On April 2, 2025, after weeks of speculation and heightened
geopolitical tension, President Trump announced sweeping global
tariffs on what he dubbed “Liberation Day”. The tariffs
included a baseline universal tariff of 10% on most imported
foreign goods,1 in addition to specific “reciprocal
tariffs” on several major trading partners. It was initially
announced that the universal tariff would go into effect on April
5, while the reciprocal tariffs were due to begin on April 9.
However, on April 9, 2025, Trump announced that most of the
reciprocal tariffs would be delayed for a period of 90 days.
As the global community grapples with the ramifications,
companies are urgently assessing the impact on their operations and
supply chains.
In this article, we provide a snapshot of the latest key tariff
changes, reactions from major trading blocs, and we explore some of
the immediate steps companies should be
considering.2
Snapshot of tariff changes
Below is a summary of some of the key tariff changes recently
announced by the U.S.
All countries are currently subject to a 10% tariff until the
90-day pause window ends in July, at which point the tariffs are
set to increase to the “Liberation Day” rates. Notably,
the new tariffs will not apply to products already subject to
tariffs, including steel, aluminum, automobiles, and parts. Also
exempt are products such as copper, pharmaceuticals,
semiconductors, lumber products, gold bullion, energy and minerals
that are not available in the U.S., and most recently (in respect
of Reciprocal Tariffs), smartphones, computers, and certain other
electronic devices and components (although, this appears to be
subject to change). Nevertheless, the White House has identified
additional products and sectors that merit further investigation,
including pharmaceuticals, semiconductors, and certain critical
minerals. This may lead to tariffs targeting these sectors.
*Canada and Mexico were deemed exempt from the “Liberation
Day” tariffs because they were already facing 25% tariffs,
imposed earlier in March.
Further context
Exercising authority under the International Emergency Economic
Powers Act of 1977 (IEEPA), President Trump mandated a universal
baseline tariff of 10% on all imported foreign goods (Universal
Tariff), effective from April 5, 2025. In addition, reciprocal
higher tariffs (Reciprocal Tariffs) were also imposed on countries
with which, President Trump argued, the U.S. has the largest trade
deficits these Reciprocal Tariffs were due to take effect from
April 9, 2025. However, in a decision made by President Trump on
April 9, those Reciprocal Tariffs were delayed for a period of 90
days (to the exclusion of China). The Universal Tariffs, on the
other hand, are now in effect. For further information on the IEEPA
and U.S. tariff regime, please see our article ‘Trump’s reciprocal tariff program’
here.
The U.S. has explained that Reciprocal Tariffs represent the
tariff rate deemed necessary to balance the bilateral trade
deficits between the U.S. and its trading partners. The U.S. Trade
Representative indicated that this calculation assumes that
persistent trade deficits are due to a combination of tariff and
non-tariff factors that prevent trade from balancing. It is
understood the Reciprocal Tariffs have been calculated by reference
to the U.S. goods trade deficit with a country. For instance, it
was announced that the U.S. will impose a 34% tariff on China by
reference to a calculated 67% trade deficit that the U.S. has with
China. Notably, the “trade barriers” used to calculate
the Reciprocal Tariffs were not confined to tariffs imposed by each
country. Rather, these trade barriers were assessed by reference to
a wide array of trade measures including value-added tax.
Questions have arisen regarding the countries targeted by
Reciprocal Tariffs. More specifically, Russia, North Korea, Cuba,
and Belarus are not featured. This has been justified on the basis
that these countries already face significant tariffs, and existing
sanctions effectively preclude any meaningful trade with the U.S.
Nevertheless, the U.S. continues to trade significantly more with
Russia than it does with some other jurisdictions that are included
on the list of Reciprocal Tariffs.3
The U.S. tariffs are set to continue in place indefinitely.
Furthermore, the IEEPA order contains a modification authority that
authorizes President Trump to adjust the tariff rate if trading
partners choose to either retaliate or take significant steps to
remedy non-reciprocal trade arrangements and align with U.S.
economic and national security policies.
Retaliation and beyond
Major trading partners of the U.S. continue to grapple with how
best to respond to the seeming breakdown in the global rules-based
trading system that has functioned for many decades. While the
responses appear to have been mixed, as at the date of this
article, the U.S. has indicated that more than 50 world leaders
have sought to engage with the administration to reach a new trade
deal.
Generally speaking, the U.K. Government appears to have adopted
a less confrontational strategy—careful to avoid being
targeted with tariffs for U.S. bound goods higher than 10%. The
U.K. Business and Trade Secretary, Jonathan Reynolds, initiated a
consultation process, inviting businesses to share perspectives on
potential retaliatory measures. He has emphasized that, while the
U.K. remains committed to negotiating a trade deal with the U.S.,
it may consider retaliatory measures if an agreement is not
reached. As part of this consultation, the U.K. published a
400-page indicative list of U.S. goods that could be targeted in a
potential future response.
