Escalating Trade War: U.S. Prepares Next Round of Tariffs as Canada, China, and Mexico Counter

In response to the latest wave of U.S. trade restrictions, both Canada and China have swiftly implemented countermeasures, escalating tensions in an already volatile trade landscape. Canada has announced a 25% tariff on U.S. goods, while China has imposed new tariffs on American agricultural products and trade restrictions on U.S. firms. These actions signal an intensification of global trade disputes, with Mexico expected to follow suit with additional countermeasures on Sunday, March 9, 2025.

With uncertainty mounting and potential economic consequences on the horizon, businesses engaged in cross-border trade should prepare for the evolving regulatory environment. This alert provides a breakdown of the newly imposed tariffs, their immediate implications, and strategic considerations for affected industries.

Below is a summary of the effective and proposed tariffs announced under this administration so far.

The immediate implications of these retaliatory tariffs are widespread, with industries facing higher costs, supply chain disruptions, and shifting trade flows. The imposition of 10% and 25% tariffs by China, Canada, and Mexico on U.S. imports significantly increases costs for businesses reliant on international trade, particularly in manufacturing, energy, and agriculture. The planned 25% global tariffs on aluminum and steel (March 12, 2025) and additional tariffs on agricultural products and foreign cars (April 2, 2025) will further exacerbate price pressures, potentially reducing global competitiveness for U.S. exports.

Affected industries must reassess sourcing strategies, explore alternative suppliers, and consider operational adjustments to mitigate cost burdens. Companies in the automotive, construction, and food production sectors — heavily reliant on steel, aluminum, and agricultural exports — should prepare for market volatility and potential demand shifts. Additionally, ongoing investigations into copper and lumber imports suggest further regulatory scrutiny, emphasizing the need for proactive compliance monitoring, trade policy advocacy, and supply chain diversification to navigate the evolving landscape.

With the escalating trade tensions and the imposition of broad tariffs across multiple sectors, we anticipate a significant increase in companies seeking to mitigate costs by shifting operations to economic free trade zones (“FTZs”). These zones offer a strategic advantage by allowing businesses to import goods, manufacture, and re-export without incurring tariffs, duties, or certain regulatory burdens. Given the forthcoming 25% global tariff on aluminum and steel (March 12, 2025) and the expected agricultural and automotive tariffs (April 2, 2025), industries reliant on cross-border trade — particularly manufacturing, logistics, and commodities processing — are likely to explore FTZs as a means to preserve competitive pricing. Companies may also restructure supply chains, leverage duty deferral programs, and utilize tariff engineering strategies to lawfully minimize financial exposure. However, heightened government scrutiny on trade circumvention practices may lead to more stringent compliance requirements and enforcement actions, necessitating robust legal and regulatory assessments before shifting operations.

Canada and China Issue Countermeasures Against Effective Tariffs

​In response to the recent U.S. tariffs, both Canada and China have announced significant countermeasures.​

Canada’s Response

Canadian Prime Minister Justin Trudeau declared that, effective 12:01 a.m. EST on Tuesday, March 4, 2025, Canada will impose 25% tariffs on U.S. goods valued at C$30 billion. These measures are a direct reaction to the U.S. administration’s tariffs on Canadian products. The targeted U.S. goods include orange juice, peanut butter, wine, appliances, and cosmetics. Additionally, Canada is considering further actions, with potential measures to be finalized after a 21-day consultation period. ​

China’s Response

China has announced additional tariffs on U.S. agricultural products and imposed restrictions on American companies, effective March 10, 2025. The measures include a 15% tariff on U.S. chicken, wheat, corn, and cotton, as well as a 10% tariff on sorghum, soybeans, pork, and other products. Furthermore, over two dozen American firms have been added to China’s export control and corporate blacklists. China has also initiated a World Trade Organization lawsuit against the new U.S. tariffs and suspended imports of certain U.S. goods. ​

These developments mark a significant escalation in global trade tensions, with both nations implementing measures that could have substantial economic implications.

U.S. Company Preparedness

U.S. companies can take several proactive steps to prepare for supply chain disruptions and tariff controls in the face of escalating trade tensions.

Supply Chain Diversification

• Identify alternative suppliers in countries not subject to high tariffs to mitigate cost increases and maintain supply chain stability.
• Develop regionalized supply chains to reduce dependency on any single market, particularly for critical raw materials like steel, aluminum, and agricultural products.
• Leverage free trade agreements (“FTAs”) to take advantage of preferential tariff treatment in key markets.

Utilizing FTZs and Bonded Warehouses

• Relocate operations to FTZs where goods can be imported, stored, and processed without immediate tariff burdens.
• Utilize bonded warehouses to defer duties until products are ready for domestic distribution.

Tariff Classification and Duty Optimization

• Reassess product classifications under the Harmonized Tariff Schedule (“HTS”) to ensure accuracy and potential eligibility for lower duty rates.
• Consider tariff engineering strategies, such as modifying product composition or assembly locations to shift classifications and reduce tariff exposure.

Trade Compliance and Regulatory Monitoring

• Enhance internal trade compliance programs to ensure adherence to evolving tariff rules, customs regulations, and trade restrictions.
• Monitor government investigations into potential tariff circumvention and ensure lawful compliance with all customs requirements.

Cost-Passing and Pricing Strategies

• Adjust pricing models to incorporate higher costs from tariffs and supply chain adjustments.
• Renegotiate contracts with suppliers and customers to account for fluctuating trade policies and cost structures.

Advocacy and Government Engagement

• Engage with policymakers to advocate for industry-specific tariff relief or exemptions.
• Participate in trade associations that actively negotiate on behalf of affected industries to shape future trade policies.

By implementing these strategies, companies can mitigate financial exposure, maintain supply chain resilience, and adapt to the evolving global trade landscape in a manner that ensures both compliance and competitiveness.

For further guidance on how these changes may impact your business, please contact AGG partners Allison Raley and Mike Burke. AGG will continue to monitor developments and will update as needed.