, use the U.S. financial system, or otherwise trigger U.S. jurisdiction. Proper compliance requires that any persons with a U.S. jurisdictional nexus take into account all the potential ways U.S. law can apply to them, including both the new emphasis on the INA/IEEPA and the longstanding OFAC regulations.

[3] 18 U.S.C. § 2339A defines “material support or resources” to include “any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safehouses, false documentation or identification, communications equipment, facilities, weapons, lethal substances, explosives, personnel . . . and transportation, except medicine or religious materials.”

[4] See Twitter, Inc. v. Taamneh 598 U.S. 471 (2023).

On February 20, 2025, the Deputy Assistant Attorney General for the Commercial Litigation Branch at the U.S. Department of Justice (DOJ), Michael Granston, emphasized using the False Claims Act (FCA) to address U.S. Customs & Border Protection (Customs) violations at the Federal Bar Association’s annual qui tam conference. According to Granston, the Trump administration will seek to “aggressively” deploy the FCA as a “powerful” enforcement mechanism against importers that take steps to evade customs duties, including all the new tariffs being imposed by the Trump administration.

The application of the FCA for underpayments of customs tariffs is already a growing trend. The increased tariffs and attention will combine to increase the number of FCA actions targeting tariff underpayments and the potential amount of recoveries. The U.S. government has unparalleled access to detailed import data covering nearly all imports, giving it the ability to run algorithms to see discrepancies and anomalies that might indicate the underpayment of tariffs. The FCA also can be enforced by whistleblowers who file qui tam suits in the government’s name, in hopes of receiving a share of the recovery in successful cases. Taken together, these factors mean the scene is set for a vast expansion of the use of the FCA as a tool to combat tariff underpayments.

Against this scrutiny, importers should ensure they accurately determine and pay all tariffs, including the new Trump tariffs. The remainder of this article summarizes the heightened risks that the FCA poses in the Trump administration, as well as some practical steps companies can take to minimize the risk of an FCA action.

The Application of the False Claims Act to Customs Violations

The False Claims Act, 31 U.S.C. § 3729 et seq., is a special form of civil remedy used by the government to recover funds the government paid as a result of fraud — typically, a false statement or document that supports a demand for government monies. The FCA allows the government to recover treble damages plus penalties up to $28,619 for each violation. Thus, the FCA authorizes the government to seek not only any tariff underpayments but also three times the amount of the underpayment and penalties for each instance of underpayment. Needless to say, the FCA poses enormous financial risk to importers.

The statute also enables private individuals to act as whistleblowers (or “relators”) by filing qui tam actions on behalf of the government. If the action is successful, the relator can receive up to 30% of the money recovered in the litigation, plus attorney’s fees, with the rest going to the government. This potential for recovery has spawned an active plaintiffs bar that encourages the filing of qui tam actions.

Indeed, the filed by relators in the fiscal year ending in September 2024 constituted a 37% increase over the prior year and a 60% increase over 2019 filings. In addition, the government also — almost triple the number the government originated five years ago. Further, the government reported that it recovered almost $3 billion in settlements and judgments in 2024, which followed a nearly-as-high recovery of $2.8 billion recovered in 2023.

In his speech, Granston explained the FCA could be a powerful tool in recovering under-reported tariffs. With the Trump administration announcing an array of new tariffs, the amount of tariffs imposed — and the risk of FCA actions — are both certain to increase. The emphasis on tariffs and trade continued at the conference. Jamie Ann Yavelberg, director of the Fraud Section of the Civil Division, identified tariff evasion as a “key area” for enforcement, with a focus on false statements about country of origin, declared value of goods, and the number of goods involved.

The following are examples of the Department of Justice’s use of the FCA to address underpayment of customs duties and show the broad range of customs issues that can support an FCA action:

• to settle FCA allegations that it misclassified its vitamin products to avoid paying the full amount of customs duties due, as well as its failure to pay back duties owed after correcting certain misclassifications.
• to settle FCA allegations that it misrepresented the nature, classification, and valuation of its imported construction products to evade antidumping and countervailing duties, as well as improperly claiming preferential treatment under free trade agreements, with the relator receiving $3.7 million.
• to resolve allegations that it misrepresented the country of origin on goods that should have been declared to be of Chinese or Indian origin, thereby evading high antidumping and countervailing duties imposed on the entries from those countries.
• for allegedly evading antidumping and other duties by falsely describing wooden bedroom furniture imported from China as “metal” or “non-bedroom” furniture on documents submitted to CBP while also manipulating images of their products in packing lists and invoices, directing their Chinese manufacturers to ship furniture in mislabeled boxes and falsifying invoices to try to evade detection.
• Finally, another importer paid $4.3 million for allegedly failing to include assists (customer-provided production aids) in the declared value of its entries.

Key areas where FCA cases are most likely to arise include:

• The misclassification of goods, to move them from a higher to a lower tariff classification.
• The misclassification of goods, to move them out of the coverage of the new Trump tariffs such as those imposed on aluminum and steel derivative products.
• Incorrectly declaring the wrong country of origin, to avoid the Section 301 tariffs imposed on China or on countries subject to the new tariff proclamations such as China, Canada, or Mexico.
• Failing to pay antidumping or countervailing duties, which often have very high tariff rates.
• Failing to accurately declare the correct value of goods.
• Failing to include assists (production aids provided by the customer) or royalties within the declared value.
• Failing to have a customs transfer pricing study in place, if this results in the undervaluation of goods imported from an affiliated company.
• Failing to correct past entry information if Customs notifies the importer of a change that impacts the duty rate, such as by issuing a Form 28 Request for Information or Form 29 Notice of Action. When this occurs, Customs expects that importers will use the Post-Summary Corrections Process to correct all analogous prior entries and to pay back duties on those prior entries.

Another factor that increases FCA risk is that Customs maintains two additional whistleblower programs of its own — one under the Enforcement and Protect Act (EAPA), for reporting of antidumping and countervailing duty evasion, and an eAllegations portal for all other claims of tariff evasion. It remains to be seen whether the new administration will mine these sources for FCA enforcement purposes.

Practical Steps Importers Can Take to Minimize Potential FCA Actions

Given the likelihood of increased enforcement, as well as the sharply rising levels and types of tariffs, importers should prioritize customs compliance, as any underpayments raise the specter not only of customs penalties but also potential FCA damages and penalties.

Customs-Related Steps

In a high-tariff environment, the stakes for compliance miscues are substantial and include potential penalties and interest for underpayments as well as FCA risks. Some key areas to consider for ongoing customs compliance include the following:

• Inaccurate classifications can result in incorrect duties or penalties, so confirm your company has procedures to correctly classify goods using the correct Harmonized Tariff Schedule (HTS) codes and maintains a regularly updated import classification index to reflect new products or changes in tariff codes.
• Confirm that your organization maintains a detailed customs compliance manual that outlines procedures for classification, valuation, origin determination, recordkeeping, interactions with brokers and Customs, and other relevant matters that impact the accuracy of information reported to Customs and can create underpayments.
• Review and ensure there are procedures to track and properly report assists, royalties, or other non-invoice costs that might affect the declared value of imported goods. Misreporting these costs could lead to underpayments of duties and penalties.
• Ensure that there are procedures to regularly review entries after entry to identify potential errors in valuation, origin declarations, classification, or other entry-specific items that impact how much duties are owed.
• Regularly use post-summary corrections as a means of correcting error, as most entry-related information can be corrected until liquidation without penalty (generally, around 314 days after entry).
• In addition to post-entry checks, more detailed customs audits can uncover underlying issues that can lead to customs penalties. Major importers should consider conducting regular customs audits, pulling a judgmental sample of entries for thorough examination to determine if there are areas that contain errors.
• Ensure your company maintains procedures for overseeing customs brokers and freight forwarders, including written protocols that are consistently followed to ensure there is proper oversight of customs brokers and freight forwarders.
• Customs traditionally has not imposed penalties if an importer initiates a voluntary self-disclosure before the government begins its investigation. Importers should be aggressive in using voluntary self-disclosures to minimize the likelihood of customs penalties and related FCA liability risks.
• Request for your company’s import data. Much of the information filed as part of the entry process is available for review by companies, such as PIERS and Panjiva, which aggregate import data and sell it to the public. By filing a government confidentiality request and keeping it up to date, your company can limit the ability of third parties (including competitors and whistleblower law firms) to analyze import data to discern trading patterns, supply chains, and exposure to high-risk regions or high-tariff products.

Compliance and Whistleblower Steps

In addition to the customs-related steps listed above, maintaining a robust corporate compliance program that addresses customs issues and general whistleblowing concerns can help prevent an internal complaint from turning into a qui tam suit. Some measures to consider include the following:

• Maintain an Effective Compliance Program. Maintain a corporate compliance program that meets DOJ’s expectations for effectiveness, and ensure the program is coordinated with a well-tailored customs compliance program. Effective compliance programs are marked by senior leadership support, adequate resources, use of risk assessments, well-developed policies and procedures, tailored trainings, encouragement of internal reporting, and meaningful responses to complaints. Given the heightened risk environment, make sure your company has a compliance officer or team that understands customs issues and can follow up on reports of potential customs violations.

• Encourage Internal Reporting & Whistleblower Protection. Establish a confidential internal reporting mechanism (e.g., hotline). Protect employees from retaliation to encourage internal reporting over external whistleblower actions. Investigate and address complaints promptly and transparently.

• Conduct Regular Training & Education.Train employees on Customs and FCA requirements and the risks of false claims. Effective training is tailored to the roles and responsibilities of given groups of employees.

• Strengthen Internal Controls & Audits. Perform regular post-entry checks and internal audits to identify and correct potential customs violations and underpayments.

• Respond Proactively to Potential Violations.Act quickly if an issue is detected to correct errors, and consider self-reporting to Customs when necessary, both to lock in a no-penalty situation with Customs and to reduce the likelihood of qui tam suits.

