Who wins the most in the post-IEEPA customs landscape?

Article

Following the U.S. Supreme Court's decision against the Trump administration's tariffs imposed under the International Emergency Economic Powers Act (IEEPA), President Trump signed an executive order invoking Section 122 of the Trade Act of 1974 to impose a 10 percent global tariff, effective February 24. The Trump administration had hinted at raising the global tariff to 15%—the maximum possible rate for Section 122 tariffs—but as of the publication of this blog, the 10 percent rate remains unchanged.

For importers, the shift from the patchwork of IEEPA country-specific rates, cap rates, and other complex tariff structures to a uniform global tariff has significantly altered competitive positions. And for countries around the world, this decision has called into question hard-won agreements.

Repeal of IEEPA tariffs: impact on tariff exposure

The end of IEEPA tariffs might seem like universal relief for importers. However, for some, the calculations have actually worsened.

Under the IEEPA tariff regime, the Trump administration conducted bilateral negotiations that capped tariff rates for many allied countries. The EU and the U.S. reached an agreement in Turnberry last July, setting a 15 percent reciprocal tariff cap on most European goods: imports with a Most Favored Nation (MFN) tariff of less than 15% were subject to a reciprocal tariff of 15% minus the MFN rate, resulting in a total aggregate tariff rate of 15%. Meanwhile, imports with an MFN rate above 15% were subject to a reciprocal tariff of 0%.

Japan also secured a 15% base rate as part of a deal that included a commitment to invest $550 billion in the United States. South Korea, the UK, and Australia negotiated on similar terms.

These cap rates have now been repealed. Because the Section 122 tariff is applied on top of existing MFN tariffs, many goods from U.S. trading partners now face an effective tariff rate higher than what they paid under IEEPA trade deals. According to Global Trade Alert, the UK, EU, Japan, and South Korea have faced increases in trade-weighted tariffs under the new regime. For example, Japan's trade-weighted rate rose by approximately 0.4%, while South Korea's rate increased by 0.6%. Singapore, which actually has a trade deficit with the U.S., saw its effective rate rise by 1.1%.

Meanwhile, countries that faced the highest IEEPA tariffs have received the most relief. China, which was subject to both 'fentanyl' and reciprocal tariff rates under IEEPA, experienced a net reduction in its effective tariff rate. Goldman Sachs estimated that the court's decision implies an approximately 5 percent reduction in U.S. tariffs on Chinese goods, while Morgan Stanley calculated that trade-weighted tariffs on Chinese imports fell from approximately 32% to 24%. Brazil and India also proved to be relative beneficiaries: last July, the U.S. issued a separate IEEPA order against Brazil that increased tariffs on that country's goods by another 40%. Meanwhile, the U.S. imposed and then repealed a 25 percent oil tariff on India, bringing that country's total tariff rate to 50%.

How trading partners reacted

The uneven impact of the Supreme Court's decision has triggered widely varying reactions among the world's major trading blocs.

European Union: The European Parliament immediately suspended ratification of the Turnberry trade deal. Bernd Lange, chair of the European Parliament's Committee on International Trade, indicated that the situation had become 'more uncertain than ever' and that the legal instrument underlying the deal was 'no longer available.' Insisting that the U.S. honor the commitments made last summer, EU lawmakers made it clear they are prepared to apply retaliatory measures if necessary.

Prior to the Supreme Court's decision against the IEEPA tariffs, the EU Parliament had scheduled a vote on the U.S. trade deal for February 24. Although the cap rate structure had taken effect last summer, many aspects of the deal remained under review by EU legislative bodies and were undergoing proposed changes by European lawmakers.

China: China's Ministry of Commerce stated it would conduct a 'full assessment' of the court's decision. China also called on the U.S. to repeal unilateral tariffs against its trading partners, referring to President Trump's 10 percent Section 122 tariff.

India: An Indian trade delegation postponed a planned trip to Washington to review the implications of the new tariff structure. Commerce Minister Piyush Goyal stated that India would resume discussions after receiving more clarity regarding the U.S. position.

Japan: Japanese officials told reporters that the decision would not affect the first round of Japan's investment projects in the U.S.

Malaysia and Indonesia: Officials from both countries noted that they had not yet ratified their recent trade agreements with the U.S. These agreements included major investment commitments.

Other potential tariffs on the horizon

On March 11 and 12, the Office of the United States Trade Representative (USTR) announced the initiation of Section 301 investigations into a total of 60 U.S. trading partners, including China, the EU, and Mexico. These investigations will focus on 'economies that demonstrate structural excess capacity and production in various manufacturing sectors, for example, through large or persistent trade surpluses,' as well as countries that may produce goods using forced labor. Upon completion of these investigations, President Trump could impose new long-term tariffs.

Although Section 301 investigations have historically lasted from 6 to 18 months, these investigations could move faster. Because the current U.S. Section 122 tariff expires on July 24, 2026, the Trump administration may attempt to act more quickly in preparing the ground for new potential long-term tariffs.

President Trump also stated after the Supreme Court decision that he would begin new Section 232 investigations, which could also lead to new long-term tariffs. There are currently nine Section 232 investigations already open.

What the new customs landscape means for importers

• First, tariff exposure has changed. If you were sourcing from countries that negotiated favorable IEEPA rates, your supply costs may have risen following the decision. Conversely, goods from China, India, and Brazil may now be subject to lower tariffs than they were a month ago. Importers should review their supply chain cost structures accordingly.
• The Flexport Tariff Simulator can help companies track changing shipping costs, applicable tariffs, and complex trade rules.
• Second, importers are entitled to significant refund opportunities. On March 4, the Court of International Trade (CIT) ordered U.S. Customs and Border Protection (CBP) to provide a universal refund of IEEPA duties. Buyers should take action as soon as possible while CBP works to prepare a new automated refund system within the ACE (Automated Commercial Environment), which could launch as early as next month. Confirm access to the ACE system and set up ACH refunds by following these instructions. Calculate the total amount of your refund using the Flexport Tariff Refund Calculator. Check your entries for errors and consider the impact of refunds on goods subject to Section 232 duties. The Flexport Audit Your Customs Broker tool can automatically check your entries, identify tariff summation issues, and estimate duties you may have overpaid. File protests with CBP. Liquidations become "final" 180 days after the date of liquidation unless a protest is filed before that date. The Flexport Trade Advisory group can assist clients with filing protests.
• Confirm access to the ACE system and set up ACH refunds by following these instructions.
• Calculate the total amount of your refund using the Flexport Tariff Refund Calculator.
• Check your entries for errors and consider the impact of refunds on goods subject to Section 232 duties. The Flexport Audit Your Customs Broker tool can automatically check your entries, identify tariff summation issues, and estimate duties you may have overpaid.
• File protests with CBP. Liquidations become "final" 180 days after the date of liquidation unless a protest is filed before that date. The Flexport Trade Advisory group can assist clients with filing protests.

For importers dealing with the consequences of IEEPA duty implementation, the timing situation may become even more complex. Consult a Flexport expert for specific recommendations.

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