Confusing mess

Trump’s tariff ‘delay’ is a confusing mess

Analysis by Elisabeth Buchwald

President Donald Trump did not totally reverse the 25% tariffs he enacted earlier this month on just about every Mexican and Canadian good shipped to the United States.

Although he announced a tariff delay on Thursday through April 2, that was far from a complete pause. The devil is in one big detail: To avoid tariffs during the delay, goods coming from Mexico and Canada must comply with the USMCA free trade treaty that Trump signed during his first term.

As it stands, only around 50% of the goods the US imports from Mexico and 38% of the goods from Canada comply with USMCA terms, a senior administration official said on a call with reporters.

With the exception of some Canadian energy imports and potash, a key component in fertilizer, goods coming from the two countries that don’t comply with USMCA could still face 25% tariffs, or higher.

But trade is extraordinarily complicated, with various products sometimes receiving different duties depending on weight, content or other defining characteristics. Without much time to adapt before Trump’s policy officially kicks in April 2 – unless it’s delayed again – it’s unclear even to experts and government officials what products are getting taxed at what amounts.

Dan Gardner, president of Trade Facilitators, Inc., a Los Angeles-based consulting firm specializing in global logistics as well as US trade compliance, was left puzzled by the administration’s action.

“This doesn’t make any sense to me,” he said. “It was so vague.”

Complicating matters, there are more trade policy changes to contend with: 25% tariffs on all steel and aluminum imports are set to take effect on March 12. Meanwhile, on Friday, Trump threatened to enact a 250% tariff on Canadian dairy products and a “tremendously high” tariff on lumber coming from there as well. And Trump on Sunday told Fox News that tariffs may still “go up as time goes by.”

Complying with USMCA is headache

Part of the reason why so many goods aren’t considered USMCA compliant is because, until recently, a slew of Canadian and Mexican goods, including computers, phones and petroleum, weren’t subject to any US tariffs. The USMCA established a free trade zone in North America for the vast majority of products crossing the borders of the United States, Mexico and Canada. But it didn’t make sense for companies to go the extra mile to ensure compliance with the treaty if their products didn’t have a tariff before the USMCA and predecessor NAFTA treaties.

So for decades, duty-free meant duty-free irrespective of compliance. That is until Trump slapped 25% across-the-board tariffs on Canadian and Mexican goods.

Another reason for the lack of treaty compliance: Products technically may be compliant but aren’t being declared because the “ordinary duty rate has been very small or zero,” said Andrew McAllister, an attorney at Holland and Knight leading the group’s international trade division. Saving such a small amount of money might not be worth the complications involved in being declared compliant, which involves complicated paper work and can cost companies thousands of dollars.

And, prior to Trump’s tariffs, many goods could avoid tariffs anyway as long as 60% of the value of the materials that go into them comes from North America.

Now, customs officials have a difficult task to determine which kinds of products receive a tariff and which don’t – even if they’re extremely similar. For example, textiles used to make apparel from Canada and Mexico must “contain sewing thread, pocketing fabric, narrow elastic bands and coated fabric” made in North America to come to the US duty-free under the USMCA, according to a post published on the US Customs and Border Patrol site.

With the possibility of a 25% tariff, businesses could be more careful about making sure they comply. At the same time, all the extra due diligence might not matter with so few answers available on whether previously noncompliant USMCA imports would face a 25% tariff or not.

An administration official on a call with reporters last week referred the press to the US Trade Representative for further questions. However, the USTR declined to comment, referring CNN to US Customs and Border Protection.

CBP directed CNN to a statement published Saturday, which stated that the agency is “fully equipped to implement” the latest executive actions on tariffs. At the same time, a spokesperson told CNN they are “still looking into” whether goods that previously weren’t subject to any tariffs and therefore didn’t file USMCA-related paperwork could claim an exemption now.

Tony Rivera, a global trade attorney at ArentFox Schiff, believes that all companies will have the opportunity to claim the USMCA tariff exemption. However, given how laborious it is to be declared compliant, there might not be enough time to qualify and ship their goods before April 2.

Gardner, who is also a licensed customs broker, traveled to Chihuahua, Mexico over the weekend in part to help one of his clients, who makes industrial steel parts, source more of their inputs locally to meet regional value content requirements, such as the 60% threshold.

Visiting production centers in person is a crucial part of ensuring his clients goods will meet the USMCA requirements, which also include paying workers $16 an hour on the books and abiding by a slew of intellectual property rules.

Still, he said, it underscores how complex the whole process is. “I don’t get a big thrill out of going to Chihuahua on a Sunday,” he said.