For decades, international trade has operated under the Most Favored Nation (MFN) principle, a cornerstone of the World Trade Organization (WTO). Under MFN, the U.S. and other WTO members applied the same tariff rates to all trading partners, unless a formal free trade agreement (like USMCA or EU agreements) offered preferential rates. This multilateral framework provided consistency, predictability, and transparency for importers and exporters worldwide.
That framework is now being fundamentally restructured.
On July 31, 2025, the White House issued a sweeping Executive Order that formally replaces MFN tariff rates with a country-specific reciprocal tariff regime. This order builds on Executive Order 14257 (April 2, 2025), which first laid the foundation for the shift. Under this new model, tariff rates are calculated based on how each country treats U.S. exports meaning, if a country imposes high duties or restrictive practices on U.S. goods, the U.S. will match or exceed those restrictions.
The new Annex I Tariff Schedule, now published alongside the Executive Order, categorizes dozens of countries by their trade practices. Tariff rates vary widely:
India: 25% on many categories
Pakistan: 19%
Brazil: 50% on specific consumer goods
Canada (non-USMCA goods): 35%
EU: minimum of 15%
Default rate for unlisted countries: ~10%
These are not additional tariffs layered on top of MFN rates, they fully replace the standard HTSUS Column 1 duty rates for affected countries.
Mexico is excluded from the new Annex I reciprocal tariffs and are under a 90-day extension (US indicating 30% across the board)
Currently:
25% flat security/fentanyl-related duty on non-USMCA goods
50% tariffs on steel, aluminum, and copper
25% on autos
Mexico is excluded from the new Annex I reciprocal tariffs and are under a 90-day extension (US indicating 30% across the board)
Currently
25% flat security/fentanyl-related duty on non-USMCA goods
50% tariffs on steel, aluminum, and copper
25% on autos
USMCA shipments (85% of Mexico exports) remain exempt from these duties
China is also excluded from Annex I and under 90 day extension to Mid-August.
Currently:
Liberation Day / Country Specific – 10% (previously 34% under review)
IEEPA (Fentanyl tariff) – 20%
Section 301 – 25% (Lists 1-3) & 7% (List 4)
50% tariffs on steel, aluminum, and copper
De Minimis Tariff eliminated for all countries
Transshipment Crackdown (Annex II)
As part of the reciprocal tariff regime, Annex II imposes strict penalties for transshipment to evade duties:
Products of Chinese origin routed through third countries to disguise origin and avoid tariffs are subject to a flat 40% penalty rate.
U.S. Customs (CBP) may also assess additional civil penalties under 19 U.S.C. § 1592 for false statements or evasion.
Implications for Importers and Brokers
Origin Matters More Than Ever Under MFN, most countries had nearly identical duty rates. Now, two identical products could face dramatically different tariffs based solely on country of origin.
Recalculation of Landed Costs Importers must reassess the true landed cost of goods by country. Many existing supplier relationships may become unsustainable if tariffs rise steeply on their origin country.
Customs Declarations Must Be Precise Country-of-origin declarations and docu
USMCA shipments (85% of Mexico exports) remain exempt from these duties
China is also excluded from Annex I and under 90 day extension to Mid-August.
Currently:
Liberation Day / Country Specific – 10% (previously 34% under review)
IEEPA (Fentanyl tariff) – 20%
Section 301 – 25% (Lists 1-3) & 7% (List 4)
50% tariffs on steel, aluminum, and copper
De Minimis Tariff eliminated for all countries
Implications for Importers and Brokers
Origin Matters More Than Ever Under MFN, most countries had nearly identical duty rates. Now, two identical products could face dramatically different tariffs based solely on country of origin.
Recalculation of Landed Costs Importers must reassess the true landed cost of goods by country. Many existing supplier relationships may become unsustainable if tariffs rise steeply on their origin country.
Customs Declarations Must Be Precise Country-of-origin declarations and documentation must be accurate and defensible. CBP may scrutinize shipments more closely to ensure proper duty assessments under the new structure.
Winners and Losers Emerge Countries with trade deals or low barriers to U.S. exports (e.g., Australia, Israel, Chile) may retain low duty rates, creating an advantage. Others may become less competitive overnight.
Supply Chain Realignment Expect a shift in sourcing strategies as companies move production or sourcing to lower-duty regions. This may include re-shoring or near-shoring options where tariff rates are more favorable.
Legal and Trade Policy Impact
This shift marks a dramatic departure from WTO norms and suggests a broader pivot toward bilateralism over multilateralism. While the WTO remains in place, the U.S. is signaling that tariff policy will now be wielded strategically and retaliatorily.
Trade partners may challenge these measures under WTO dispute settlement procedures. However, the U.S. has increasingly operated outside WTO enforcement, particularly since it blocked the appointment of appellate judges in recent years.
The legal justification? The tariffs are being implemented under the International Emergency Economic Powers Act (IEEPA), allowing the president to regulate trade during national emergencies making them largely immune from judicial review.
What Importers Should Do Now
Review the New Annex I Tariff Table Identify how your key supplier countries are affected.
Audit Product-Specific Duties Determine if your SKUs are subject to higher tariffs under the new structure. Update your HTS codes and landed cost calculators accordingly.
Explore Alternate Trade Programs Evaluate Foreign Trade Zones (FTZs), bonded warehouses, or duty drawback programs to mitigate cost increases.
Update Contracts and Pricing Adjust supply agreements and customer pricing if your costs rise due to new duties.
Communicate with Brokers and Freight Forwarders Ensure your customs entries are aligned with the correct duty structure starting August 7, 2025, when the order takes effect.
The new reciprocal tariff regime is a seismic shift in U.S. trade policy upending decades of predictability and leveling the playing field with trading partners who have long maintained steep trade barriers against the U.S.
Importers, customs brokers, and global suppliers must act quickly to adapt to this evolving tariff landscape. Failing to do so could result in unexpected duty bills, margin erosion, and supply chain disruptions.
Now more than ever, the role of experienced customs professionals, bonded warehouse operators, and trade compliance experts is critical to staying competitive and compliant in this new trade environment.
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