Days after announcing tariffs ranging from 20% to 50% against 22 countries (see our earlier commentary here and here), President Trump introduced tariffs of 35% on imports from Canada on July 10, and 30% tariffs on the E.U. and Mexico on July 12. The E.U., Mexico, and Canada represent the United States’ three largest export markets and together account for approximately 80% of U.S. exports. The new tariffs are due to commence on August 1.
Background
In February, President Trump invoked the International Emergency Economic Powers Act (IEEPA) to impose a 25% tariff on Mexican and Canadian imports. The President explained that the tariffs were intended to address concerns about border security and narcotics trafficking. Lower rates apply to potash and Canadian energy resources and goods that meet USMCA origin requirements were exclude from the tariffs.
In April, the President imposed a 20% tariff on E.U. goods as part of his “Liberation Day” package, again invoking IEEPA and pointing to the lack of reciprocity and persistent deficits in the U.S.’s trading relationship with the E.U. Shortly after the imposition of the “Liberation Day” tariffs, the U.S. administration postponed individualized reciprocal tariffs for most countries, including the E.U., for whom a baseline rate of 10% would remain in effect. The postponement was initially due to lapse on July 9, but that deadline was extended to August 1.
The tariffs prompted litigation challenging the President’s authority to impose tariffs under IEEPA and seeking invalidation of the tariffs. Although two courts have since ruled that the President’s reliance on IEEPA was unlawful and have entered injunctions preventing the enforcement of the tariffs, those injunctions were stayed pending appeals of the decisions. This means that the tariffs remain in effect for now.
Takeaways
The announced tariffs increase the prevailing tariff rates as follows:
| Country | IEEPA tariff (%) | Currently effective rate (%) | New tariff (%) | Change (%) |
| Canada | 25 (for most goods) | 25 (for most goods) | 35 | +10 |
| Mexico | 25 (for most goods) | 25 (for most goods) | 30 | +5 |
| European Union | 20 | 10 | 30 | +10 |
The letters announcing the tariffs suggest that the elimination of trade barriers—or in the case of Mexico “challenging the Cartels and stopping the flow of Fentanyl”—could lead to an adjustment of the tariffs. The letter addressed to Canada also cites concerns about the country’s supply management program protecting its domestic dairy industry.
With respect to Mexico and Canada, the letters are silent on whether USMCA goods would remain exempt or whether lower rates would continue to apply to some products.
In the leadup to the announcements, the E.U., Mexico, and Canada were actively engaged in talks to secure agreements with the U.S. For example, on June 26, European Commission President Ursula von der Leyen disclosed, “We are ready for a deal. At the same time, we are preparing for the possibility that no satisfactory agreement is reached.” Similarly, negotiations with Canada resumed after Canada committed to end its Digital Services Tax, a sticking point over which President Trump threatened to withdraw from talks. Following June’s G7 summit, Prime Minister Mark Carney confirmed that he and President Trump had agreed to work toward a deal by July 21.
Kevin Hassett, the White House’s director of the National Economic Council, outlined the reasoning behind the newly announced measures: “The bottom line is [the President] has seen some sketches of deals that have been negotiated with [Commerce Secretary] Howard Lutnick and the rest of the trade team, and the President thinks the deals need to be better and basically to put a line in the sand he sent a letter out to these folks.”
The question is how the E.U., Mexico, or Canada will respond. On July 13, the E.U. announced that it would delay retaliatory measures scheduled to come into effect the following day, but warned that it “will continue to prepare countermeasures so we are fully prepared [if no deal is ultimately reached].” The President has publicly commented that no further extensions after August 1. Keep an eye on our blog for posts from our trade teams in the affected jurisdictions for updates on their responses.
