Executive order modifying reciprocal tariffs and trade agreement incentives

On Sept. 5, President Trump signed an executive order (“order” or “EO”) Modifying the Scope of Reciprocal Tariffs and Establishing Procedures for Implementing Trade and Security Agreements. The EO both adjusts tariff coverage and creates new incentives for trading partners to deepen trade relationships with the United States. This order also modifies the scope of some current reciprocal tariffs.

Background

As background, the April 2 executive order Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual U.S. Goods Trade Deficits (“EO 14257”) first imposed reciprocal tariffs on global trading partners under the purview of the International Emergency Economic Powers Act (“IEEPA”). The Trump administration’s use of IEEPA to impose worldwide reciprocal tariffs is currently under judicial review. President Trump’s Sept. 5 order was released a week after the U.S. Court of Appeals for the Federal Circuit affirmed that the President lacked the authority to impose reciprocal tariffs of that nature under IEEPA. The administration quickly appealed to the Supreme Court.

While the Trump administration waits for the judicial system to make a final determination as to the lawfulness of the reciprocal tariffs imposed under IEEPA, this Sept. 5 order continues to invoke the same authorities presently being scrutinized by the courts. However, a notable shift in this order is the openness towards curtailment of some reciprocal tariffs and encouragement that trade partners secure final trade agreements.

Annex II: Modification

The Sept. 5 order modifies the list of goods excluded from reciprocal tariffs. This amendment is a modification of the April 2 EO 14257, which set forth in Annex II a list of particular goods that were excluded from the imposed reciprocal tariffs. Effective today, Sept. 8, the new Sept. 5 order both adds and removes goods from the Annex II list of products excluded from reciprocal tariffs.

Precious metals, related articles, and certain critical minerals and pharmaceutical products (subject to pending Section 232 investigations) have been added to Annex II, meaning reciprocal tariffs will no longer apply to these goods. At the same time, certain goods have been removed from Annex II, meaning they are now subject to the reciprocal tariffs; the articles now subject to reciprocal tariffs include certain aluminum hydroxide, resin, and silicone products. These modifications are imposed on goods entered for consumption or withdrawn from warehouse for consumption beginning Sept. 8.

Annex III: The potential adjustments list

Notable in this order is Annex III “Potential Tariff Adjustments for Aligned Partners.” Annex III identifies products eligible for a potential zero percent reciprocal tariff, including goods not sufficiently produced in the U.S., select agricultural products, aircraft and parts, and non-patented pharmaceutical inputs. This list serves as both an incentive for alignment and a roadmap for trade partners seeking preferential treatment. Annex III serves as an appealing incentive to encourage compliance, particularly for trade partners already heavily involved in production of Annex III products. The new list also creates a distinct goal for trade partners as they hope to add goods to this limited Annex. The full HTS list of Annex III is available here or by contacting Clark Hill’s international trade team.

Trade agreement incentives and duty refund authority

The Sept. 5 order reiterates the Trump administration’s ambition to implement trade security framework agreements and final trade agreements. The executive order incentivizes trading partners to secure final trade agreements by offering a reduction of the reciprocal tariff rate, up to a complete elimination of reciprocal tariffs for certain imports. According to the Sept. 5 order, a trade partner opens the door to a trade agreement when it takes significant steps to remedy non-reciprocal trade arrangements and to align sufficiently with the U.S. on economic and national security matters. If trading partners signal a willingness to undertake meaningful economic and national security commitments, they can earn access to the benefits of a trade agreement.

The EO also contemplates that future trade agreements could apply retroactively, allowing U.S. Customs and Border Protection (“CBP”) to refund duties previously paid, a notable departure from earlier tariff orders, such as EO 14257 or EO 14326, Further Modifying the Reciprocal Tariff Rates, which make no mention of the refund process. The contemplation of future refunds may reflect the administration’s current appetite to formalize agreements with trade partners and confer this benefit as well.

The future-looking order also makes reference, for the first time, to the potential reduction or elimination of all section 232 tariffs, including steel and aluminum. The EO sets out some of the factors that the administration will consider towards reduction and elimination of tariffs, such as a trading partner’s scope and economic value to commit to U.S. reciprocal trade agreements, national interests of the U.S., and the development of the declared national emergency.

Implementation

The Sept. 5 order takes effect today, Sept. 8. Importers should assess whether the new Annex II modifications impact their tariff obligations. The Sept. 5 order directs the Secretary of Commerce and the U.S. Trade Representative to determine what actions they need to take to implement trade agreements. The Trump administration will continue to monitor the state of trade and make adjustments accordingly.

Contact Clark Hill

If you have any questions regarding the content of this alert, please contact Mark Ludwikowski (mludwikowski@clarkhill.com; 202-640-6680), Kevin Williams (kwilliams@clarkhill.com; 312-985-5907), Aristeo Lopez (alopez@clarkhill.com; 202-552-2366), Kelsey Christensen (kchristensen@clarkhill.com; 202-640-6670), Laura M. Quesada (Lquesada@clarkhill.com; 202-240-0170), or other member of Clark Hill’s International Trade Business Unit.

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