In Europe, the president of the European Commission, Ursula von
der Leyen, has been highly critical of the tariffs, reiterating
plans to protect EU businesses and noting that the EU is preparing
countermeasures in the event that a trade deal with the U.S. cannot
be reached. In particular, the EU says it has offered the U.S. a
“zero-for-zero” tariff pact for industrial goods. There
is speculation that the EU may invoke its Anti-Coercion Instrument,
which would permit the EU to adopt any measures deemed necessary in
the event of third party “coercion”. Such countermeasures
may include sanctions and tariffs, and they can also target
specific individuals and companies. It is possible that such
countermeasures may include the targeting of U.S. services exported
to Europe in addition to tariffs on goods. The European
Commissioner for Trade and Economic Security, Maros Sefcovic, says
that the EU is “prepared to use every tool in our trade
defense arsenal to protect the EU single market”.
Asian countries are some of the hardest hit by the new U.S.
tariffs. China reacted almost immediately by imposing an equivalent
34% tariff on U.S. imports, to which the U.S. administration
reacted by imposing a 104% tariff on China. On April 9, China
increased its tariff on U.S. imports to 84%. The U.S. has since
imposed a 125% tariff on China. On April 10, China matched this
rate for U.S. imports. As part of its retaliation, China has also
imposed sanctions on the U.S., adding 12 U.S. companies to an
export control list, and six U.S. companies to their unreliable
entity list. More broadly in the region, Vietnam, Indonesia,
Cambodia and India have stated that they will not retaliate.
Likewise, whilst Australia has voiced criticism of the tariffs, it
has indicated that it will not retaliate.
Mexico has stated that, whilst it wants to avoid imposing
Reciprocal Tariffs on U.S. goods, it does not rule it out.
President Claudia Sheinbaum said that her country wants to continue
talks with Washington before taking on any other measures, whilst
also protecting Mexican industries and companies.
The evident challenge for businesses is that the political
context remains highly fluid and unpredictable. Responding to an
environment in which the rules may change on a daily basis makes
any mitigation strategy difficult to effectively design and
implement.
Immediate considerations
Evaluating your supply chains and production
hubs
Tariffs will affect the competitiveness and resilience of
established supply chains in affected sectors. Some will be more
vulnerable than others, particularly where there are multiple
components sourced from different markets. The true impact is
highly business specific. Each supply chain will need to be
assessed to fully determine the impact tariffs and retaliatory
measures will have. The immediate answer for some businesses will
be to onshore or “friend-shore” production, but this will
take time and the benefits of any such moves could be turned on
their head by a change in policy approach. Shifting complex
production facilities, and obtaining local regulatory approvals,
can take many months if not years for some sectors.
Don’t forget the rules of origin
Part of any supply chain (re)assessment will be a detailed
review of the actual origin of products and their components.
Rules of Origin (ROOs) determine the economic nationality of
goods in international trade. The significance of ROOs stems from
their role in the application of tariffs, trade policies, and
import restrictions, and they are a cornerstone of free trade
agreements (FTAs). Applying the relevant tariff rates hinges on
accurately identifying the origin of the goods.
ROOs will be determined under international trade law, but
different rules can be applied via FTAs and across goods. The ROOs
that apply to trade between, for example, the U.S., Mexico, and
Canada under the United States-Mexico-Canada Agreement (USMCA) will
be different to those applying to trade between, for example, the
U.S. and Singapore under the U.S./Singapore FTA.
One topical example of how ROOs can play a role is the
automotive sector. According to the U.S. Government, of the 16
million cars bought by Americans in 2024, 50% were imported. Of the
other 50% which were assembled in America, the average domestic
content of each vehicle was around 40%. The question, therefore,
will be which tariffs apply to which components? Or is the tariff
targeting the assembled/finished good? If a good is merely
assembled in a country, is that its true origin for tariff
purposes? What are the consequences if the majority of a good’s
components are manufactured in a third country?
As a result, any assessment of the impact of tariffs, and your
associated mitigation strategy, needs to consider the ROOs in play
and the source of the good in question.
Does the World Trade Organization have a
role?
Not in the near term. The rules-based system of international
trade has been turned on its head. A key component of that system
was the World Trade Organization (WTO), but that has largely been a
moribund body for several years. The fact that the WTO dispute
mechanism is in suspended animation has not stopped Canada and
China from seeing it as a potential route. On April 7, 2025, Canada
initiated a WTO dispute regarding the U.S. tariffs on automobiles
and automobile parts from Canada. According to the WTO, Canada
argues that the tariffs are inconsistent with the obligations the
U.S. has under several provisions of the 1994 General Agreement on
Tariffs and Trade (GATT). China similarly initiated a WTO dispute
on April 8, 2025, on similar grounds.
While tariffs are legally permitted as a trade policy, all WTO
member states, including the U.S., have agreed certain upper limits
on the tariffs they impose, known as “bound rates”.
