Tariffs To Proceed in Early March

The US administration said in late February that it would allow previously-paused tariffs to go live in early March regarding Canada and Mexico.  The tariffs are set up as emergency measures under an Executive Order, with the stated intent of forcing cooperation on drugs and border issues.  The tariffs would be blanket, across-the-board measures for all products from Canada and Mexico, with no exceptions for transactions under a certain size threshold or for certain goods such as medical supplies.  The administration also said that it will impose a new ten percent blanket tariff on Chinese goods, in addition to the ten percent baseline tariff set in place earlier this year.  

WHY IT MATTERS

It is not a consensus matter that blanket import tariffs will accomplish the stated policy goals, but they are a preferred tool of the new US government.  US companies that rely on imported goods as part of their supply chain would do well to review whether their contracts have pricing mechanisms or other provisions that would either automatically trigger adjustments or allow a renegotiation.  Some pricing terms allow direct pass-through of tariff costs, or allow for a mark-up to account for new costs to the supplier.  Termination, approval of pricing changes, and other provisions may also be sources of relief or bargaining power.  Non-contract measures such as pre-buying of inventory and finding alternate sources may also be useful.  It is possible that the tariffs will be paused again, and that they are being raised now primarily for sake of leverage, but that will remain unclear until early March.  Either way, the current announcements from the US signal that uncertainty and a degree of unpredictability will be with us on the trade front for the foreseeable future.