Background and Economic Challenges
The second U.S. Administration of President Trump has pledged to impose a broad range of tariffs, impacting exporters to the U.S. These include a proposed 25% tariff on Canadian and Mexican goods, aimed at enforcing immigration and drug policies, and a 10% tariff on imports from all countries to boost tax revenue and protect U.S. industry.
If implemented, these tariffs could disrupt North American supply chains and trade relations. This strategy echoes Trump’s first administration, where tariffs were used as leverage in trade negotiations, though they risk retaliation and economic instability.
Impact on European Companies
European firms, particularly those from Germany, the UK, and France, heavily rely on North American trade relationships and integrated supply chains:
- Over 2,100 German businesses operate in Mexico, using it as a production hub for U.S. exports. The automotive, machinery, and industrial equipment sectors face heightened risks from increased costs and disruptions to USMCA tariff-free trade.
- UK firms in automotive, aerospace, pharmaceuticals, and consumer goods reliant on Mexican/Canadian manufacturing will see rising costs. Automotive and energy companies are particularly vulnerable to heightened uncertainty.
- French firms in aerospace, luxury goods, and energy sectors depend on cost-efficient production in North America. Aerospace giants like Airbus and luxury brands face increased material and assembly costs.
Strategies to Mitigate Tariff Risks
European companies can take several legal and strategic steps to safeguard their interests:
1. Customs Duty Mitigation Strategies
- Country of Origin Analysis: Review supply chains to determine if goods qualify for exemptions or alternative tariff classifications.
- Customs Valuation Optimization: Exclude post-importation costs and assess the feasibility of using first-sale valuation methods to reduce declared customs values.
2. Supply Chain Adjustments and Compliance
- Diversification: Reduce dependence on Mexican/Canadian exports by exploring alternative suppliers or increasing domestic production.
- Mergers & Acquisitions (M&A): Expanding U.S. production through acquisitions is an increasingly viable strategy. Discussions at Davos highlighted growing European interest in shifting operations to the U.S.
- Stockpiling: Pre-emptively importing critical goods before tariffs take effect.
- Optimizing Rules of Origin: Ensuring compliance with USMCA to maintain tariff-free trade access.
3. Legal and Trade Dispute Resolution
- WTO Complaints: Governments can challenge U.S. tariffs under WTO regulations.
- USMCA Dispute Mechanisms: Member countries can initiate arbitration for tariff disputes, as seen in recent challenges involving auto and solar panel trade under Chapter 31 of USMCA.
- Retaliatory Measures: If WTO rulings favour European interests, reciprocal trade actions against the U.S. may be authorized.
4. Public Affairs and Advocacy
Engaging policymakers and leveraging trade associations can amplify corporate interests:
- Industry Advocacy:
- Germany: BDI or DIHK
- UK: CBI, BCC or TAGs
- France: MEDEF, CCI, France Industrie or CNA.
- EU Diplomacy: Leveraging EU channels for negotiation and trade dispute resolution.
- Legal Representation: Partnering with specialized law firms for arbitration, compliance support, and strategic guidance.
- Direct Lobbying Efforts: Engaging with U.S. policymakers to address concerns and seek exemptions.
How Taylor Wessing Can Support You
With comprehensive expertise in international business law, we offer:
- Foreign Trade Law: Advising on export controls, sanctions, and compliance.
- Cross-Border M&A: Providing strategic legal advice for transactions that facilitate U.S. market entry and tariff mitigation.
- Contract Drafting and Review: Optimizing agreements to mitigate tariff risks.
- Public Affairs: Helping companies navigate political and regulatory landscapes.
In collaboration with our trusted partner law firms in the U.S., we also provide comprehensive support for navigating U.S. trade and customs regulations.
Your Partner in Challenging Times
If you are interested in a more detailed analysis and specific recommendations for action, please let us know – we would be happy to provide you with our full Client Briefing.
We are committed to helping businesses navigate these trade challenges with strategic legal and commercial solutions. Contact us today to explore your options and develop a tailored strategy.