Further, pursuant to the WTO’s Principles of the Trading
System, WTO member states must observe the most-favored-nation
principle (MFN), which means that apart from certain exceptions,
countries cannot grant one country a “special favor”
without doing the same for all other WTO members.
Violating the MFN principle could potentially lead to a dispute
being brought before the WTO Dispute Settlement System (DSS), as we
have seen with Canada and China. Each country’s request for
consultation with the U.S. under the WTO dispute mechanism argues
that the U.S. has breached the MFN principle and imposed duties in
excess of the bound rates, with disproportionate penalties for
breaches of customs regulations. However, the highest authority
within this system, the WTO Appellate Body, is currently not
functional. This is due to the U.S. persistently blocking the
appointment and reappointment of its members, resulting in the
Appellate Body lacking the necessary quorum to operate. As a
consequence, countries aiming to challenge the legality of U.S.
tariffs through the DSS are likely to face significant practical
difficulties. The absence of a functioning Appellate Body means
that, even if a dispute is initiated, the process may be stalled or
unresolved, making it an arduous task for any nation seeking
redress. The outcome of Canada’s and China’s requests for
consultation is therefore one to watch, but companies should not
plan on the basis that WTO channels can be effectively utilized to
resolve the current crisis in the near term.
Reviewing your contractual risk allocation
Companies impacted by the new tariffs should assess how the
tariffs are addressed (intentionally or otherwise) in their
existing contracts. In the immediate term, exporters to the U.S.
should consider a number of steps including the following:
- Once you are clear on the potential tariffs and associated
rates in play (noting the rules of origin above), and who actually
bears the obligation to pay, review your existing commercial
contracts to determine how the cost of tariffs is addressed (if at
all). - Even if not explicitly addressed, consideration should be given
to whether the imposition of a tariff could be classified as a
force majeure event and/or fall within the scope of any tax
provisions in the agreement. For further discussion of force
majeure clauses, see our article ‘Tariffs and force majeure’ here. - Consider the economic burden of the tariffs and potentially
engage with suppliers, customers, and intermediaries as regards
pricing adjustments or, in the worst case, changes to supplies of
products where it is no longer economically feasible to
continue. - Review termination provisions and associated grounds (alongside
mechanisms for dispute resolution). - Ensure you have robust tariff clauses (and related provisions
such as termination provisions) in your agreements going forward.
These will need to address not just U.S. tariffs but
counter-tariffs from third countries.
Disclosure rules
U.K. and EU listed companies subject to market abuse rules will
need to be mindful of their disclosure obligations with respect to
inside information as part of the market abuse regime. Companies
should consider the test for inside information in this new world
of tariffs, and how this could trigger disclosure requirements, as
follows:
- The information as it relates to the tariffs must directly or
indirectly relate to the company, its shares or any of its
financial instruments, so general information about the tariffs
will not meet this company nexus requirement. - The information must not be generally available—while
information about the tariffs may be generally available, details
of the tariffs’ specific impact on the company may not be
public. - The information must be sufficiently precise—certain of
the tariffs’ economic impacts might have had a realistic
prospect of occurring but, in this context, the information must be
specific enough to enable a conclusion to be drawn about the
possible effect of the tariffs on the company, its shares, or any
of its financial instruments. - If the precise information were to be made public, companies
should assess whether the precise information would likely have a
significant effect on the price of the company’s financial
instruments.
In conducting the above assessment, U.K. and EU listed companies
should consider whether any of their disclosure obligations are
triggered. Boards and management will need to be actively
considering and monitoring this, especially as information
surrounding the tariffs is fast-moving and the situation remains
fluid.
Engagement with governments
Lastly, negotiations around FTAs and tariff deals are conducted
at state-to-state level. It’s therefore critical for businesses
bilaterally or through trade associations to urgently engage with
their governments on the stance to be taken with the U.S., which
sectors may need to be prioritized (and otherwise protected), and
what levels of tariffs are ultimately tolerable. These negotiations
may require governments to lower or even remove their existing
tariff (and non-tariff) barriers for U.S. goods, which may have
ramifications for certain domestic sectors. Trade negotiations
often require difficult trade-offs between domestic sectors.
For those businesses in the U.K., we would encourage you to
engage in the government-led consultation process, which was
launched on April 3, 2025, and closes on May 1, 2025.
Footnotes
1. The tariffs cover the majority of imports, with some
exceptions, including on certain pharmaceuticals and drug
compounds; these exceptions were provided by the White House in a
separate Annex to the Executive Order.
2. The tariffs issued on April 2 and global reactions to
the tariffs may evolve rapidly and unpredictably, with new
requirements potentially taking effect with little or no prior
notice. The information in this article is correct as at the time
of writing, and subject to change as developments
unfold.
3. BBC News, ‘Russia not on Trump’s tariff
list’, April 3, 2025.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