• Respond Promptly and Fully to All Customs Forms 28 (Requests for Information), Form 29s (Notices of Action), and Informal Inquiries. Importers should designate an internal employee to be an ACE contact so that your company receives Customs notices at the same time as the customs broker, instead of relying on the broker to forward any notices. Any requests for information or Customs actions should be investigated thoroughly and have a well-supported response (generally required within 30 days).

• Follow Through on Customs Notices. If Customs makes a determination, such as reclassifying a product, then Customs requires that the importer search through its recent imports and reflect the Customs decision for all identical or analogous entries. In some cases, substantial customs penalties or FCA liability have arisen from the failure to do so. Ensure that the full implications of any Customs action are thoroughly understood and that your company uses the Post-Summary Corrections process to reflect any changes mandated by Customs. Consider using a voluntary self-disclosure to reflect changes to older entries.

• Follow Up Thoroughly on Any Civil Investigative Demand (CID) from DOJ or Any Qui Tam Complaint.The receipt of a CID or qui tam complaint always requires the highest level of attention, given the draconian penalties the FCA authorizes. Follow up on the receipt of these items to take swift action to investigate and defend against those claims, using outside counsel with experience in the FCA and customs issues.

By proactively addressing customs compliance, importers can help minimize the risk not only of customs penalties but also the risk of qui tam lawsuits. Especially in a high-tariff environment, customs compliance and taking all available steps to ensure the proper payment of all tariffs lawfully due is essential and needs to be at the top of the list for any risk-based compliance program.

Â鶹´«Ă˝ Resources

To help importers cope with the unpredictability of this increased risk of FCA enforcement, ąó´Ç±ô±đ˛â’s International Trade,ĚýSupply Chain, and False Claims Act Teams offer focused, practical resources to help manage international trade. These include:

• Webinars
  • Managing International Trade & Tariff Risks: A special webinar on “Managing Import and Tariff Risks During a Trade War” provided an up-to-date assessment of the tariff proposals that are most likely to be implemented, as well as practical advice regarding the steps that companies can take to identify, risk plan, and manage tariff-related risks throughout their supply chains and with customers. A recording of the webinar is available here.
  • 2025 In-House Connect Supply Chain & Trade Law CLE Summit: This webinar contained four programs relating to the incoming administration, including tax, trade, supply chain contracting, and supply chain integrity risks as well as coverage of international trade topics relating to Mexico:
    • (Promo code: IHCFOLEYSUMMIT)
    • (Promo code: IHCFOLEYSUMMIT2)
    • (Promo code: IHCFOLEYSUMMIT3)
    • (Promo code: IHCFOLEYSUMMIT4)

• Written Resources
  • Six-Step Tariff Risk Management Plan:Our white paper and a six-step tariff risk-management program on “Managing Import and Tariff Risks During a Trade War.”
  • Article Series: Our biweekly articles on “What Every Multinational Company Should Know” about pressing international trade topics, including the key tariff proposals. You can view all articles in that series here, and you can sign up to receive notices of upcoming biweekly emails .
  • Presidential Transition Hub: To provide practical advice on dealing with all aspects of the rapid-fire announcements from the new administration, we have set up a 100 Days and Beyond: Presidential Transition Hub for frequent legal updates on new administration announcements as they occur. You can register to receive updates there as well.

• Service Offerings
  • Customs Audit and Supply Chain Integrity Review: A fixed-fee “Customs Audit and Supply Chain Integrity” review, which provides a thorough assessment of the state of your customs compliance and whether there are unaddressed risks that your company needs to address to avoid unwanted Customs scrutiny of your imports. More details here.
  • Contract Reviews for Tariff Concerns: ąó´Ç±ô±đ˛â’s Supply Chain Team can leverage AI to assist with a review your key supply agreement for key provisions related to which party bears the costs of tariffs, including delivery terms and pricing terms.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

As reported in our prior article, “What Every Multinational Company Should Know About … The New Steel and Aluminum Tariffs (Part I),” President Trump signed two proclamations on February 10, 2025, imposing 25-percent tariffs on aluminum and steel. Although President Trump previously imposed Section 232 tariffs on aluminum and steel during his first administration, the new tariff announcement represents a sharp expansion of those tariffs in the following ways:

• The aluminum proclamation reinstated and increased the aluminum tariff from 10 percent to 25 percent while wiping out the numerous product-specific exemptions that had built up over the last six-and-a-half years.
• The steel proclamation globally reinstated the tariff on steel at 25 percent (the same rate as before) while also wiping out the numerous product-specific exemptions that had built up over the last six and a half years.
• All previous negotiated exemptions and quotas of the prior Section 232 aluminum and steel tariffs with other countries were eliminated. Thus, the aluminum and steel tariff adjustments for Argentina, Australia, Brazil, Canada, Japan, Mexico, the United Kingdom, and the European Union are all now gone.
• The application of the tariffs to “derivative” products (basically, downstream products that contain a lot of aluminum and steel) was sharply expanded.

At the time of our previous article on the topic, the critical Annexes that listed the covered derivative products had just been released, meaning our article did not analyze the implications of the derivative product inclusion. For steel, the Annex I derivative steel products include:

• Steel screws, bolts, and nuts
• Steel tube or pipe fittings
• Steel wires, cables, and plaited band
• Steel structures or parts thereof
• Steel parts for passenger or freight elevators
• Metal furniture
• Steel modular building units

The aluminum tariff announcement states that because foreign aluminum producers “have continued to evade the tariff by processing covered aluminum articles into additional downstream derivative products,” it was expanding the Annex I derivative products to include:

• Aluminum base metal mountings and fittings
• Aluminum suspension systems
• Aluminum articles and equipment for general physical exercise

We are seeing a lot of concern from the importing community about these newly expanded aluminum and steel tariffs. To help provide some insight, we are providing responses to some of the most frequent questions we are seeing regarding these new and far-reaching tariffs, particularly with regard to derivative products:

When Do the Tariffs Start?

The tariffs go into effect for entries after 12:01 a.m. (Eastern Time) on March 12, 2025. At that time, all product-specific exclusions will cease to be effective as well.

How Will Customs Treat Products that Contain Both Steel and Non-Steel Items?

U.S. Customs and Border Protection (CBP) will require importers of steel-derivative articles to identify the aluminum and steel content used to manufacture the products. For derivative products, it appears the amount of the special tariff will be based on the amount of aluminum and steel content, not the entire value of the overall entry. In this regard, the aluminum and steel proclamations state as follows (using the aluminum proclamation as an example): “For purposes of implementing the requirements in this proclamation, importers of aluminum derivative articles shall provide to CBP any information necessary to identify the aluminum content used in the manufacture of aluminum derivative articles imports covered by this Proclamation. CBP is hereby authorized and directed to publish regulations or guidance implementing this requirement as soon as practicable.”

How Is the Country of Origin Determined?

For all aluminum and steel derivative products, the country of origin will use the “smelted and cast” or “melted and poured” standard, respectively. Importers will have to provide and certify the accuracy of this information, which will be used to determine the country of origin.

How Do I Identify the Exact Derivative Products Covered by the Aluminum and Steel Tariffs?

The Federal Register versions of the two proclamations include the exact HTS numbers, at a 10-digit level, in Annex I at the end of each respective publication. (, and .)

Are the Listed Derivative Products Final?

No. Within 90 days of the proclamation, the U.S. government will establish a process allowing U.S. producers to petition to include additional derivative aluminum and steel articles falling within the scope of the special tariffs. Thus, there is every likelihood that the number of derivative products will increase over time.

Is Duty Drawback Allowed?

Duty drawback is a common tariff-saving measure that allows the refund of duties paid at the time of entry if the goods are subsequently re-exported. Both proclamations state that no duty drawback will be available for these special duties. This is likely a means to encourage the use of domestic product for downstream products that are intended for the export market.

Will CBP Issue Instructions to Help Companies Navigate These Tariffs?

In accordance with its normal practice, as well the directive in the proclamations, CBP will be issuing guidance to help the import community comply with the new tariffs. We also anticipate that there will need to be some adjustment on the part of the importing community, including the need for customs brokers to update their software to conform to the many new tariff requirements.

How Will CBP Enforce These New Tariffs?

We expect rigorous enforcement of the new tariffs. Taking the aluminum proclamation as the example, both proclamations state that “CBP shall prioritize reviews of the classification of imported aluminum articles and derivative aluminum articles and, in the event that it discovers misclassification resulting in loss of revenue of the ad valorem duties proclaimed herein, it shall assess monetary penalties in the maximum amount permitted by law. In addition, CBP shall promptly notify the Secretary regarding evidence of any efforts to evade payment of the ad valorem duties proclaimed herein through processing or alteration of aluminum articles or derivative aluminum articles as a disguise or artifice prior to importation.” The use of “shall” implies that CBP is directed to assess maximum penalties for misclassifications.

It is not yet clear how this requirement will interface with the normal approach of Customs for voluntary disclosures, where importers are allowed to correct errors without a penalty provided they perfect the disclosure properly and pay any underpaid duties plus interest.

What Actions Should Importers Consider Implementing?

We expect that these measures will stay in place for the long term, given this is the second time President Trump has imposed aluminum and steel tariffs. Further, given that the main purpose of the tariffs is to wipe out all previously negotiated exemptions and tariff alternatives, there seems to be little hope for meaningful (if any) future exclusions, including for forms of steel and aluminum that are not produced in the United States.

