New Reciprocal Tariff Rates Announced, but the Real Risk Is Hidden: Transshipment Enforcement Now Comes With an Additional 40% Tariff

By Brett W. Johnson and T. Troy Galan

On July 31, 2025, President Trump issued a new Executive Order modifying the reciprocal 10% global tariff introduced earlier this year. The revised rates impose differentiated tariffs by country, ranging from 10% to over 40%. Many companies are still dealing with the impact of past fluctuations over the last seven months. However, in light of the standardization of tariffs for some countries and the uncertainty related to global supply chains, companies may consider again revisiting tariff mitigation strategies, addressing transshipment loopholes, ensuring compliance with the law and avoiding quick fix schemes, and working towards a plan that provides flexibility around the changing international trade and domestic “reshoring” efforts.

Of importance, this latest action does not affect imports from China (which remain subject to Section 301 tariffs and separate Executive Orders), nor does it alter the rates under the United States Mexico and Canada Agreement (USMCA) — goods that qualify under USMCA remain one of the few pathways for duty-free treatment. Likewise, the Executive Order preserves prior treatment for goods already in transit, as long as they are imported before October 5, 2025.

While these rate changes are relevant for business planning and import cost forecasting, the more significant legal development lies deeper in the Executive Order: a new enforcement regime targeting transshipment. Importers relying on traditional compliance practices — particularly those using origin documentation based on informal supplier assurances — should treat this announcement as a call to action. Customs and Border Protection (CBP) will now have broad authority to impose a 40% penalty tariff on goods found to be transshipped to evade tariffs, with no option for mitigation or remission. It is expected that foreign countries will be assisting CBP with enforcing this penalty to avoid further increased tariffs on all goods.

Companies should reassess how they document country-of-origin, how they structure supplier warranties, delivery and indemnification contract terms, and whether their internal compliance programs are prepared for the anticipated wave of CBP audits and enforcement.

I. New Tariff Rates by Country

The Executive Order replaces the prior 10% global reciprocal tariff with a country-specific structure outlined in Annex I. Notable rates include:

All other countries not listed in Annex I remain subject to the 10% global rate under Executive Order 14257, as amended.

Importers should review current sourcing arrangements and harmonized tariff schedule (HTS) codes, to update landed cost assumptions. This is also the time to consider long-term tariff-mitigation strategies to minimize exposure in an increasingly aggressive tariff environment.

II. Transit Carveout

Goods loaded for final transport to the United States before 12:01 a.m. EDT on August 7, 2025, and entered by October 5, 2025, are carved out from the new rates and remain subject to the previous 10% tariff.

Importers seeking to use this exception should consider preparing detailed, contemporaneous documentation demonstrating eligibility, and consider working with trade counsel to prepare internal memoranda memorializing the rationale for the exemption claim. CBP is expected to scrutinize use of this carveout, and mere commercial invoices or bills of lading may not be sufficient, especially if the exemption is being claimed at scale.

III. Potential Future Relief Through Trade Deals

The Executive Order notes that certain countries may receive preferential treatment if pending trade and security agreements are finalized. But, until such agreements are signed and implemented by formal order, however, the country-specific rates listed in Annex I apply in full.

Importers should avoid over-reliance on media reports or public statements from foreign governments or negotiators. Business planning should be based on official guidance from CBP, the agency responsible for implementing and enforcing tariffs. 

IV. The Hidden Provision: 40% Transshipment Penalty Tariff with No Mitigation

The most significant feature of this Executive Order lies in a new enforcement provision authorizing CBP to impose a 40% tariff penalty on any good it determines has been transshipped to avoid tariffs.

While CBP has not released official guidance, key aspects noted in the Executive Order include:

CBP is also expected to publish a biannual list of countries and facilities associated with circumvention schemes, which importers should assess to make risk assessment decisions involving supply chains and procurement decisions.

What this means for global supply chains: even importers following historical practices — such as relying on supplier statements without thorough documentation — may now face severe penalties. This is particularly true for importers sourcing from countries with known transshipment risk, including Vietnam, Malaysia, Cambodia, Thailand, and Indonesia.

As such, importers should consider revisiting country-of-origin certifications. If suppliers cannot produce signed, dated documentation substantiating origin, importers may be exposed (regardless of whether the U.S. company is actually the importer of record). As a reminder, customs brokers cannot provide legal advice, and reliance on their classification is not a defense. Further, schemes related to parallel, but different shipping documentation and commercial invoices are illegal. Transactions that have the transporters or brokers act as the importer of record and who are willing to pay the tariff and yet charge a lower amount to the domestic company are suspect transactions. Assurances from domestic retailers to use preferred shipping routes or schemes to avoid the tariff will not mitigate risks.

V. Enforcement and the Role of CBP

Executive Orders set the policy — but enforcement falls on CBP. Due to the rapidly changing regulatory environment, CBP implementation of tariff rate updates may lag behind an Executive Order’s effective date. However, it is expected that there will be a significant increase in competitor complaints or voluntary disclosures by some party in the supply chain to avoid liability.

Importers should continue to track Federal Register publications and monitor official CBP guidance to avoid inadvertent violations. International business planning decisions should be made in consultation with trade counsel, not based on informal advice from customs brokers or suppliers.

VI. Strategic Mitigation: Legal Options That Should Be Explored Now

In light of the ongoing, rapidly shifting tariff environment, importers should continue to focus on long-term tariff mitigation strategies, rather than treating the current rate schedule as fixed. Companies that invest now in structuring supply chains for tariff efficiency will likely be better positioned to withstand future changes.

VII. Final Thoughts

While the updated tariff rates are a notable development, the transshipment penalty regime is the key change by this Executive Order. The 40% penalty tariff and lack of penalty relief present a heightened risk for importers and companies who wait for enforcement notices may find themselves already exposed.

General counsels and compliance personnel should review supplier agreements, revisit origin certifications, and ensure that any tariff planning is conducted to mitigate risks. Customs brokers are not attorneys; their mistakes are legally attributable to the importer and not protected by attorney-client privilege in the event of a CBP enforcement action.  

As we have noted in prior publications, the time to plan is before CBP acts. If your import practices have not changed since last year, now is the time to revisit them.