Mitigating the impact of tariff disputes

Multinational manufacturers are encouraged to consider how to adapt their supply chains to a complex landscape.

While US tariffs on Canada and Mexico (see our alert here) were postponed by a month, a ten-percent universal tariff on all Chinese imports was not. This led to 10- to 15-percent retaliatory tariffs on US energy and farm machinery imports being imposed by China on 9 February 2025.

In addition, on 10 February 2025, President Donald Trump announced the US would impose a 25-percent tariff on all imports of steel and aluminium, coming into force on 12 March 2025.

On 13 February 2025, President Trump issued a memorandum to undertake a rapid review of the harm to the US from nonreciprocal trade arrangements and to propose remedies for that harm. A potential result in the near term is the imposition of country-specific “reciprocal tariffs” for every trading partner of the same taxes on other countries’ imports as they impose on US goods.

 

How US trade policy could affect the UK

President Trump has repeatedly highlighted the need for tariffs on the EU, but has so far held back from directly targeting the UK. President Trump suggested recently that a deal with the UK could be "worked out." That said, a 25-percent tariff on all imports into the US of steel or aluminium would have a significant impact on UK manufacturing, as could “reciprocal tariffs” in response to UK policies.

Whether President Trump's trade policy is designed to balance US trade deficits, introduce reciprocity based on broader assessments of unfair trade and economic policies, or induce foreign policy changes such as illegal immigration or drug trafficking, the risk of short-term and longer-term disruptions to supply chains is now a permanent feature of logistics planning. It is encouraged that leaders of companies affected by supply chain disruptions as well as their supply chain teams assess this risk.

Below, we outline the objectives and timelines of the recently announced US reciprocal tariffs process, the US “America First Trade Policy,” and the response from the UK and EU. We also suggest key supply-chain mitigation strategies to weather the oncoming storm.

 

US “reciprocal tariffs”

President Trump directed the US Secretary of Commerce and the US Trade Representative (USTR) to work with the US Department of the Treasury and US Secretaries of Homeland Security to quickly provide country-specific proposals for tariffs that respond to each trading partner’s unfair trade and economic policies.

In particular, the US government will assess, for each trading partner: (1) tariffs on US exports, (2) unfair taxes imposed on US companies, (3) other policies that impose costs on US businesses and consumers, (4) exchange rate policies, and (5) any other unfair practices.

This direction places a sweeping range of policies under potential scrutiny, including digital services taxes (DSTs), Value-Added Taxes (VATs), Carbon Border Adjustment Mechanisms (CBAMs), subsidies, technical barriers to trade and discriminatory regulation, and monetary interventions, to name a few. Following submissions of tariff proposals, the US Office of Management and Budget will have 180 days to assess the fiscal aspects of the proposed tariffs.

In many ways, the breadth of this memorandum doubles down on the broad scope of the “America First Trade Policy” memorandum issued at the outset of President Trump’s presidency (described further below).

The prospect of country-specific tariffs – either in response to countries’ different unfair trade and economic practices, or following country-specific negotiated outcomes if a single global tariff is adopted at the outset – creates significant logistical and supply chain issues for companies that export from around the globe. It also raises the possibility of dozens of separate negotiations between the US and its trading partners that seek to reduce or eliminate any new tariffs.

Moreover, new tariffs imposed by the US are likely to prompt retaliatory measures from trading partners, which likely would differ from one country to the next. This would create an intricate web of border measures that both complicates the shipment of goods and carries significant and varied cost implications for supply chain decisions.

 

The "America First Trade Policy"

Just hours after his inauguration, President Trump issued a memorandum, titled the "America First Trade Policy", ordering federal agencies to conduct a comprehensive review of US trade policy (see our alert here).

Most federal agencies have until 1 April 2025 to report their findings and provide recommendations.

The memorandum sets the foundation for a broad range of significant actions on trade after 1 April 2025. It mandates that the initial reviews, which could serve as the first step toward imposing new tariffs, must be completed by the end of March.