In our initial aluminum and steel article, we provided six practical steps that companies can take to help cope with the newly expanded aluminum and steel tariffs. Now that the Annexes are published and the full scope of derivative products are known, we are supplementing that list to include the following additional items:

• Review continuous entry bonds at all active importer of record numbers for sufficiency.
• Pull a report from the Automated Commercial Environment (i.e., ACE, the customs portal) to determine all imports that fall under the new aluminum and steel tariffs, including all covered derivative products.
• Conduct a classification review of prior or planned aluminum or steel products, as well as derivatives, to determine which ones fall within the scope of the two proclamations.
• Assess the potential impact of the new tariffs to determine how these new tariffs impact your company’s supply chain, cost structure, and import posture.
• Review all buy- and sell-side contracts to determine which ones offer tariff-related flexibility, including the ability to alter sourcing patterns on the buy side and to add tariff surcharges on the sell side. Further information is found in our white paper on Managing Import and Tariff Risks During a Trade War.
• Identify strategies to eliminate or defer potential duties for cashflow purposes, including the new aluminum and steel duties, such as the use of bonded warehouses, Foreign Trade Zones (FTZ), and Temporary Importation under Bond (TIB). Note that duty drawback is not available for these special duties.
• Continue to closely monitor for new derivative products that may be moved onto the list of Annex I derivative products as U.S. aluminum and steel producers file petitions to add new products, beginning 90 days from the publication of the two proclamations.
• Keep up with the latest news and developments in tariffs, as new pronouncements are coming very quickly.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. The Â鶹´«Ă˝ white paper on Managing Import and Tariff Risks During a Trade War includes practical coping strategies for frequent importers. And if you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

In an increasingly volatile global economy, suppliers and buyers face unforeseen challenges that may impact their ability to perform under commercial contracts. Longstanding assumptions about the level of tariffs, even under free trade agreements like the US-Mexico-Canada Free Trade Agreement (USMCA), can no longer be assumed. Tariffs, government actions, supply chain disruptions, and financial distress can create significant economic burdens, leading parties to invoke force majeure or commercial impracticability as defenses to nonperformance. While these legal doctrines provide potential avenues for relief, courts have been reluctant to excuse performance based solely on increased costs. Understanding how these doctrines work, as well as how to structure contracts to explicitly allocate tariff-related risks, is essential for companies seeking to mitigate financial exposure.

This section explores the legal framework surrounding force majeure and commercial impracticability, analyzes key case law, examines contractual provisions that impact responsibility for tariffs, and provides recommendations for incorporating tariff-related protections in future supply chain contracts.

Force Majeure and Commercial Impracticability as Defenses to Performance

Both force majeure and commercial impracticability are defenses to performance, meaning if a valid event occurs that makes performance impossible or impracticable, a party is not in breach for failing to perform. These doctrines, standing alone, do not provide a mechanism for obtaining price increases. Although suppliers frequently cite them in commercial negotiations to justify price adjustments, they frequently fail as a mechanism to allow companies to back out of contractual commitments.

• Force Majeure: A contractual provision that allows a party to suspend or delay performance due to unforeseen events beyond its control, such as natural disasters, labor strikes, government actions, or supply chain disruptions. Many contracts include broad catchall language covering “other circumstances beyond a party’s reasonable control,” which can provide flexibility in negotiations.

• Commercial Impracticability: Under Article 2 of the Uniform Commercial Code (UCC), performance may be excused when an event occurs that (1) was a basic assumption of the contract and (2) makes performance impracticable. Unlike common law impossibility, impracticability does not require that performance be literally impossible, only that it is so excessively burdensome that it would be unreasonable to enforce the contract.

In general, these provisions are intended to deal with unexpected and drastic changes, not unexpected changes to the profitability of a transaction or even economic changes that would move a transaction from a profit to a loss. The application of these mechanisms accordingly can vary depending upon the circumstances, which can be grouped as follows:

Tariff-Induced Price Increases: Legal Precedents and Challenges

Key Takeaways from the Case Law: Courts have consistently rejected arguments that tariff-related price increases justify nonperformance under force majeure or commercial impracticability. Instead, they view cost fluctuations as foreseeable risks that parties assume when entering into fixed-price contracts. Since 2018, no cases have successfully invoked these doctrines under the UCC, based on changes to tariff levels:

• Price increases alone rarely constitute commercial impracticability.[1]
• The only court to accept a price increase argument required a 572% cost increase and a buyer receiving an unjustified windfall.[2]
• Courts typically rule that financial hardship, even due to extreme price increases, does not excuse performance.[3]

Specific Rulings Underscore Broad Rejection of the Use of Force Majeure or Commercial Impracticability to Address Unexpected Cost Increases: Because tariff increases are just another form of increases in the cost structure — and often to a degree less than those involved in these cost-based cases — we do not see any realistic chance of achieving a different outcome where the sole contractual justification is a force majeure of commercial impracticability clause to deal with unexpected tariffs.

Case	Percentage Increase	Outcome
, 517 F. Supp. 1319 (E.D. L.A. 1981)	24% increase nickel; 185% increase carbon ferrochrome; 21%, increase labor	Denied (simply being deprived of anticipated profits does not establish commercial impracticability)
, 1975 U.S. Dist. LEXIS 14305 (E.D. Penn. 1975)	86% increase ethylene	Denied (86% increase did not establish force majeure or commercial impracticability)
, No. 6:07-CV-444-KKC, 2010 WL 8750622 (E.D. Ky. Sept. 17, 2010)	42% increase coal	Denied (42% increase did not establish commercial impracticability)
, No. 1:06-CV-2257, 2007 WL 9822634 (N.D. Ohio Feb. 28, 2007)	32% increase aluminum	Denied (32% increase did not establish commercial impracticability)
, 559 F. Supp.2d 892 (N.D. Ill. 2008)	30% increase uranium	Denied (30% increase did not establish commercial impracticability)
, 705 F.2d 134 (6th Cir. 1983)	15% increase steel	Denied (15% increase did not establish commercial impracticability)
, 108 Idaho 892 (Idaho Ct. App. 1985)	40% increase pinto bean seeds	Denied (40% increase did not establish commercial impracticability)
, 736 F.2d 1064 (5th Cir. 1984)	45% increase polystyrene	Denied (45% increase did not establish force majeure)
, No. A-5453-10T3, 2014 WL 839122 (N.J. Super. Ct. App. Div. Mar. 5, 2014)	135% increase asphalt cement	Denied (135% increase did not establish commercial impracticability)
, 944 F. Supp. 1411 (D. Minn 1996)	40% increase raw materials	Denied (40% increase did not establish commercial impracticability)
, 508 F.2d 283 (7th Cir. 1974)	61% granular potash; 67% increase coarse potash	Denied (61% and 67% increase did not establish commercial impracticability)
, 813 F.2d 1327 (4th Cir. 1987)	56% increase oil	Denied (56% increase did not establish force majeure)

Government Emergency Actions and Force Majeure

Courts rarely excuse performance based on government actions unless they fundamentally alter contractual obligations. Regulatory changes, tariffs, or emergency orders that increase costs are generally considered foreseeable risks.

• : A 33% increase in costs due to the Suez Canal closure did not excuse performance.
• : A supplier’s claim of commercial impracticability due to COVID-19-related steel price hikes was rejected because its contract excluded price changes from force majeure.
• : Increased compliance costs due to EPA regulations were deemed foreseeable and did not justify nonperformance.

Bankruptcy or Insolvency as Grounds for Nonperformance

Courts consistently reject arguments that financial distress, including insolvency or bankruptcy, constitutes force majeure or commercial impracticability. Performance under a contract is excused “only when [it] is rendered objectively impossible either because the subject matter is destroyed or by operation of law.”[4] When the difficulty of performance “is occasioned only by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy, performance of a contract is not excused.”[5] The distinction lies between:

• Subjective impracticability (specific to the party, such as financial hardship) → Not excusable
• Objective impracticability (truly impossible for anyone to perform) → Potentially excusable

In , the Second Circuit held that even the imposition of U.S. economic sanctions, which blocked payment to a Specially Designated National without a specific license from OFAC (which it would not give), did not make debt repayment “objectively impossible,” demonstrating the high burden required for this defense.

Contractual Provisions Impacting Tariff Responsibility

We also commonly encounter situations where contractual provisions do not explicitly mention tariffs. When this occurs, the responsibility may be determined by key contractual provisions, including:

• Pricing Provisions: Fixed-price contracts typically assign cost risk to the seller. If tariffs increase costs, suppliers cannot unilaterally demand price adjustments unless the contract allows for cost-sharing mechanisms.
• Price Indexing Clauses: Some contracts tie prices to commodity indexes, mitigating the impact of sudden market changes. If a supplier anticipates tariff risks, an indexed pricing structure may provide protection.
• Incoterms: These international trade terms define which party is responsible for tariffs, duties, and transportation costs. Many automotive contracts specify that the seller covers export costs and the buyer covers import costs, making Incoterms a useful starting point for tariff responsibility. Here are some additional common incoterms and how they impact responsibilities for tariffs:
• EXW (Ex Works): Buyer bears all costs, including tariffs.
• DDP (Delivered Duty Paid): Seller assumes all import duties and tariffs.
• FOB (Free on Board) & CIF (Cost, Insurance, Freight): Responsibility depends on the shipment location and agreed-upon terms.

Strengthening Future Supply Chain Contracts to Address Tariffs

For the reasons detailed above, companies should not assume their contracts provide the flexibility to deal with unexpected increases in tariffs of general international trade conditions. Given the unpredictability of tariffs and what appear likely to be an escalation of trade wars, companies should proactively include tariff-related provisions in their contracts. These provisions can take the following forms:

• Explicitly Specify Which Party is the Importer of Record: Because the importer of record is required to take care of all importing arrangements, including the payment of customs duties, including this provision effectively dictates which party will pay any tariffs.
• Explicitly Allocate Tariff Costs: Contracts also can specify which party bears responsibility for tariff-related costs, avoiding ambiguity. Note that it is permissible for parties to share or shift tariff costs behind the scenes, such that one party is responsible for initially paying the tariffs but will receive a partial or total reimbursement from the counterparty.
• Mandate Tariff-Triggered Price Renegotiations: These types of provisions include a requirement for renegotiation upon a specific tariff-triggered event. An example would be: If new tariffs, duties, or similar government-imposed charges are introduced after contract execution, the parties will renegotiate pricing in good faith to reflect the impact of such charges.
• Include Price Adjustment Rights in the Quotation or Quote Updates: This type of provision is designed preserve flexibility to reflect unexpected changes in tariffs and thus avoids the problem of force majeure or commercial impracticability clauses not being triggered by even sharp changes to tariff levels. An example would be: Supplier reserves the right to adjust prices to reflect the impact of any tariffs, duties, or similar governmental charges imposed after the date of this proposal. These adjustments will be calculated to ensure fair allocation of the increased costs. Supplier will provide advance notice of any such adjustments along with documentation supporting the changes.

Conclusion

Force majeure and commercial impracticability provide limited relief when tariffs or government actions increase costs, as courts generally view these risks as foreseeable. While suppliers can use these doctrines in negotiations to seek price adjustments, sophisticated counterparties will push back at attempts to invoke these legal doctrines in the tariff context. To prevent this, and to mitigate risks at the frontend, companies should carefully structure contracts to allocate tariff responsibility, incorporate price adjustment mechanisms, and require renegotiations when new tariffs are imposed. By proactively addressing these issues in supply chain agreements, businesses can better navigate economic volatility while maintaining contractual clarity and financial stability.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

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[1] See, e.g., , 308 F.3d 1283, 1285 (Fed. Cir. 2002); , 969 F. Supp. 1046 (E.D. Mich. 1997).

[2] , 499 F. Supp 53 (W.D. Pa. 1980).

[3] See case table.

[4] , No. 19 C 5314, 2020 WL 12441956, at *2 (N.D. Ill. Dec. 9, 2020).

[5] , 82 F.4th 144, 154 (2d Cir. 2023) (quoting , 23 N.Y.2d 275, 281, 244 N.E.2d 37, 41 (1968)).

Our previous article on What Every Multinational Company Should Know About … Managing Import Risks Under the New Trump Administration (Part I) identified the 12 main import-related risks (and opportunities) likely to arise in the new Trump administration. Part II laid out the likely roadmap to the international trade priorities of the Trump Administration in The Implications of President Trump’s “America First Trade Memorandum.” We now complete the series on “Managing Import Risks Under the New Trump Administration” with Part III, which provides practical advice regarding how to navigate these potential major changes in the international trade environment.

With potential tariff increases and USMCA renegotiations on the horizon, and with Customs already devoting considerable resources to blocking goods at the border that are the product of forced labor or human trafficking or that violate the Uyghur Forced Labor Prevention Act (UFLPA), we have put together a 12-step guide to preparing for and adapting to the rapidly shifting importing environment. It focuses on the following areas:

• Understanding your company’s importing patterns;

• Ensuring that your current import efforts comport with Customs requirements and are not leaving your organization at risk for detentions or penalties;

• Evaluating the status of your current USMCA compliance efforts;

• Risk planning for potential rapid changes in the tariff environment; and

• Ensuring your organization is preparing for the likely focus of the new administration on supply chain integrity.

Working through these factors should help most multinational companies with significant international supply chains address the three main risks as we move into the new administration: (1) risks relating to customs underpayments, (2) risks relating to potential tariff hikes, and (3) risks relating to supply chain integrity issues. Because these areas are interrelated, a holistic focus on all five areas listed above is likely to yield the best and most flexible posture to manage a changing international trade landscape.

Understand Your Importing Patterns

Step 1: Identify All Importing Avenues at Your Company. Managing import-related risks begins with a comprehensive understanding of your company’s importing activities. The first step, accordingly, is to get a good handle on your importing patterns by doing the following:

• Identify all importer-of-record (IOR) numbers associated with your company at all divisions and subsidiaries.

• Identify all customs brokers used by your organization over the last five years, and determine which ones are still active. Determine which types, which product lines, or which divisions each broker is handling.

• Pull, or have your customs broker pull, the Automated Commercial Environment (ACE) data with all your company’s identified IORs to gather the data needed to analyze import trends and the accuracy of information submitted to Customs at the time of entry.

• Collaborate with procurement teams to anticipate future orders, including for new products, suppliers, and sourcing regions under consideration.

• Document all touchpoints in your supply chain, including warehouses, distribution centers, and logistics providers. When paired with importing data, logistics data provides a clear picture of importing patterns, enabling better risk management and modeling.

Ensure Your Imports Are Being Handled with Reasonable Care

Step 2: Ensure Customs Compliance Is Robust. Customs compliance is always important. But in a high-tariff environment, the stakes for missteps are considerably greater, increasing potential penalties and interest for underpayments. For the same reason, the advantages of identifying tariff-saving opportunities are much greater. Some key areas to consider for ongoing customs compliance include:

• Ensure Your Company Maintains a Thorough Classification Index to Ensure Proper and Consistent Tariff Coding: Inaccurate classifications can result in incorrect duties or penalties, so confirm your company has procedures to correctly classify goods using the correct Harmonized Tariff Schedule (HTS) codes and maintains a regularly updated import classification index to reflect new products or changes in tariff codes.

• Ensure Your Company Maintains a Customs Manual for Consistent Procedures in Importing: Ensure your organization maintains a detailed customs compliance manual that outlines procedures for classification, valuation, origin determination, recordkeeping, interactions with brokers and Customs authorities, and other relevant matters that impact the accuracy of information reported to Customs. A clear, documented import process ensures consistency and reduces the risk of errors.

• Ensure Your Company Tracks and Attributes Assists Using a Consistent Methodology: Review and ensure there are procedures to track and properly report assists, royalties, or other costs that might affect the declared value of imported goods. Misreporting these costs could lead to underpayments of duties and penalties.

• Ensure Your Company Conducts Regular Post-Entry Audits to Identify Errors in Importation: Ensure there are procedures to regularly review entries after clearance to identify potential errors in valuation, origin declarations, classification, or other entry-specific items that impact how much duties are owed. Do not forget to include areas of tariff savings like duty drawbacks, post-summary corrections, or reconciliation filings to identify and address discrepancies.

• Ensure Your Company Maintains Procedures for Overseeing Customs Brokers and Freight Forwarders: Ensure there are written protocols that are consistently followed to ensure there is proper oversight of customs brokers and freight forwarders. Confirm that someone at the company is playing point on this coordination and also has been given ACE access to monitor communications to and from Customs.

• Ensure Your Company Maintains Procedures to Monitor Changing Regulations and Importing Requirements: It is important tostay informed about regulatory updates, especially in times when import-related requirements might quickly change. Use tools like ACE data to proactively adjust compliance practices to evolving rules.

Step 3: Address USMCA Compliance. As detailed in Part I, the USMCA is coming up on the deadline for a three-country review, to begin in 2026 (although it is likely that the process will begin earlier). Even in advance of that, we expect Customs to continue prioritizing its review of claims for USMCA preferential treatment, which has been a point of emphasis for CBP over the last few years. Thus, the starting point for USMCA risk planning is to ensure your organization is properly managing its current USMCA posture. Key areas to review include:

• Proper Certificates of Origin at Importation: Importers must have a valid certificate of origin to claim duty-free treatment in hand at the time of importation. Lack of documentation at the time of importation may result in denied preferences and cannotbe remedied after the fact. This is one of the most common importing errors that we see (along with failure to track assists and misclassifications). Avoid this problem by ensuring certificates are available, complete, and maintained for at least five years. Collaborate with suppliers to provide accurate certificates before shipment.

• Compliance with Regional Content Requirements: Products like automobiles must meet specific regional value content thresholds. Conduct a detailed analysis of your supply chain to confirm sourcing meets required content levels.

• Proactively Engage with Suppliers: Communicate with suppliers to verify their understanding of regional content requirements and to confirm they are accurately reporting the same to your company. Work with them to resolve discrepancies and improve compliance practices.

• Proper Declaration of Country of Origin: Incorrect origin declarations may trigger penalties or loss of USMCA benefits; misclassifications can result in the application of the wrong USMCA classification requirements and also increase scrutiny from CBP. Validate claims of USMCA origin using clear supplier documentation and other supporting information. Ensure employees managing import declarations are trained on proper classification and country of origin rules, which often differ from the normal Customs substantial transformation rules, such as when the USMCA requires a tariff-shift analysis or product-specific requirements.

Step 4: Consider Conducting a Customs Audit. A comprehensive customs audit can be essential for identifying compliance gaps and mitigating risks in an increasingly complex trade environment. Regular audits ensure that your organization adheres to import regulations, minimizes the risk of penalties, and maximizes efficiency in import operations. A well-conducted compliance audit can identify inconsistencies in tariff classifications, valuation, or country-of-origin claims and can streamline processes to avoid unnecessary delays and errors in filings, verify that declared values include all dutiable costs, such as assists and royalties, and ensure your company is maintaining proper documentation. A customs audit also should evaluate the robustness of the importer’s procedures for identifying errors after entry and correcting them using post-entry corrections and protests against liquidation.

Evaluate Tariff-Related Risks

Step 5: Conduct a Comprehensive Risk Assessment. A thorough risk assessment is critical to navigating tariff challenges, geopolitical uncertainties, and supply chain vulnerabilities. This step ensures your business understands where risks lie and enables strategic mitigation measures. Key areas to assess include the following:

• Regional Risk: Analyze regions prone to instability, trade disputes, or changing trade agreements. Consider the impact of regional disruptions such as natural disasters or labor unrest.

• Political Risk: Evaluate the vulnerability of goods facing political headwinds, especially those from China, Canada, or Mexico.

• Product-Related Risk: Identify goods facing high tariff rates or subject to frequent trade policy changes, such as steel and aluminum. Evaluate whether certain products have complex classification issues or are affected by partner agency rules.

• USMCA Risk: Evaluate goods from Canada and Mexico that are subject to special rules such as content requirements for automotive goods and heightened rules of origin standards.

• Supply-Related Risk: Assess the concentration of suppliers in high-risk regions or for key products. Evaluate supplier compliance with trade regulations and their ability to adapt to policy changes.

Once the data is in place, begin to analyze risk factors. Create risk matrices for products, regions, and suppliers to quantify and prioritize exposures. Also use supply chain mapping to identify the sourcing of key goods, from raw materials to finished products, that the company may not be sourcing directly. Use all data sources to fully understand company sourcing, how goods work through the supply chain, and hidden sources of risk.

Step 6: Model Different Risk Scenarios. The next step is scenario planning. Risk scenario modeling equips your company to anticipate and navigate potential challenges by evaluating various “what if” situations. Risk scenario modeling will help provide visibility into which areas need immediate attention; can provide informed decision making for supplier diversification, tariff mitigation strategies, and contract negotiations; and enhances preparedness to manage disruptions and to maintain compliance while safeguarding profitability. Areas to consider include:

• Rising Tariffs on Specific Countries or Goods: Be aware of tariff increases on specific countries or goods such as electronics or steel. Watch for escalation of trade disputes affecting major trading partners like China, Mexico, or the EU.

• Adjustments to USMCA Provisions: Track changes to USMCA rules, such as stricter regional content requirements. Be prepared for renegotiations or withdrawal from agreements impacting duty-free access.

• Currency and Geo-Political Risks: Currency fluctuations impact the landed cost of goods. Consider the impact of inflationary pressures and potential currency movements on raw materials or finished goods, taking into account the currency used in contractual arrangements.

• Long-Term Supply Chain Disruptions: Consider likely increased scrutiny of imports due to UFLPA, forced labor and human trafficking, and other supply chain integrity measures. Evaluate potential long-term disruptions due to geopolitical instability, natural disasters, or pandemics as well as how your company would weather supplier shutdowns due to failure to meet trade or labor standards or for other reasons.

• Partner Agency Regulations: Customs acts as the gatekeeper regarding the import-related obligations imposed by several dozen other federal agencies such as the Food & Drug Administration and the Department of Transportation. Failure to meet the requirements of these partner agencies can lead to penalties or detentions of goods at the border. Evaluate whether your organization has identified all potentially applicable partner agency import-related requirements and has taken steps not only to meet these requirements but to document compliance, to allow for a quick response to any detention.

Next, move to modeling scenarios:

• Define Scenarios: Collaborate across Procurement, Compliance, and Finance to identify plausible high-impact scenarios such as rising tariffs on key imports, potential filing of antidumping or countervailing duty actions, or revisions to important USMCA preferences. Incorporate external data on policy trends, trade disputes, and economic forecasts.

• Quantify Impacts: Calculate financial exposure for each scenario, including additional duties, delays, or penalties. Assess operational impacts such as delays in sourcing or increased compliance burdens.

• Develop Response Plans: Create contingency strategies such as diversifying suppliers or renegotiating contracts. Identify alternative sourcing regions with favorable tariff structures, and model how flexibility in supply chains can minimize unexpected international trade developments.

Step 7: Model USMCA Changes. By thoroughly reviewing and modeling current compliance with USMCA, companies can mitigate risks from CBP enforcement. To risk plan for the future and the potential impact of USMCA renegotiations, USMCA modeling should cover the following areas:

• Assess Risk of Stricter Rules of Origin: Model scenarios where rules of origin might tighten such as requiring higher percentages of North American content for products like automobiles, machinery, or textiles. Evaluate likely risk points for increased regional content or special rules such as those affecting steel and aluminum. Evaluate whether your existing suppliers and manufacturing processes can meet potential increases in regional content thresholds or how supply chains could adapt.

• Anticipate Changes in Sector-Specific Provisions: Monitor developments in sectors like automotive, agriculture, and pharmaceuticals as well as steel, aluminum, and derivative products, which may see targeted updates. Evaluate whether stricter labor or environmental standards could alter sourcing costs and require supplier realignment.

• Conduct Supply Chain Reviews: Analyze your supply chain for dependencies on non-USMCA countries that are used as sources of parts and components for USMCA regional production. If rules of origin become more stringent, reliance on these sources might disqualify products from duty-free treatment, thereby increasing costs, so model areas where alternative or secondary suppliers would be prudent.

• Prepare for Cost Impact Modeling: Assess how potential changes could affect tariffs, transportation costs, and pricing. Consider consulting trade specialists to evaluate the financial implications of a shift in USMCA provisions.

Implement Tariff-Mitigation Strategies

Step 8: Implement Practical Commercial Strategies. To effectively navigate trade risks and disruptions, companies must adopt pragmatic commercial strategies. These steps aim to strengthen supply chains, ensure continuity, and reduce tariff exposure:

• Supplier Diversification: Identify and engage alternative suppliers across various regions to reduce dependency on high-risk countries. Assess supplier capabilities, including production capacity, quality standards, and compliance with trade and labor regulations.

• Secondary Sourcing: Establish relationships with secondary suppliers to facilitate rapid transitions if primary sources are disrupted. Prequalify secondary suppliers to ensure readiness for rapid transitions. Develop a database of approved suppliers for critical products to facilitate quick decision making during disruptions.

• Proactive Vetting: Use trade fairs, government networks, and supplier databases to vet potential partners. Conduct due diligence on potential suppliers, including labor standards, certifications, and production practices. Consider initiating qualification procedures and measures to ensure potential secondary or alternative suppliers can meet qualification standards.

• Safety Stock: Increase inventory for high-priority or tariff-sensitive goods to buffer against supply chain delays or sudden cost spikes. Balance inventory costs with the need for operational flexibility.

• Collaboration with Existing Suppliers: Engage in transparent discussions with current suppliers about risks and mitigation strategies. Encourage suppliers to diversify their sourcing of raw materials to prevent cascading disruptions.

Step 9: Review and Update Contracts. Supply chain contracts are pivotal in managing risks associated with tariff volatility and trade disruptions. Regularly revisiting and revising these agreements can provide the flexibility needed to adapt to evolving trade environments. Proactively addressing tariff risks in supply chain contracts reduces financial uncertainty, supports operational continuity, and strengthens relationships with suppliers by fostering transparency and preparedness. Consider the following steps:

• Avoid Over-reliance on Force Majeure or Commercial Impracticability Clauses: These legal defenses are often difficult to invoke and generally will not cover tariff-related disputes. Instead, create specific terms addressing trade policy risks, including tariff hikes or supply chain interruptions. Define clear terms to share or distribute the financial impact of tariff increases between the buyer and supplier.

• Renegotiate Supply Agreements with Built-in Flexibility for Tariff Increases: Consider implementing proactive contractual arrangements to share in potential increases in tariffs. Where possible, include provisions allowing adjustments for changes in tariff rates. Build in clauses enabling renegotiation or termination in cases of significant trade policy shifts.

• Incorporate Alternative Sourcing Requirements: Require suppliers to maintain backup production capabilities or secondary sources to mitigate disruptions. Consider incorporating these requirements into contractual arrangements and establishing penalties or incentives to ensure compliance with these requirements.

• Look for Contractual Leverage Points: Suppliers often will be reluctant to renegotiate contracts, particularly if it involves potential price increases or sharing of tariff-related risks. Look for contractual leverage points relating to contract renewals or potential expansion of purchasing patterns. Consider moving up contract renewals to combine term extensions with tariff-related risk sharing.

Look for Tariff-Saving Possibilities

Step 10: Maximize Duty Savings Opportunities. A well-structured strategy to minimize duty costs can significantly offset the financial burden of potentially increasing tariffs and improve overall cost efficiency in import operations. By leveraging available tools and programs, companies can enhance cash flow, lower landed costs, and reduce their tariff liabilities while ensuring compliance with Customs regulations. Key duty saving measures to consider using include:

• Customs Bonded Warehouses: Customs bonded warehouses allow importers to defer duties by storing imported goods until they are needed. This approach provides cash flow advantages, particularly for products that may be reexported without duty payment.

• Foreign Trade Zones (FTZs): FTZs allow companies to store, assemble, or process goods with deferred or reduced tariffs. Goods within FTZs can be reexported duty-free or entered into the U.S. market with reduced duties based on final product classification.

• Duty Drawback Programs: Duty drawback programs allow importers torecover up to 99% of duties paid on goods that are later exported. This is especially beneficial for businesses with significant reexport activities or defective goods returns.

• Temporary Importation Bonds (TIBs): TIBs allow the importation of goods temporarily without paying duties, provided the goods are reexported within a specified timeframe. TIBs are useful for items like trade show samples, prototypes, or tools of the trade.

• Free Trade Agreements (FTAs) and Special Trade Programs: FTAs, such as the USMCA, provide potential access to preferential duty rates. Importers should investigate eligibility for programs such as the Generalized System of Preferences (GSP) for duty-free treatment on qualifying imports.

• Apply Tariff Engineering: Importers canlegally reduce tariffs by modifying supply chains or the manufacturing steps of products. Tariff engineering can include adjusting production processes to qualify goods under preferential trade agreements, shifting sourcing to countries with lower tariff rates, and implementing minor product changes that result in more favorable classifications. Ensure all changes comply with U.S. Customs and partner agency regulations.

Take Care of Your Supply Chain

Step 11: Identify Your Complete Supply Chain and Map It Out. Supply chain mapping is the process of documenting all suppliers and the flow of goods and products in a supply network. A clear picture of one’s supply chain allows importers to identify efficiency-enhancing opportunities and mitigate the risk of supply chain disruptions. It is possible to create a visual representation of your supply chain using diagrams or software tools, to easily identify connections and pressure points and ensure full knowledge of sub-suppliers, which often is the key compliance risk point for many multinational companies. Some best practices for supply chain mapping include:

• Define Your Product: Clearly identify the products you are mapping, as different products may have different supply chains.

• Identify Stakeholders: Identify all individuals, suppliers, and contractors who contribute to the production, storage, or distribution of your product.

• Understand Supplier Relationships: Get your first-tier suppliers involved in the mapping process and ask them to bring forward knowledge regarding second-tier and third-tier suppliers. Have each entity detail what they sell and what they buy next in the chain from others. As the map expands, you will get a better view of potential risks, bottlenecks, and dangers of relying on single suppliers or businesses with long lead times.

