TheCorporateCounsel.net

In case you missed it, over the weekend President Trump issued three executive orders directing the United States to impose new tariffs on imports from Canada, Mexico, and China. These tariffs will take effect tomorrow. A White House Fact Sheet notes that the tariffs were imposed under the authority of the International Emergency Economic Powers Act to address “[t]he extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl,” which constitutes a national emergency. No US president has ever used the International Emergency Economic Powers Act to impose tariffs.

As this White & Case alert notes, the tariffs impose an additional 25% ad valorem rate of duty on imports from Canada and Mexico and 10% on imports from China. The tariffs will apply to all imports except Canadian energy resources exports, which will be subject to a 10% tariff. The alert states:

The tariffs apply to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Standard Time on February 4, 2025. Goods already in transit to the United States before to 12:01 a.m. on February 1, 2025 (the day Trump issued the executive orders) are exempt from the tariffs. The executive orders also suspend access to the Section 321 customs de minimis entry process, subjecting shipments below US$800 (which are often e-commerce retail shipments) to the tariffs.

The tariffs will remain in effect indefinitely, until the president decides to remove them. Further tariff increases – by the United States and the target countries – are possible over the next few weeks. The orders state that the president may raise the tariffs further if Canada, Mexico, and China retaliate. All three countries have signaled their intention to retaliate.

As this WSJ article indicates, Canadian Prime Minister Justin Trudeau announced retaliatory 25% tariffs on more than $105 billion of U.S. goods. An announcement regarding retaliatory tariffs is expected from Mexico today.

I highlighted back in October that public companies were contemplating potential risks arising from a change in the Presidential administration, including the potential risks arising from the imposition of tariffs on U.S. trading partners. In the months since then, disclosures have been getting more specific as the outcome of the election became known and the scope of the policy actions came into more focus. Now, as the largest calendar year-end companies are getting ready to file their annual reports on Form 10-K, an analysis must be undertaken to determine how significant tariffs with large US trading partners could impact their business and the economy. Some key considerations include:

– Whether the new US tariffs or new tariffs to be imposed by the other countries will be collected on the company’s goods or goods that are utilized in production of the company’s goods.

– How the tariffs will impact the price that is charged for the company’s goods.

– How the tariffs will impact the cost of goods utilized in producing the company’s goods.

– Whether the imposition of tariffs may impact the availability of goods, including goods in the company’s supply chain.

– Whether the imposition of tariffs will impact the demand for goods that are subject to the tariffs.

– Whether the imposition of tariffs will cause inflationary pressures in the economy and will otherwise have negative economic impacts that could in turn impact the demand for a company’s goods and services.

– Whether mitigation strategies could increase costs that a company may not be able to recover.

Companies should consider these and other relevant risks and uncertainties in the context of preparing their Risk Factors, Business and Management’s Discussion and Analysis sections of their upcoming annual reports on Form 10-K and quarterly reports on Form 10-Q. Some companies are also considering whether the impact of tariffs is so significant that they must provide more current disclosure concerning the situation in a Form 8-K or press release.

As further proof that “what is old is new again,” we covered trending trade war disclosures in this blog way back in 2018.

– Dave Lynn