US President-elect Donald Trump announced this week that he would impose “punitive tariffs” of 25 percent on Mexico and Canada. Trump is also considering an additional tariff of ten percent on all imports from China. These tariffs would apply to all products imported into the USA from these countries. Among other countries, this would also affect German companies - above all car manufacturers - whose global production footprint and important sales markets include the countries mentioned. Our Baker Tilly International network partners in Germany previously published an article on this matter here.
Justification not in line with WTO principles—“deal” likely
The justification for these tariffs is unlikely to comply with the principles of the World Trade Organization. Trump wants to use these tariffs to refinance the US costs incurred by the import of illegal drugs and immigrants from these countries into the USA.
It is questionable whether this will lead to a WTO dispute with these countries. It is more likely that an agreement will be reached between the USA and the countries concerned before the tariffs are introduced.
EU companies should take announcements very seriously
However, the new announcements show that even allied countries are not safe from the threat of punitive tariffs. The EU and its companies should therefore take the indications of EU punitive tariffs—see our newsletter of November 8, 2024 - very seriously.
Meanwhile, in Europe, the Mercosur agreement on free trade between EU countries and several South American countries is on the brink: Poland and France do not want to sign the free trade agreement.
Baker Tilly will continue to monitor developments and report on them on our website.
Updates
Update, February 11, 2025:
President Trump imposes a 25 percent tariff on EU steel and aluminum products. The tariffs are due to come into force in mid-March. EU Commission President von der Leyen has announced countermeasures that are said to have already been prepared. According to EU Commission circles, a list of counter-tariffs is ready.
It is not yet clear whether punitive tariffs will actually be imposed. The EU continues to seek constructive dialog and has not yet officially announced any countermeasures. It is exploring whether a trade war can be averted through a “deal”.
We recommend that companies assume the worst-case scenario. They should calculate with punitive tariffs on those products and product groups that were already affected in the first Trump administration. Special customs procedures and the consistent use of free trade agreements (alternative sourcing) could become more important as a result of the latest developments.
Update, February 5, 2025:
The punitive tariffs introduced against Mexico and Canada will be suspended. The suspension is to apply for 30 days after the countries pledged to step up their measures against fentanyl smuggling and illegal migration.
China is taking a different approach and has announced punitive tariffs against US energy products, which are due to come into force on February 10. Crude oil, coal and liquefied natural gas are particularly affected and will be subject to additional duties of ten and 15 percent respectively. Beijing is also increasing the pressure by announcing that it will initiate antitrust investigations against Google.
Update, February 2, 2025:
President Trump is following through with his announcements. Since February 1, additional tariffs of 25 percent have applied to goods from Mexico and Canada. In addition, 10 percent “punitive tariffs” on goods from China come into force.
It is still unclear to what extent there will be exemptions, for example for oil imports. It is questionable whether the imposition of punitive tariffs is permissible under WTO rules, particularly in light of the existing free trade agreement between the USA, Canada and Mexico.
Affected countries react with complaints and retaliation
In response, Canada announced that it would also impose a punitive tariff of the same amount on various US products. This is to take place in two stages: From Tuesday, February 4, the punitive tariffs are to apply to US goods worth around 30 billion Canadian dollars, including beverages, cosmetics and paper products. The next step will be to publish a second list of affected US goods, estimated to be worth 125 billion Canadian dollars. The second list will include cars, trucks, steel and aluminum products, certain fruits and vegetables, beef and pork, dairy products and other goods. Further measures are also being examined, for example in the areas of critical minerals, energy supply and other cooperative partnerships.
China intends to legally challenge the punitive tariffs before the World Trade Organization.
Mexico has also announced its intention to impose punitive tariffs on US goods. Details are not yet available.
President Trump is thus underlining his determination to implement the announcements made during the election campaign. It is unclear whether punitive tariffs will also be imposed on the EU or whether this can still be averted through negotiations. We recommend that companies now have alternative strategies “ready to go” should Trump actually impose tariffs on the EU.
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