• Document the Flow of Materials and Information: Trace the movement of raw materials through each stage of production, including processing, transportation, and storage, while also documenting the flow of information between stakeholders.

• Evaluate Supplier Capabilities: Assesseach supplier’s production capacity, quality control measures, and compliance with relevant regulations.

Step 12. Conduct a Supply Chain Integrity Check. Compliance with labor and transparency requirements is integral to tariff management. After mapping your supply chain, conducting integrity checks or audits of your suppliers can help your company stay abreast of new developments and comply with laws — especially in the areas of forced labor, human trafficking, modern slavery, and environmental regulations — thus avoiding potential fines or blockages of goods at the border.

• Risk Assessment: Once your supply chain map from Step 11 is complete, conduct evaluations of your suppliers and analyze potential risks at each stage of the supply chain, considering factors like geographical location, political instability, regulatory compliance, labor practices, cybersecurity, and financial stability.

• Update All Terms and Conditions: Make sure your contracts are up to date, and clearly define expectations of your suppliers regarding quality control, documentation responsibilities, labor practices, and environmental impact.

• Incorporate Third-party Audits to Verify Supplier Practices: Use third-party audits, including onsite audits, to help evaluate your suppliers and to assess their compliance with environmental and labor laws and the company’s standards regarding product quality, safety, ethical practices.

• Build and Maintain Supplier Relationships: Foster open communication with suppliers and encourage them to disclose any potential issues before they become significant issues. Offer to help address concerns and implement improvements proactively throughout the supply chain system.

• Continuous Monitoring: Implement systems and regularly monitor your suppliers’ performance and compliance. Evaluate your supply chain for new potential risks that might arise.

The issuance of President Trump’s “America First Trade Policy” underscores just how far ranging the potential changes to the international trade environment may be. The triple pressures of rising tariffs, likely changes to USMCA requirements, and an increasing focus on supply chain integrity underscore the need for importers to adopt a proactive, multifaceted approach to managing import-related risks. By focusing on risk assessment, supplier diversification, compliance audits, and duty savings, importers can not only weather upcoming challenges but also turn them into opportunities for operational resilience and competitive advantage. Under the Trump administration’s trade agenda, businesses should expect heightened scrutiny of imports and expanded enforcement of customs and labor practices. Preparing now ensures resilience and competitiveness in the face of uncertainty.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

During his campaign, President Trump often stated that he would be implementing an “America First” international trade policy, which he said explicitly would include higher tariffs, potentially on imports from the entire world. On January 20, President Trump issued a taking the first steps toward implementing this agenda. This “America First Trade Policy” memorandum directs that multiple federal agencies report back to him by April 1, 2025, on a number of potential measures designed to help implement “a robust and reinvigorated trade policy that promotes investment and productivity, enhances our nation’s industrial and technological advantages, defends our national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”

While the memorandum mostly is cast as a request for informational trade reports, the best way to view this memorandum is as a potential roadmap to the international trade priorities of the new administration. The wide range of issues covered, including the causes of the U.S. annual trade deficits in goods, the economic and national security implications and risks of such deficits, a specific focus on all aspects of trade with China, and an evident desire to reshore significant amounts of goods produced abroad by U.S. companies indicate that nearly all aspects of U.S. international trade are under scrutiny.

As detailed in Part I of our three-part series on Managing Import Risks Under the New Trump Administration, many multinational companies are actively engaged in risk planning the potential impact of the new administration on their international supply chains. The issuance of this new memorandum underscores the urgency of proceeding along these lines. Thus, a thorough understanding of the potential implications of this new memorandum is essential for risk planning a response. Below we list the implications of each of the ordered study items:

“Addressing Fair and Unbalanced Trade”

• The memorandum directs an investigation of the “causes of our country’s large and persistent annual trade deficits in goods,” as well as the national security implications of the same. This, as well as the other actions indicated in this section, calls on agencies to address unfair and unbalanced trade by investigating trade deficits, unfair practices, and currency manipulation, and to recommend appropriate measures to combat the same. The most likely implication of this report will be to start establishing a basis for increasing tariffs, potentially on many or all global trading partners.

• The memorandum directs an assessment of the feasibility of establishing, and recommendations regarding the “best methods for designing, building, and implementing, an External Revenue Service to collect tariffs, duties, and other foreign trade-related revenues.” In other words, Trump is seeking guidance on the best way for the U.S. government to collect external trade revenue, including tariffs. While many commentators expressed puzzlement regarding the purpose of this new way of collecting tariffs — since Customs & Border Protection already is set up to collect these tariffs — it is possible that this request expresses dissatisfaction with CBP oversight of the use of Chinese parts and components for third-country assembly, which the new administration reportedly has viewed as an end-run around the Section 301 tariffs. It also could open the way to other ways of taxing non-U.S. companies that would fall outside of the collection of tariffs.

• The memorandum directs early preparations for the trilateral United States-Mexico-Canada Agreement (USMCA) review, including an assessment of the “the impact of the USMCA on American workers, farmers, ranchers, service providers, and other businesses.” The focus on the USMCA raises questions about how these potential changes may impact U.S.-Mexico economic relations and Mexico’s role as an essential U.S. trading partner. If the U.S. finds Mexico’s trade practices to be noncompliant with the terms of the USMCA or unfairly advantageous, Mexican goods may be subject to new tariffs. Further, with President Trump elsewhere promising new 25 percent duties on Canada and Mexico as retaliation for a perceived lack of urgency regarding immigration and fentanyl exports to the United States, there is a strong possibility that changes could upend trade within the USMCA region on a far quicker timeframe.

• The memorandum directs an investigation of exchange rate policies of trading partners. Here, Trump is seeking an assessment of any potential currency manipulation or misalignment that prevents effective balance of payment adjustments or that provides trading partners with an unfair competitive advantage in international trade. Trump also calls for the identification of any countries that should be designated as currency manipulators, which almost certainly is directed at countries that maintain large trade deficits with the United States, particularly China. This could mark the end of the longstanding “strong dollar” informal trade policy of the United States, which dates back to the Clinton administration and could mark a return to Reagan-era intervention in currency markets on a multi-country basis to lower the value of the dollar.

• The memorandum directs a review of all current free trade agreements, as well as countries “with which the United States can negotiate agreements on a bilateral or sector-specific basis to obtain export market access.” In other words, Trump is calling for a review, and potential revision, of all of America’s free trade agreements, with a view toward obtaining reciprocal and mutually advantageous concessions.

• The memorandum directs a review of policies and regulations regarding the application of antidumping and countervailing duty laws, including with regard to transnational subsidies, cost adjustments, affiliations, and zeroing. The United States already maintains a record inventory of antidumping and countervailing duty orders, which could effectuate any changes to calculation methodologies in annual administrative reviews. Changes designed to increase calculated margins also could encourage more industries to file new antidumping and countervailing duty petitions, particularly against China (the most frequent target of such actions by far).

• The memorandum directs an assessment of the “loss of tariff revenues and the risks from importing counterfeit products and contraband drugs” that result from the current implementation of the de minimis exemption, as well as any necessary modifications to that exemption. This provision, among others, signals the Trump administration’s attention toward the flow of fentanyl and counterfeit goods across U.S. borders, including those originating from or passing through Mexico. Depending on the outcome, this could cause significant economic challenges for Mexico’s largely export-driven economy and severely impact U.S.-Mexico trade relations, particularly because it is impossible to divorce this issue from the upcoming trilateral review of the USMCA.

• The memorandum directs an investigation into whether any foreign country subjects U.S. citizens or corporations to discriminatory or extraterritorial taxes. Given the expansive use of Section 301 in the first administration, such reports could serve as a basis for expansive action in return, much as the Section 301 investigation into Chinese intellectual property practices morphed into a decision to raise tariffs on more than half of all imported Chinese goods.

• The memorandum directs a review of all trade agreements on “the volume of Federal procurement” related to the Buy American and Hire American executive orders. By calling for recommendations to ensure such agreements are being implemented in a manner that favors domestic workers and manufacturers, Trump indicates potential restrictions on the use of foreign firms that supply the U.S. government.

“Economic and Trade Relations with the People’s Republic of China”

• The memorandum directs a review of the Economic and Trade Agreement Between the U.S. and the Government of the People’s Republic of China (PRC) to determine whether the PRC is acting in accordance with this agreement. By seeking recommendations on appropriate actions to be taken based on the findings of this review, “up to and including the imposition of tariffs or other measures as needed,” Trump is signaling that new tariffs may be imposed on Chinese goods if the U.S. finds the PRC is not acting in compliance with the agreement.

• The memorandum directs an examination of potential additional modifications to the Section 301 tariffs on China, particularly with respect to industrial supply chains and circumvention through third countries. It is widely viewed that China failed to act in accordance with the earlier, partial settlement of certain Section 301 tariffs, which were suspended in the first Trump administration. It is likely this review will be used as a basis for further increasing the Section 301 tariffs on many Chinese products.

• The memorandum directs an investigation into other acts, policies, and practices by the PRC that may be unreasonable or discriminatory and that may burden or restrict U.S. commerce, and recommendations regarding appropriate responsive actions. Again, Trump here is signaling that changes to the U.S.-PRC trading landscape are imminent if the U.S. finds the PRC is engaging in discriminatory acts that restrict U.S. commerce. The likely endpoint is an expansion of earlier Section 301 tariffs based on a far wider-ranging set of grievances with Chinese trading practices.

• The memorandum directs a study of legislative proposals, and any needed changes to them, regarding permanent normal trade relations status for imports from China. There is bipartisan agreement in Congress regarding taking a skeptical approach to China, in matters of trade and otherwise. In addition to telegraphing a desire to permanently enshrine restrictions on trade with China into U.S. law (which would be much more difficult for a future administration to reverse), these efforts could reach related trade issues such as further restrictions on trade with China based on the treatment of the Uyghur people and their role in producing products intended for sale in the United States.

