DEEPER DIVES: Trade, Tariffs And Turmoil

Good Morning,

First, as always, thank you for joining.

This newsletter is going to be a beast, so I’ll try to switch up a bit of the format to help you find what you need a bit faster.

Last week I joined Imtiaz Kermali from eShipper and Hugo Pakula from Tru Identity to do a webinar on the current tariff situation coming out of America.

The webinar was scheduled for 45 minutes. Over an hour later, it felt like there was still so much to say (we might have a part two coming up).

I saw a couple of major themes coming from the audience while we were live. First, was the need and appreciation for an overall summary of what’s been happening.

And second, a huge amount of uncertainty around “Country of Origin” (especially when holding or moving goods through different countries).

This week’s edition is giving subscribers a detailed reference that you can use to understand what’s been going on, what you should focusing on and what recommendations I made.

Note: This material is condensed from work and research I have been doing with my clients over the last couple of months. I tried to pick out the elements that I felt were the most representative and needed for the broad range of eCommerce businesses and retailers subscribed to the newsletter. If you have any specific questions, I am always happy to chat about your specific situation.

Here’s what this issue brings:

• On overview of the US tariff situation as of March 2025.
  

• Your primer to understanding Country of Origin so that you can make the best decisions for your eCommerce business or brand
  

US Tariff Overview (March 2025)

This article is going to cover a summary of the implemented (and proposed) tariff changes related to US imports.

I’ll also add the advice and recommendations that I shared on the webinar.

Article Overview:

• US Tariff Changes (March 2025): New tariffs and potential increases are reshaping the US trade landscape

• Canada/Mexico Tariffs: 25% tariffs on most imports

• China Tariffs Increased: Tariffs on all goods from China increased to 20%

• Reciprocal Tariffs Introduced: Planned implementation to address non-reciprocal trade

• Potential EU Tariffs: Tariffs on EU goods are possible, broadening trade disputes

• Section 321 Updates: Changes and uncertainty around de minimis entry rules

• Business Impact: Businesses must adapt via diversification, tariff engineering, etc

• Diversification Options: Key markets include Southeast Asia, India, Mexico, and others

Understanding the Current Tariff Landscape

The US has recently implemented several major tariff policies. These policies represent some of the most significant trade barriers implemented since the 1940s, with the US effective tariff rate now at its highest level since 1943.

Tariffs on Canada and Mexico

On March 4, 2025, the United States imposed 25% tariffs on all imports from Canada and Mexico, with a lower 10% tariff specifically on Canadian energy products and potash from both countries.

On March 7, 2025, the US administration amended these measures, exempting goods that qualify for duty-free treatment under the United States-Mexico-Canada Agreement (USMCA) until April 2, 2025 (a huge push here was because of the impact to the automotive industry).

This means that products satisfying USMCA rules of origin requirements currently face no additional tariffs.

The implementation of these tariffs has prompted immediate retaliatory measures. Canada announced tariffs on more than $100 billion US of American goods to be implemented over 21 days, while Mexico promised its own countermeasures without immediately specifying targeted products.

Chinese Tariff Escalation

The US has significantly increased tariffs on Chinese imports as well.

Initially, a 10% tariff was imposed on all Chinese imports on February 4, 2025. This rate was doubled to 20% on March 4, 2025, creating substantial trade barriers between the world's two largest economies.  

China responded with comprehensive retaliatory measures, including tariffs of up to 15% on US farm exports, a 15% tax on certain coal and natural gas, and a 10% tariff on crude oil, agricultural machinery, and large-engine vehicles.

Beyond tariffs, China has launched an antitrust investigation into Google, placed American firms on an unreliable entity list, and opened public consultation on new regulations aimed at limiting US access to its rare earth industry.

Reciprocal Tariffs Initiative

In addition to the above direct tariffs, President Trump announced plans for "reciprocal" tariffs, promising to match US tariff rates with those that other countries charge on American imports "for purposes of fairness".

The reciprocal tariff initiative extends beyond current targets, with Trump indicating that additional countries such as India won't be spared, and suggesting European countries could face a 25% levy.

On March 13-14, 2025, a Canadian delegation met with senior US officials in Washington. The delegation included Finance Minister Dominic LeBlanc, Industry Minister François-Philippe Champagne, Premier Doug Ford, and Canada's ambassador to the US, Kirsten Hillman. During this hour-long meeting, US officials informed Canada that:

• No country will escape the new series of extensive tariffs set to take effect on April 2

• Any negotiations to reduce tariffs or develop broader trade agreements would only occur after April 2

• The Trump administration remains committed to implementing "reciprocal tariffs"

Canadian officials reportedly left with "a better understanding of the situation, though not necessarily a more hopeful outlook". This improved understanding might be what's being characterized as finding the US position "understandable," even if not agreeable.

Steel and Aluminum Tariffs

Effective March 12, 2025, the US has imposed a worldwide 25% tariff on all steel and aluminum imports, as well as on certain products manufactured from these materials.

The goal here is to protect the country’s ability to supply its infrastructure and defense needs without being beholden to a foreign country.

EU Response and Potential Tariffs

In response to US steel and aluminum tariffs, the European Union announced on March 12, 2025, that it will implement new tariffs on US goods in a two-phase approach.

First, previous countermeasure suspensions against the US will expire on April 1, affecting products like motorcycles, bourbon, and boats. Second, new countermeasures targeting US exports will take effect by April 13, with proposed targeted products including steel, aluminum, textiles, home appliances, and various agricultural products.  

The EU's countermeasures could affect US exports worth up to €26 billion.

Section 321 Status

On March 2, 2025, an amendment clarified that duty-free de minimis treatment remains available for eligible goods. Notably, the Executive Order specifically references only Canadian and Mexican-origin products as eligible to clear under Section 321. Chinese-origin products have been able to clear for duty-free entry since early February.  

The full suspension of Section 321 has been postponed until the US Commerce Department confirms that the necessary procedures and systems are in place to process packages and collect tariff revenue.

One way or another this exemption is seeming like it will change. Retailers and eCommerce direct to consumer brands that have built their revenue model on avoiding duties and important fees need to immediately re-evaluate their get-to-market strategies.

Business Preparation Strategies

Businesses are employing various strategies to mitigate the impact of increasing tariffs:

Supply chain mapping has become essential, with companies conducting comprehensive tariff impact assessments to understand potential exposure and develop effective mitigation strategies.

Diversification of suppliers represents a primary strategy, with companies reducing dependency on high-tariff regions by expanding their supplier base geographically.

However, it’s important to understand that simply “moving out” of China may not be the best strategy. With reciprocal tariffs on the horizon or the clear desire of the US administration to improve America’s global position, changes can happen at any time to any country.

Tariff engineering has emerged as a sophisticated response for the world’s largest organizations. Businesses are modifying production processes or product designs to qualify for reduced-duty classifications.

This is NOT a strategy for most of the world’s merchants.

Contract renegotiation has become increasingly important, with companies implementing tariff adjustment clauses to shield against sudden cost spikes.

Although we are now seeing responses from countries like China to Walmart’s recent press release that they had successfully re-negotiated with their manufacturers in order to not raise prices.

The Chinese Ministry of Commerce, along with other authorities, delivered what one expert called a "serious warning sign" to both Walmart and the White House, with state media hinting at potential additional actions beyond talks if Walmart persists with its demands.

Customs optimization has gained focus, with businesses reviewing harmonized tariff codes to identify cost-saving opportunities and adjusting customs bond coverage to prevent insufficiency notices. Some are also exploring duty drawback programs for potential refunds.

Industry-Specific Impacts

Different industries face varying challenges from the current tariff environment:

The automotive sector has been particularly affected, with vehicle production costs in the US expected to rise. Approximately 40% of US auto parts are sourced from Mexico, making the tariff impact immediate and severe. The temporary USMCA exemption provides some relief, but companies are still preparing for potential future tariffs.  

The electronics industry faces significant cost increases due to heavy reliance on Chinese imports now subject to 20% tariffs. These increased costs will likely be passed on to consumers, affecting both sales volumes and profit margins across the sector.  

