The USMCA Advantage: Avoiding the 25% Tariff for Your Company’s Bottom Line

On March 4, President Trump announced a sweeping 25% tariff on nearly all imports from Canada and Mexico under the International Emergency Economic Powers Act (IEEPA). But just two days later, a major exemption was introduced: goods that qualify under the USMCA would not be subject to these new tariffs. This lifeline for manufacturers and importers — particularly in the auto and industrial sectors — underscores just how critical USMCA compliance has become.

While some reports frame this exemption as temporary, the executive orders implementing the policy do not specify an end date. Given the shifting trade environment, it’s entirely possible this exemption will extend beyond April 2 while negotiations between the three countries continue — negotiations that could impact the future of the USMCA itself.

In 2024, $406.7 billion worth of imports from Canada and Mexico entered the United States under USMCA preferences, with automotive goods, oil and gas, and machinery topping the list. By contrast, $509.7 billion in imports from those countries did not claim USMCA preference. The message from Washington is clear: compliance with USMCA rules of origin isn’t just a smart move, it’s now essential for avoiding costly tariffs and maintaining competitive trade flows.

The March reprieve is important in and of itself, of course. Looking ahead, however, it is clear that the government, namely US Customs and Border Protection (CBP), will be aggressively vigilant in scrutinizing USMCA claims. Moreover, with the USMCA’s first mandatory review on the horizon in 2026, these latest developments signal that the agreement itself will be central to any upcoming trade negotiations.

So, what does all this mean for your business? Let’s break it down.

The USMCA Exemption: What You Need to Know

Q: What is the USMCA?

A: The USMCA, which replaced the North American Free Trade Agreement (NAFTA) in 2020, is the trade agreement governing commerce between the United States, Canada, and Mexico. It strengthened rules of origin, raised regional content requirements (especially for autos), and introduced modernized provisions on labor, environmental standards, and digital trade. For companies that qualify, the agreement provides a powerful advantage: duty-free trade across North America.

Q: How do I know if my product qualifies under the USMCA?

A: The details matter. To qualify, a product must meet specific rules of origin, which often means that a significant portion of its materials must come from North America, and certain manufacturing processes must occur within the region. Industry-specific rules apply. Automakers, for example, must ensure that 75% of a vehicle’s content by value originates from North America. Maintaining records, such as supplier certifications and bills of materials, is crucial to proving compliance.

Q: What duties or tariffs can I avoid by qualifying my product under the USMCA?

A: Normally, USMCA-qualified goods enter the United States duty-free, avoiding standard Most Favored Nation tariffs. But now, with IEEPA in play, USMCA compliance also means exemption from the newly imposed 25% tariffs on Canadian and Mexican imports. This represents a significant cost savings for businesses that rely on cross-border supplies, assemblies, or materials.

Q: How long will this exemption last?

A: There’s no official expiration date, though April 2 has been floated as a potential checkpoint. However, given the fluid nature of trade negotiations, the exemption could extend while discussions between the three governments unfold. Businesses should keep a close eye on developments to avoid unexpected tariff exposure.

Q: I heard the USMCA may be renegotiated soon. What does that mean for me?

A: The USMCA is set for its first six-year review in 2026, and while the agreement won’t automatically expire, changes are on the table. If all three parties agree, the review could extend the agreement for another 16 years. If no consensus is reached, however, annual reviews will take place until the 2036 sunset date looms closer. Given the current political climate, an automatic extension seems unlikely.

President Trump has signaled interest in renegotiating key provisions, particularly those affecting the automotive sector, labor standards, and supply chain security. If your business benefits from USMCA preferences, it’s critical to stay engaged with these discussions and prepare for potential rule changes that could affect your sourcing strategies and compliance requirements. Here, understanding which USMCA rules of origin particularly impact (and protect) your company’s interest is now essential.

Q: What should I do to ensure USMCA compliance?

A: The best approach is proactive, not reactive. Here’s what companies can be doing now:

• Conduct an internal USMCA audit. Identify whether your products truly meet the agreement’s rules of origin and whether your supply chains are optimized to maximize benefits.
• Maintain key records. Supplier certificates, production records, certifications of origin, and detailed bills of materials are essential to proving compliance and avoiding costly disputes with CBP.
• Train your trade compliance teams. Ensure that staff responsible for customs filings understand the intricacies of USMCA qualification. In addition, ensure that senior executives are notified immediately when the team receives a formal notification of transaction inquiry from CBP.
• Monitor policy changes closely. With USMCA’s future in flux, companies should stay informed and ready to adjust their strategies as needed.

Q: What happens if I claim USMCA status without ensuring compliance?

A: It’s a risk not worth taking. Incorrectly claiming USMCA preference can trigger penalties, back duties, and heightened scrutiny from CBP. Worse, companies found to have knowingly made false claims could face treble damages under the False Claims Act. To avoid these costly mistakes, businesses should conduct regular compliance audits and seek guidance from trade counsel as needed.

Takeaway

For businesses engaged in North American trade, USMCA compliance is more than a regulatory requirement, it’s a strategic necessity. With a 25% tariff looming over non-qualifying imports and a high-stakes USMCA review on the horizon, now is the time to ensure that your goods meet the agreement’s rules of origin and that your compliance processes are up to standard.

How ArentFox Schiff Can Help to Maximize USMCA Tariff Benefits

At ArentFox Schiff, international trade isn’t just something we do — it’s our forte. Our firm has decades of experience helping businesses navigate North American trade regulations. The practice includes former government attorneys at the US Department of Treasury and CBP, including a former CBP attorney who led USMCA implementation efforts at the agency during its inception. The team helps businesses navigate the complexities of country of origin and value determinations and supply chain compliance. And, in the event your company comes under CBP scrutiny or launches formal audits, we work closely with corporate divisions to ensure a strategic action plan. CBP inquiries and audits. Whether you need to confirm your eligibility, respond to government requests, or prepare for potential policy shifts, we have got you covered. Contact us to make sure your business is protected, compliant, and ready for what is next.