• The memorandum directs an assessment of the status of U.S. intellectual property rights such as patents, copyrights, and trademarks conferred upon PRC persons. In other words, changes may be implemented to “ensure reciprocal and balanced treatment of intellectual property rights with the PRC.”

“Additional Economic Security Matters”

• The memorandum directs a full economic and security review of the U.S. industrial and manufacturing base to assess whether to initiate investigations to adjust imports that threaten national security. This review of U.S. manufacturing and industrial vulnerabilities will inform new policies aimed at insulating domestic industries from reliance on imports. There is a high likelihood that this could lead to further revisions to CFIUS (Committee on Foreign Investment in the United States) reviews, which were considerably tightened in recent years.

• The memorandum directs an assessment of the effectiveness of the exclusions, exemptions, and other import adjustment measures on steel and aluminum in responding to threats to the national security of the United States. This provision, like the above, illustrates Trump’s goal of safeguarding domestic industrial and manufacturing industries from relying on imports.

• The memorandum directs a review of the U.S. export control system and advice regarding necessary modifications in light of developments involving strategic adversaries or geopolitical rivals, as well as all other relevant national security and global considerations. With an eye toward “identifying and eliminating loopholes in existing export controls, especially those that enable the transfer of strategic goods, software, services, and technology to strategic rivals and their proxies,” this provision implicates potential changes to the U.S. export control landscape, with the technology sector being most vulnerable to such changes. Trump’s call for recommendations of “enforcement mechanisms to incentivize compliance by foreign countries, including appropriate trade and national security measures,” illustrates the administration’s inclination to use trade measures as negotiation tools.

• The memorandum directs a review of the rulemaking by the Office of Information and Communication Technology and Services (ICTS) on connected vehicles, and consideration of expanding the controls. In other words, this provision marks the potential expansion of controls on ICTS transactions to connected products other than vehicles.

• The memorandum directs a review of the legal landscape regarding U.S. investments in certain national security technologies and products in countries of concern. If the U.S. finds this legal landscape does not contain sufficient controls to address national security threats, changes may be implemented, including potential modifications to the Outbound Investment Security Program.

• The memorandum directs an assessment of any distorting impact of foreign government financial contributions or subsidies on U.S. federal procurement programs. In other words, Trump is seeking guidance, regulations, or legislation to combat any such distortion to protect federal procurement programs from unfavorable impacts of foreign governments.

• The memorandum directs an assessment of the “unlawful migration and fentanyl flows from Canada, Mexico, the PRC, and any other relevant jurisdictions” and seeks recommendations of appropriate trade and national security measures “to resolve that emergency.” This provision raises the prospect that new tariffs or other measures may be imposed to pursue Trump’s broader policy goals of combating unauthorized migration and fentanyl flows from other countries, with the focus being on Canada, Mexico, and the PRC. Elsewhere, Trump has promised 25 percent tariffs to incentivize solving these concerns, beginning potentially as soon as February 1, 2025.

Implications

While the memorandum outlines a vast series of reviews of U.S. trade policy and investigations of trade imbalances and unfair practices, it is not yet clear how this very broad laundry list of international trade objectives will play out. Potential outcomes range from using the threat of tariffs to accomplish other goals (e.g., immigration, fentanyl) to setting up renegotiations of Free Trade Agreements on more favorable terms (particularly for the USMCA), to the establishment of permanently higher tariffs. Notably, the memorandum raises questions as to the future of U.S.-Mexico trade relations, a focus that takes on increased urgency given the impending trilateral review when combined with President Trump’s focus on immigration and fentanyl from Mexico and Canada. The focus on revisiting the USMCA threatens increased restrictions or provisions that may disadvantage Mexico’s export-driven economy and impact Mexico’s role as a key U.S. trading partner, with particularly strong implications for the U.S. automotive sector.

Given these concerns, Part III of this series will focus on concrete steps that multinational companies can take to risk plan for potential major changes in the international trade environment, particularly with regard to the topics of potential changes to tariff rates, potential changes to the USMCA, and potentially greater scrutiny of supply chain integrity requirements, particularly as they relate to China and imports using Chinese parts and components.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

The expected focus on tariffs and supply chain issues by the Trump administration presents significant risks for frequent importers. Determining the best strategy to deal with potential import uncertainties are muddled by President-elect Trump not yet being in office and the ever-shifting tariff-related statements that he has made — ranging from plans to target Canada and Mexico with 25 percent tariffs, BRICS countries (comprising Brazil, Russia, India, China, and more recently additional countries in the Middle East and Africa) with 100 percent tariffs, and the rest of the world with 10–20 percent tariffs. Just before publication of this article, the Washington Post published an article indicating the Trump team had moved on from an initial focus on universal tariffs to a targeted approach, looking to increase tariffs on certain products with a national security focus — a claim that President Trump promptly dismissed as “fake news.” So while it is clear that increased tariffs are a virtual certainty, the specific form and scope that such tariffs will take is still very much up in the air.

It also is clear that, along with increasing tariffs (in some form), there will be an increasing emphasis by Customs on ensuring that U.S. importers are not manipulating country-of-origin principles to make an end-run around higher tariffs, particularly from China. Among increasing anecdotal reports that many importers are using Chinese parts and components with minor assembly operations in third countries to erroneously claim a non-Chinese country of origin — and thus avoid paying Section 301 duties — it is very clear that Customs will be closely scrutinizing imports from third countries, particularly imports from Southeast Asia and Mexico, to be certain that products containing substantial Chinese-origin content are claiming the correct country of origin.

Finally, there is another China-related issue that also is going to receive heightened scrutiny, which is supply chain integrity. With many supply chain concerns directly or indirectly relating to China — an almost-certain future target for import-related actions — it is apparent that increasing regulator focus on supply chain integrity concerns, including under the Uyghur Forced Labor Prevention Act (UFLPA), have to be handled alongside concerns about potentially rising tariffs.

So all in all, while the broad contours of how the importing environment will change is clear, the specifics are difficult to fathom. But the lack of import-related certainty is not a reason for importers to throw up their hands and do nothing; rather, it is a reason to engage in risk-based contingency planning. What is needed is a strategic approach to navigate what will likely be rapid changes in the importing environment, so importers can risk-plan and position themselves to navigate likely increases in tariff levels, regulator expectations of importers implementing supply chain integrity measures, and enforcement actions — all while taking steps to ensure minimal disruption to import operations.

We are frequently receiving requests to help importers deal with both tariff and supply chain integrity concerns in light of the expected priorities of the incoming administration. In response to these requests, we are publishing a three-part article with the goal of helping frequent importers risk-plan for the tariff and supply chain integrity priorities we think will be a focus of the new administration. In Part I, we identify the nine key risks (and three potential tariff-saving opportunities) that most major importers face. Part II, to be published in two weeks, focuses on President Trump’s “America First Trade Policy,” examining his  taking the first steps toward implementing this agenda. Finally, Part III offers practical advice regarding how to navigate these potential major changes in the international trade environment, featuring a 12-step guide to preparing for and adapting to the rapidly shifting importing environment.

Since the starting point in risk-planning is to identify the universe of potential issues, for most importers it is important to take into account the following 12 risks and opportunities:

Tariff-Related Concerns

• Risk #1: Risks Arising from Potentially Rising Tariffs: Rising tariffs on imports from key trade partners — such as China, Canada, Mexico, or perhaps the entire world — can disrupt supply chains, increase costs, and force companies to reconsider their import practices. Importers that are heavily reliant on imported goods face financial uncertainty for their business operations and need to evaluate closely the financial impact of threatened (and other) potential tariff increases as a basis for preparing mitigation plans.

• Risk #2: Risks Arising from Increasing Antidumping and Countervailing Duty Orders: Antidumping and countervailing duty orders can impose duties that are sharply higher than normal Chapter 1–97 duties or even Section 301 duties — ranging into the triple digits, especially for non-market economies like China or Vietnam. The environment for U.S. industries to take actions against what they believe to be unfairly priced or subsidized imports will be very receptive in the new administration. Such actions are particularly likely to target China, although it is possible to bring petitions against multiple countries. Monitoring the filing of new petitions is essential, as is risk-planning how to handle such actions.

• Risk #3: Risks Arising from USMCA Exposure: The U.S.-Mexico-Canada Agreement (USMCA) introduced complex rules of origin, content, and other requirements, particularly for companies with industry-specific rules, such as the automotive sector. Failure to comply with these rules can lead to penalties or loss of preferential tariff treatment. Monitoring claims for preferential tariff treatment under the USMCA already is an enforcement priority for CBP; importers should plan for an enhanced focus on USMCA compliance under the new administration. Importers should evaluate their USMCA exposure and their compliance with the rules, including through potentially conducting USMCA-focused compliance audits.

• Risk #4: Risks Arising from USMCA Renegotiations: Under the terms of the USMCA, the three parties are required to review and reauthorize the agreement in 2026. The scope of the review is expected to be broad based, ranging from technical changes and updates to cover new industries that were not as much a focus when the USMCA was originally negotiated (artificial intelligence, electric vehicles, etc.). It is widely expected that trade-related areas that have become political hot topics (imports of fentanyl, border security, etc.) also will occupy the personal attention of President-elect Trump. We also anticipate that the increasing investment of Chinese companies in Mexico and the use of Chinese-origin parts and components (potentially to navigate around Section 301 tariffs imposed against China by the first Trump administration) will be a key focus. Proper risk planning needs to take USMCA uncertainties and potential USMCA changes for all these areas into account.

• Risk #5: Risks Arising from CBP Data Mining: All importers are now required to provide full electronic information for each entry using the Automated Commercial Environment (ACE) portal. CBP has full access to this ACE data and uses sophisticated data mining algorithms to identify anomalies and potential duty underpayments. Importers who lack accurate and consistent reporting when importing may become targets for audits and investigations. Part of import risk planning is to review such data in advance of CBP, such as through risk-based customs audits.