The pharmaceutical industry is experiencing tariff increases on high-exposure categories such as active pharmaceutical ingredients (APIs) and specialty chemicals sourced from China.

The textile and footwear sectors face new tariffs that put cost pressure on companies dependent on imports from China and other low-cost countries in Southeast Asia.

Impact of Chinese Tariffs

The 20% tariffs on Chinese imports have particularly far-reaching effects:

Economic data is showing these tariffs will raise the US price level, equivalent to an average per household consumer loss of $1,600–2,000.

Distributional impacts reveal these tariffs function as regressive taxes, with losses for households at the bottom of the income distribution ranging between $900–1,100. This disproportionate impact on lower-income households could exacerbate economic inequality.  

This is because tariffs are applied as a fixed percentage, equally to everyone. The less you make the more of an impact in has your finances. Consequently, low income houses are impacted even more on their “needs” versus purchases that are “wants”.

Key Markets for Diversification

Southeast Asia presents significant opportunities for diversification, particularly for industries like technology and advanced manufacturing. Countries in this region often offer competitive labor costs, growing domestic markets, and established export infrastructure.  

Regional sourcing within the US or neighboring countries that have preferential trade status is emerging as a viable alternative to high-tariff regions.

This "nearshoring" approach can reduce logistics costs and improve supply chain responsiveness while potentially avoiding some tariff exposure.

Again, I caution any reactionary strategies that simply move activity from one country to another. There are substantial costs in picking new suppliers, moving operations and setting up a stable supply chain.

All this could be more not if that country becomes a “target”.

The best approach is a strategic diversification (often referred to a “China + 1” approach) to your contract manufacturing. Over diversification can introduce instability into a supply chain as well. It can create inventory issues and raise costs as you can no longer hit more advantageous MOQs for your products with each supplier.

Best Strategies For Mitigating The Tariff Impact

There is no definitive playbook that can apply to every business.

Unfortunately like all things in Supply Chain, the right answer for any solution is often “it depends”.

Here are a number of things however that should benefit anyone:

1. Do a proper cost assessment of your products. Focus on developing the capability to accurately know your transaction value (dutiable value) to get to the US. Add the additional import fees to your business model and understand your options

   1. Absorb additional costs, keep prices the same

   2. Pass additional costs onto customers through product pricing

   3. Shared impact. Certain percentage paid by the brand, certain percentage pushed into pricing

2. Review your SKUs and classify them based on profitability and velocity. Too many businesses have fallen into the trap of trying to have an option for everyone for any mood. In industries like fashion/apparel, this usually leads to a large amount of product variants that rarely sell at the rate they need to

3. Move from a “sell everything everywhere” strategy to a more focused regional strategy. This can give you the ability to continue with sales into the US for example for products that have penetrated the market and have found success.

4. Analyze your manufacturing order history and understand how long it takes you to sell through your MOQ levels. You may find that buying up to that next threshold is hurting your business if your velocity of sales is too slow and you end up paying more storage and import costs

5. Start exploring options for bonded warehouses. This is extremely important to do sooner rather than later as there is significantly less square footage available. Bonded warehouses can give you flexibility in managing your cashflow when it comes to paying duties (important note though - there are more limitations about what can be done to products in a bonded warehouse - so this isn’t always the best solution)

Conclusion

The current US tariff landscape represents one of the most significant shifts in trade policy in decades. These different types of changes to tariffs create a complex environment requiring strategic response.  

As these policies continue to evolve, more brands and retailers will need to be more disciplined when it comes to what products they are selling, how much they are buying and what markets they are looking to penetrate.

Just because an app or platform can let you “sell anywhere”, it doesn’t mean that your business is structured in the right way (at least not at the moment).

Intention is going to be a key success factor for those that see positive gains through 2025 and beyond.

Specific strategies, clear execution and deep understanding as to why decisions are being made.

A Guide To Country Of Origin

COO impacts tariffs, trade agreements, legal compliance, and even what consumers think of a product.  

For small to medium-sized retailers and direct-to-consumer eCommerce brands, expanding your business often means engaging in international trade.

