US Executive Order modifies tariffs; sets trade agreement procedures

• United States (US) President Trump issued an Executive Order (EO) on 5 September 2025 modifying the scope of his Reciprocal Tariff Policy and establishing procedures for implementing trade and security agreements.
• Effective 8 September 2025, Annex II to EO 14257, issued on 2 April 2025, is updated to exempt certain goods from tariffs, including bullion-related articles and critical minerals, while subjecting others like aluminum hydroxide and silicone products to tariffs.
• The new EO establishes potential tariff reductions for specific goods, such as aircraft parts and agricultural products, contingent on reciprocal trade agreements with aligned partners addressing the US trade deficit.
• Further, the EO sets procedures for executing trade deals with jurisdictions including Japan, the United Kingdom and the European Union, focusing on economic and national security goals.

On 5 September 2025, US President Donald J. Trump signed an EO titled "Modifying the Scope of Reciprocal Tariffs and Establishing Procedures for Implementing Trade and Security Agreements." The EO states that it aims to address national security concerns and rectify trade practices contributing to the US trade deficit. The EO introduces 0% tariffs for certain imports from aligned partners, contingent on their commitments to remedy certain trade practices. Additionally, the EO revises Annex II and establishes a new "Potential Tariff Adjustments for Aligned Partners" (PTAAP) Annex.

Key provisions

Annex II — Exemptions from certain tariffs

The new EO introduces significant changes to Annex II, which was imposed under EO 14257, and lists goods exempt from reciprocal tariffs. Several items, including bullion-related articles, certain critical minerals, and pharmaceutical products under Section 232 investigation, have been added to Annex II, exempting them from tariffs imposed on 2 April under EO 14257. Conversely, products such as aluminum hydroxide, certain resins and silicone products have been removed from Annex II and are now subject to the tariffs. These changes took effect on 8 September 2025.

Annex III — PTAAP and future trade deals

The new EO also establishes Annex III or the PTAAP Annex, which outlines categories of goods that could qualify for tariff reductions if a trade and security agreement is reached. These four categories are:

1. Aircraft and parts
2. Generic pharmaceuticals and their ingredients
3. Unavailable natural resources and closely related derivative products
4. Certain agricultural products not grown or produced in sufficient quantity in the US

The Trump Administration has reached framework agreements with jurisdictions such as Japan, the United Kingdom, Vietnam, the Philippines, South Korea, the European Union and Indonesia, with potential for tariff adjustments based on each partner's commitments to US trade concerns.

Monitoring and compliance

The EO further specifies that power to grant these tariff reductions lies with senior officials, including the US Secretary of Commerce and US Trade Representative (USTR), who will determine when conditions under a "final agreement" have been met and coordinate with agencies like Customs and Border Patrol on implementation efforts. (See, Cargo Systems Messaging Service (CSMS) # 66151866 - UPDATE — Products Exempted from Reciprocal Tariffs.)

The US Secretary of Commerce and USTR are charged with ensuring alignment between national security and economic goals, which may include monitoring trade deficits and making recommendations for adjustments.

Actions for businesses to consider

Companies that import into the US may want to consider some of the following actions, provided they align with business objectives:

• Analyze the impact of updated tariff structures and framework agreements on import strategies and compliance obligations
• Engage with legal and trade advisors to navigate the complexities of new regulations and ensure compliance
• Evaluate existing contracts with suppliers and customers to understand the impact of tariff changes on duties
• Consider renegotiating supplier and customer pricing agreements and/or cost-splitting arrangements
• Evaluate the impact on transfer prices for US distributors that purchase from related parties and identify whether their products are now subject to higher duties

Along with determining duty impact while aligning the income tax and customs approaches, affected parties should also review the mechanics of reporting any transfer-pricing adjustments to US Customs. This process may be particularly complex when duties are present for only a portion of the year. US Customs has specific rules for reporting adjustments to prices made after importation, including rules for transfer pricing adjustments. These rules require the importer to take specific actions before importing goods for which prices may be adjusted, including adding customs-specific language to transfer-pricing policies. If transfer prices are reduced, refunds might be obtained on duties paid.