• Risk #6: Risks Arising from Customs Non-Compliance: Non-compliance with customs regulations, whether intentional or accidental, can lead to penalties, audits, and shipment delays. Regularly reviewing import documentation, country of origin determinations, tariff classifications, valuation methods, assists tracking, and other elements required to ensure the correct payment of duties is especially important when operating in a high (and rising) tariff environment.

Risks Arising from Supply Chain Concerns

• Risk #7: Risks Arising from Supply Chain Integrity Concerns: The increased enforcement of regulations targeting forced labor, such as the increasing CBP enforcement of the UFLPA, raises risks for companies with opaque supply chains. Such enforcement is likely to be higher in the new administration. Importers should consider implementing supply chain best practices such as mapping supply chains, implementing thorough know-your-supplier due diligence, updating their terms and conditions to implement supply chain integrity measures, adopting traceability tools, and conducting supply chain audits to ensure compliance.

• Risk #8: Risks Arising from Not Having Flexible Supply Chain Arrangements: Global trade dynamics necessitate flexible supply chain contracts. Fixed terms may prevent your firm from adapting to sudden tariff increases or the need for rapid sourcing shifts. Part II will cover a variety of supply chain suggestions that can help ensure supply chains are robust and flexible.

Risks Arising from Enforcement of Partner Agency Regulations

• Risk #9: Risks Arising from Enforcement of Partner Agency Regulations: Imports subject to partner agency oversight — such as the Food & Drug Administration (FDA), the National Highway Traffic Safety Administration (NHTSA) for automotive items, or the Environmental Protection Agency (EPA) for certain chemicals — face heightened enforcement. Because Customs increasingly is using ACE data to flag potential partner agency non-compliance, there is every reason to believe this trend will continue and increase in the new administration. Non-compliance with these regulations can result in detentions, penalties, and shipment rejections. Any customs audit should include compliance with applicable partner agency regulations enforced by Customs.

Opportunities from Enhanced Risk Planning

• Opportunity #1: Opportunities from Duty-Saving Strategies: Despite rising tariffs, importers can leverage duty-saving programs such as bonded warehouses, foreign-trade zones (FTZs), duty drawbacks, and temporary importation under bond (TIB). Proper classification can, in some instances, result in duty savings (or the reduction in risk). Importers should include the potential application of duty-saving measures in any customs audit to look for opportunities to reduce duty liabilities and improve cash flow.

• Opportunity #2: Opportunities Arising from Establishing a Flexible Supply Chain: A flexible supply chain allows businesses to respond swiftly to tariff changes or supply chain disruptions. Diversifying suppliers and sourcing from lower-risk regions, setting up alternative and secondary sources, and taking other measures to create a flexible supply chain can help enhance resilience and set up the company for import cost efficiencies if the tariff situation rapidly changes.

• Opportunity #3: Opportunities from Tariff-Engineering: Tariff engineering — redesigning products to shift classifications or the country of origin, using the middle-man rule, changing production patterns to allow full access to free trade agreement preferences, or employing other tariff-saving measures — can help businesses reduce tariff liabilities and increase flexibility in responding to rapid changes in the tariff environment.

The new Trump administration could not be signaling any more obviously that it will have an initial and relentless focus on tariffs and supply chain issues. Importers should anticipate import-related risks and seize opportunities by strengthening compliance efforts, diversifying supply chains, and exploring duty-saving mechanisms. A robust import management strategy is essential for navigating the complexities of global trade in the coming administration while safeguarding profitability.

Our next biweekly article will explore practical risk-modeling strategies to help address these import-related risks, including a 12-step plan for coping with tariff and supply chain uncertainties.

If you have questions or concerns about this article, please feel free to reach out to any of the authors or your Â鶹´«Ă˝ & Lardner attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

Mexico is a key player in both the United States-Mexico-Canada Agreement (USMCA) and Latin American regions. Nearshoring, the practice of relocating an operating business or supply chain closer to home markets, is a rapidly growing trend, particularly for international companies seeking alternatives to supply the U.S. market. While the opportunities are significant, there also are various challenges that companies must navigate to operate successfully in Mexico. Companies deciding whether to nearshore into Mexico must understand these potential risks — and how to mitigate them effectively — in order to maximize the opportunities gained from operating in the country.

Below we have highlighted key opportunities and challenges to consider when deciding whether to engage in operations in Mexico.

Opportunities

• Strategic Location: Mexico’s geographic proximity to the United States makes it an ideal location for nearshoring. Its shared border with the U.S. significantly reduces shipping times, lowers transportation costs, and makes inventory management more agile. With many companies now seeking to reduce their dependency on distant overseas suppliers, Mexico’s position as a neighbor to the U.S. market is a key advantage for industries that depend on quick turnaround times, such as automotive, electronics, and consumer goods.
• Large and Growing Market: With a population of over 130 million people, Mexico offers a large and relatively young consumer base with a growing middle class. This dynamic demographic makes Mexico an attractive market for a wide range of goods and services, particularly in industries like retail, telecommunications, and consumer products.
• Free Trade Agreements: Mexico has established a network of free trade agreements (FTAs) with numerous countries, including the European Union, those in the Trans-Pacific (CPTPP) region, Japan, Israel, and several Latin American nations. These agreements provide businesses with access to reduced tariffs and other preferential treatment measures, making it easier to trade products with these countries and within such regions. The USMCA in particular has nurtured strong regional supply chains through which inputs swiftly cross international borders multiple times before being exported as a finalized product.
• Robust Manufacturing Sector: Mexico’s manufacturing sector is well developed and mature, particularly in the automotive, electronics, and aerospace industries. The country offers a strong industrial base and high-quality production capabilities, supported by modern facilities and a cost-effective workforce.
• Lower Labor Costs: Labor costs in Mexico are significantly lower than in the U.S., making it an attractive option for manufacturers looking to cut costs while remaining close to their primary consumer markets. Even though labor rates in Mexico recently have been rising, there remains a significant gap with those in the U.S., giving businesses a competitive edge, particularly in industries that require high-volume, low-cost production. Mexico’s workforce is skilled and well educated, with an expanding pool of workers fluent in English, which facilitates communication with U.S.-based companies and enhances collaboration.

Challenges

• FCPA Risk: The U.S. Foreign Corrupt Practices Act (FCPA) is an important consideration for companies operating in Mexico. Corruption historically has been a concern, and businesses may encounter pressure to engage in bribery or unethical practices to navigate local bureaucracy, particularly with respect to procuring necessary permits, approvals, or licenses. Companies should ensure they have a robust compliance program that includes comprehensive anti-bribery policies, training, and internal controls designed to prevent and detect FCPA violations.
• Security Concerns: Businesses operating in areas affected by violence or extortion may face threats to their personnel, assets, or supply chains. Security costs, including the need for specialized security personnel, transportation services, or risk management solutions, can be significant.
• OFAC Compliance: The U.S. government’s Office of Foreign Assets Control (OFAC) has sanctioned various Mexican individuals, businesses, and entities with ties to illicit activities such as drug trafficking and money laundering, placing them on the Specially Designated Nationals and Blocked Persons list (SDN List). If a U.S. company fails to conduct adequate pre-transaction screening and inadvertently engages in business with an entity or individual on the SDN List, the company could face severe legal and financial penalties.
• Dependence on Certain Imported Inputs and Regulatory Environment: Mexico relies on certain imported inputs and sub-assemblies to be further processed in the country, and importation processes can be challenging due to intricate customs regulations and other compliance requirements. Companies need to navigate complex paperwork and potential delays, which can add to the cost and time of doing business. Understanding and complying with local regulations — ranging from product certifications to environmental and safety standards — is critical.
• Labor Issues: While companies benefit from relatively low labor costs in Mexico, businesses must understand and navigate Mexico’s labor laws and practices, which can be complex and subject to change. Workers’ rights, union influence, and wage regulations are important considerations when hiring and managing a workforce. Recent reforms to labor laws, for example, have increased the bargaining power of workers and unions, and companies must be prepared to act promptly to ensure compliance with the evolving labor regulations.
• Rule of Law: With recent constitutional amendments leading to a staggered replacement of a substantial portion of Mexico’s federal and local judges by means of public elections of candidates (some of whom may have little-to-no judicial experience), companies will need to rely increasingly on alternative dispute settlement mechanisms to resolve controversies with their business counter-parties and stakeholders.
• Possibility of a Trade War in the USMCA Region: The incoming U.S. administration has threatened to impose a 25% tariff on all Mexican and Canadian goods (coupled with an additional 10% on Chinese products), to which Mexico has responded by warning of retaliatory measures, yet encouraging dialogue. Given the popularity of the USMCA within the business community, there is hope that ongoing negotiations will result in a business-friendly compromise acceptable to all three countries. But if domestic political issues dominate these discussions, there is a potential for significant trade restrictions and, in turn, ramifications for businesses operating in all three USMCA countries[1].

Conclusion

Nearshoring into Mexico offers numerous advantages, particularly in terms of cost savings, logistical efficiency, and increased access to international markets. Mexico’s proximity to the U.S. and its skilled labor force makes it an attractive destination for businesses looking to reduce their dependence on distant global supply chains. In deciding to maximize these advantages, companies must also be mindful of the challenges associated with corruption, security, regulatory compliance, labor issues, and uncertainty in its judicial system and in the international trade landscape. However, with careful planning and risk management, nearshoring into Mexico is an increasingly popular choice for businesses looking to maintain competitive advantage in an evolving global market.

If you have any questions about nearshoring in Mexico, contact the authors of this article or your Â鶹´«Ă˝ attorney. If you would like to see future updates regarding “What Every Multinational Company Needs to Know” about operating in today’s complicated international trade world, please sign up for our biweekly email list. .

To view all articles in our “What Every Multinational Company Needs to Know” series, click here.

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[1]  This standoff may very well be the signal to revise how a tariff increase would be borne in your (likely several) current Terms and Conditions.