COO is even more critical now, with rising trade tensions and protectionism.  

Defining Country of Origin in International Trade

Core Definition

Country of Origin (COO) is the specific country where a product was originally made, produced, or grown.  

Think of it as a product's "nationality," often verified by a Certificate of Origin (CO).  

The COO isn't necessarily where the goods were shipped or exported from.  

The shipping country might not be where the product's origin was established through manufacturing.  

The "Substantial Transformation" Principle

Substantial transformation is key to determining COO, especially when components come from different countries.

This principle says the COO is where the product underwent its last substantial transformation, becoming a new and distinct item.  

Simple assembly, repackaging, or minor finishing work usually don't count.

A change in the Harmonized System (HS) code often signals a substantial transformation.

Why COO Matters to Your Business

COO carries substantial legal and financial weight in international trade:

• Tariffs and Duties: Import duty rates often depend on a product’s origin. Countries apply varying tariff rates to goods from different origins, and if your product’s COO qualifies under a trade agreement, you might benefit from a lower duty rate.  

• Trade Agreements: Preferential trade agreements, such as Free Trade Agreements (FTAs), can provide reduced or even zero tariffs for goods originating in partner countries. To leverage these benefits, you must accurately determine and certify COO.  

• Import Restrictions: Certain countries impose quotas or bans on products from specific origins. Therefore, knowing the COO ensures you don’t ship goods from a prohibited source.  

• Consumer Labeling: Many countries mandate that products be labeled with their COO for the end consumer. This informs consumers and prevents deception about where the product was made.

Comparative Summary of Country of Origin Labeling Requirements (USA vs. EU)

COO and Its Impact on Tariffs

COO directly affects the landed cost of your products in foreign markets.

Based on your country and the COO, there is often a distinction between preferential and non-preferential origins.

Preferential origin are qualifying goods under FTAs can have significantly lower or even zero duty rates, offering substantial cost savings.

For example, under the USMCA, a qualifying good made in Mexico or Canada can enter the US without the normal tariffs that would apply if the good came from, say, China.

Non-preferential origin are goods from countries without trade agreements are subject to standard tariff rates.

If you claim a preferential (lower) rate but your product’s origin doesn’t actually qualify, customs can later charge you the difference (back duties) plus penalties.

Businesses try to source from countries with favorable trade agreements to reduce tariff costs.

While Value Added Tax (VAT) or Goods & Services Tax (GST) generally doesn't change with origin, COO can affect excise taxes and import quotas.

Challenges in Direct-to-Consumer (D2C) eCommerce

Selling directly to consumers across borders introduces specific COO complexities.

It’s common to use third-party logistics (3PL) providers or fulfillment centers in different countries. But using different providers in different countries doesn’t change the COO. The COO is where the product was originally manufactured, not the shipping location.

D2C also means handling returns internationally. If a customer in country B returns a product back to you in country A, the item is entering country A again. Typically, you don’t want to pay import duties twice on the same item. Many countries have provisions for return shipments (e.g. marking them as returned goods of domestic origin when they come back, so no duty is charged). But documentation is key.

Different markets have different rules on how products must be labeled for origin. In the United States most imported goods must be marked with their COO for the end consumer.

This is a Customs requirement enforced at import – goods can be denied entry or penalized if not properly labeled. So if you’re importing to stock in the US or using US fulfillment (e.g. Amazon FBA), ensure your products themselves (or their packaging) have the correct origin label on them.

In the European Union, origin marking rules are a bit less uniform. This can create even more uncertainty for brands that are established and have been selling for a while before moving into new markets. While not always mandatory, if an origin is stated, it must be truthful. Many EU importers still prefer goods to be marked with origin for transparency however.

Other countries have their own laws: e.g., Canada requires a “Made in ___” on some products; Japan has long mandated origin marking on goods (since 1962) and the UK enforces against false origin claims under its Trade Descriptions Act​.

If you dropship, ensure the manufacturer includes the correct origin information. You are responsible for correct COO declaration and labeling.

Always check the destination country’s labeling requirements for your product category.