The limited time for assessments required by the memorandum – on topics such as unfair trade practices, currency manipulation, existing US export controls (particularly in the tech sector), and foreign barriers to trade – makes it likely that the results will reflect policy objections already familiar to the trade community. However, the process for addressing these concerns and how they should be prioritized remain uncertain.

As reflected in the activity of recent days, the memorandum has a particular focus on China, Canada, and Mexico. The memorandum explicitly draws the USTR’s attention to the so-called “Phase One Agreement” negotiated during the first Trump Administration, signalling interest in another round of negotiations with China.

Regarding Canada and Mexico, the memorandum raises concerns around migration and fentanyl, as well as the July 2026 review of the US-Mexico-Canada Agreement (USMCA) – raising the visibility of the USMCA review as a likely forum for negotiations with Canada and Mexico and foreshadowing the breadth of issues that may become the subject of those negotiations.

The memorandum also signals potential consideration of broad-based tariff actions. It instructs the Secretaries of Commerce and the Treasury and the USTR to assess the US's persistent trade deficits and associated effects on the economy and national security, and recommend remedies “such as a global supplemental tariff or other policies.”

Consistent with President Trump’s apparent plans to expand existing tariffs and implement new and varied tariff regimes, the memorandum instructs multiple government agencies to lay the groundwork for the creation of an External Revenue Service (ERS) to collect tariffs.

 

UK response

In his first days in office, President Trump described Prime Minister Keir Starmer as a “very good person,” despite being a “liberal” with a different “philosophy.”

It remains to be seen how artfully the UK government can navigate the competing interests of an increasingly transactional US.

The UK will attempt to avoid a trade conflict with the US and instead seek exemptions and form a closer trading relationship. Ministers have accordingly steadfastly refused to criticise President Trump's “America First Trade Policy.”

A spokesperson for Prime Minister Starmer played down the prospect of the UK adopting countermeasures in the wake of US steel and aluminium tariffs. Pat McFadden, one of Prime Minister Starmer's most senior advisers, said that the UK would take a "wait-and-see" approach to US reciprocal tariffs. By contrast, the UK steel lobby claimed that the US tariffs would be a "devastating blow" to the sector.

 

EU response

In response to President Trump’s tariff statements, European Commission President Ursula von der Leyen and Commissioner for Trade and Economic Security Maroš Šefčovič have stated that the EU will respond firmly and proportionately with countermeasures.

Despite this strong warning, the EU will initially seek to maximize its leverage through negotiations with the Trump Administration. Trade Commissioner Šefčovič has consistently expressed his openness to dialogue with President Trump to find common ground.

The EU may consider making concessions, such as increasing imports of US liquefied natural gas (LNG) and military equipment, as well as adopting a tougher stance on China. Additionally, the EU could offer some flexibility on the implementation of its green and digital agenda.

If negotiations fail to produce a favourable outcome, the European Commission is likely to have already prepared a list of potential countermeasures. Reflecting on the 2018 US-EU trade dispute over President Trump’s steel and aluminium tariffs, the EU imposed counter-tariffs on US goods like motorcycles, jeans, and whiskey, which were significant for electorally important US states.

The European Commission may also consider other instruments, such as the Anti-Coercion Instrument (ACI), introduced under the European Economic Security Strategy (EESS) as a countermeasure against economic coercion. It gives the EU a wide range of possible countermeasures including the imposition of tariffs, restrictions on trade-in services and trade-related aspects of intellectual property rights, and restrictions on access to foreign direct investment and public procurement.

Simultaneously, the EU is expected to continue exploring new trade agreements to diversify its exports. Recent negotiations with Mercosur and Mexico have concluded; talks with India, the Philippines, Thailand, and Malaysia are accelerating.

 

Supply-chain mitigation strategies

This is a rapidly evolving geopolitical environment, set to impact many businesses operating multinational supply chains. Clients can face business-critical ramifications if unprepared for imposed tariffs.

Supply chain mitigation strategies can be divided into short- and long-term. There should, however, be a connection between the two: It is advisable that short-term fixes have the potential to give rise to longer-term solutions. Therefore, it is encouraged to have an overarching strategy for contingency planning to which all relevant parts of the business, including its leadership, are bought in.

