Page 12 - FIPI - Policy Economic Report - May 2025

POLICY AND ECONOMIC REPORT
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leading trading nation and a key development partner, the US provided additional preferential schemes
for vulnerable economies to support their development aspirations.

The US is substantially increasing its import tariffs for all its trading partners. On 2 April 2025, it
announced a universal 10% additional tariff on all imports, effective 5 April, regardless of trade
agreements or multilateral commitments under the World Trade Organization (WTO) or unilateral
preferential schemes for vulnerable economies.

Many developing and least developed countries could face tariffs exceeding 25%. A new country-specific
tariff system aimed at cancelling out US trade deficits implies that trade-weighted average rates would
increase from an average of 2.8% to over 25% in July 2025, when the current 90-day “pause” expires.
For 22 developing countries – including seven least developed countries and three small island
developing states – it would surpass 25%.

Tariffs on certain Chinese imports could exceed 100%. New country-specific US tariffs that were
announced for many trading partners were supposed to enter into force on 9 April. But their
implementation was postponed for 90 days until 7 July 2025. Meanwhile, the US had already imposed
an additional 125% tariff on Chinese imports on top of the existing Section 301 tariffs, as well as illicit
drug-related and product-specific duties. These tariffs remained in effect until 13 May 2025. After that
date, the US and China have lowered the additional tariffs implemented in April 2025. The additional US
tariff on Chinese imports was lowered from 125% to 10%, effective until 13 August, 2025. Subsequently,
the average rate dropped from over 100% to 46%.

For Mexico and Canada – the first and second largest US trading partners, respectively – tariffs under
the US-Mexico-Canada Agreement (USMCA) continue to apply. However, goods that do not meet
USMCA rules of origin are subject to additional 25% tariffs under the International Emergency Economic
Powers Act (IEEPA), based on the argument that it will help the US to combat illegal border crossings
and fentanyl trafficking. Once drug and migration-related tariffs on Canada and Mexico are lifted, non-
USMCA compliant goods would face a 12% tariff.

The US also expanded its national security tariffs on steel, aluminum, and automobiles. A 25% tariff was
reinstated on steel, and the tariff on aluminum was raised from 10% to 25% for all countries, including
USMCA members.

A new tariff of 25% on automobiles and parts was also announced, citing national security risks
under Section 232 of the Trade and Expansion Act of 1962. Automobile and parts that meet the USMCA
content rules are exempt from the 25% tariff on their US-made components, provided that the importer
certifies the US content and systems are in place to ensure compliance.

Impact on vulnerable LDCs- In relative terms, however, Latin America and the Caribbean have
experienced the greatest increase in tariffs. Many of the 20 trade agreements the US has are with
developing countries in Latin America, which means they previously benefited from preferential trade
terms, with a trade-weighted average tariff of below 0.5%. This has surged to 13%, representing a 42-

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