“Made in [Country]” typically should correspond to the product’s COO (non-preferential origin). Don’t label a product “Made in USA” because you’re shipping it from the USA – label it with the country where it was actually manufactured.

Compliance Best Practices

• Determine and Document COO: Maintain records of COO for each SKU, request origin information and Certificates of Origin from suppliers, and keep Bills of Materials (BOM) if you assemble products. Update COO information when changes occur.  Your 3PL should also be able to incorporate this information into their systems

• Use HS/HTS Codes: Classify products with the correct Harmonized System (HS) code and Harmonized Tariff Schedules (HTS - US) , as origin rules and duty rates are tied to these codes

• Implement an Inventory Origin Tracking System: Utilize your eCommerce platform or inventory management systems to tag the origin country

• Prepare Documentation for Customs: Ensure you have necessary documents such as commercial invoices, Certificates of Origin, manufacturer’s affidavits, and import/export declarations

• Avoid Common Mistakes: Do not assume shipping location equals COO, and remember that a single finished product should have only one COO

• Plan Sourcing with Origin in Mind: Strategically source or finish production in countries with favorable trade agreements, ensuring genuine production shifts to meet substantial transformation criteria. However this should NOT be your entire mitigation strategy and you should NOT build your businesses ability to be profitable on regulations / agreements that can change

• Utilize Tools & Professional Resources: Use HS code lookup tools, FTA databases, and consult with customs brokers or trade compliance experts. Keep abreast of trade news and tariff changes

• Record-Keeping: Maintain all shipping records, receipts, certificates, and communications about origin for the period required by law

Frequently Asked Questions (FAQs)

1. If I buy products from a supplier in one country and ship them from another country, which country is the origin?
   
   The origin is determined by where the product was made, not where it was shipped from (unless substantial transformation occurred)
   

2. How can I find the country of origin for a product I’m reselling?
   
   Ask your supplier or manufacturer. They should provide the COO and even a certificate of origin if needed
   

3. Do I need to label my products with the country of origin for customers?
   
   In many cases, yes. If you are importing goods, most countries (including the US, Canada, EU members, etc.) require the goods to bear an origin marking (like “Made in China”) when sold
   

4. My product has components from several countries. Can it have multiple countries of origin?
   
   A finished product can generally only have one country of origin at a time (for customs purposes). If components come from different places, the origin is where the final significant manufacturing happened
   

5. Does dropshipping from overseas change anything about COO?
   
   Not really – the product still has the origin of where it was made
   

6. If I do some light assembly or customization in my home country, can I claim my country as the origin?
   
   Light assembly (screwing in a few parts, inserting a SIM card into a phone, adding a logo sticker, etc.) usually does not change the origin
   

7. What happens if I mistakenly declare the wrong country of origin?
   
   If it’s a genuine mistake, you should contact the customs authority to correct it (or your courier/broker) as soon as possible. false COO declarations can trigger penalties under customs law​. Repeated or fraudulent misdeclaration might even get you barred from certain trade privileges

Conclusion

Doing all of this work can be hard.

But, the benefit is that these rules and requirements are well defined in most of the countries where you are doing business.

The biggest challenge is often doing the detailed work on collecting the information, and creating systems to ensure that everything is up to date.

One of the biggest challenges that I see over and over is people taking shortcuts when it comes to data and document management.

This is definitely NOT a situation where less is more.

When it comes to data dimensions, my personal recommendation is (almost) always to have more.

It’s easier to remove things from files / databases or simply extract the information that you do need instead of scrambling to try to find it after the fact.

If you don’t have the ability internally to be building up your database, I highly encourage you to find outside support. Not having this information or have sloppy or bad data isn’t going to do you any favours and will likely starting being a major drag on your financial performance.

I also recommend to audit your 3PL partners who are doing your warehouse fulfillment and make sure that they have all of your products and dimensions properly and COMPLETELY configured in their system.

At the end of the day, your customers see the quality of the execution and attribute it to your brand, not your 3PL.

Do not risk delays, duties or rejections simply because your 3PL isn’t data aware or data savvy.

That’s it for this week. Thanks for being here.