In the short term, businesses operating multinational supply chains may consider:

• Risk-mapping:
  Review the vulnerability of supply chains to geopolitical trade disputes over the next three to five years and quantify the risk. Think upstream: How will tariffs affect second- and third-tier suppliers? Draw up and maintain a supply-chain risk map.

• Contingency planning:
  • Engaging with the US administration: The current period of investigation and review of global trade policies offers a critical window of time for businesses to engage with the US g Clients looking to make their voice heard are encouraged to act now. Sectoral and product carveouts will be a key focus of commercial lobbying strategies.
  • Engaging with the administrations of US trading partners: There is equal value in engaging with the trade departments of the EU, UK, Canada, Mexico, China, and other affected States to seek to influence their approach to retaliatory measures on US imports. Again, sectoral and product carveouts from countermeasures will be a key focus of commercial lobbying strategies.
  • Accelerating shipments: Give consideration to importing goods before tariffs are applied; consider stock-piling and warehousing options in importing jurisdictions.
  • Reviewing contracts: Review contracts for flexibility of pricing mechanisms, obligations to pay tariffs, and opportunities to renegotiate. Can suppliers with higher margins absorb some of the additional tariff cost? Consider whether Incoterms remain commercially appropriate.
  • Reviewing prices: Review whether the costs of increased tariffs have to be absorbed or can be passed on through price Understanding the price elasticity of products is key to assessing impact on demand. Review whether some costs can be absorbed by lowering margins, unwelcome though that is. Consider how competitors might react to tariff increases in shared import markets: Does this pose an opportunity or risk?
  • Lowering supply chain costs: Consider whether small adaptations to supply chains can reduce tariff impact, eg, importing semi-finished products rather than raw materials, using alternative suppliers in low-tariff jurisdictions, or using beneficial rules of origin to inform changes to your supply chain. Consider with suppliers whether inputs with lower costs can be used.
  • Evaluating insurance: Consider the value of trade credit insurance, which covers businesses if customers do not pay their debts or pay them later than the payment terms dictate. Trade credit insurance generally covers two types of risk: commercial risk (financial difficulty within the customer) and political risk (nonpayment as a result of events outside the policyholder or their customers control, eg, tariffs).

In the longer term, businesses operating multinational supply chains may consider:

• Risk-mapping: As above, but over a five- to ten-year period.
• Contingency planning:
  • Diversifying supply chains: Identify and consider developing an alternative source of supplies from jurisdictions less likely to be exposed to geopolitical trade disputes over five to ten-plus An analysis of preferential trade agreements is essential in this process.
  • Lowering supply-chain costs:
    1. Origin analysis: To mitigate tariff impact, consider whether further manufacturing by second- or third-tier suppliers can result in a beneficial change of origin in final products.
    2. Raw material versus semi-finished products: If third-country inputs into manufacturing processes are attracting tariffs on imports, consider whether importing those inputs as semi-finished products – thereby incurring a change in commodity classification – lessens the tariff impact.
  • New manufacturing plants: Consider setting up a manufacturing plant in a key export market, where you assess the risk of long-term tariffs on imports to be significant and sustained. This will be a consideration from some businesses importing large quantities of products into the US in highly competitive markets. Investing in manufacturing in the US is one of the key objectives of the “America First Trade Policy.”
• Circumvention: In all of the above contingency planning, it is encouraged to ensure that you are acting consistently with anti-circumvention measures in the importing jurisdiction. This means, in essence, that it is encouraged for fully evidenced economic reasons to drive changes to supply chains, rather than a desire to avoid tariffs or other trade defence measures.

 

How we can help

At the interface of business, politics, and global trade, the DLA Piper International Trade and Regulatory and Government Affairs teams across the US, EU, and UK can help you:

• Engage with US, EU, and UK governments to achieve product or sector exemptions, and
• Analyse supply-chain risk in both geopolitical and international trade contexts and draw up effective supply-chain mitigation strategies.

To discuss these issues, please contact your regular DLA Piper relationship partner or: