By Leslie Levy August, Chief Marketing Officer, and Todd R. Smith, Founder CEO, LCB, at KYG Trade, Inc.
On April 2nd, 2025, POTUS enacted “Liberation Day” tariffs through an Executive Order (EO), aimed at addressing supposed significant and persistent annual U.S. goods trade deficits. A relevant feature of this measure is a carve-out on reciprocal tariffs for imported goods that meet specific “U.S. content” criteria. Applying the U.S. content carve-out, along with qualifying a good for free trade agreement (FTA) tariff savings, are mitigation strategies that lend themselves to modern SaaS-based trade compliance software.
This article outlines the requirements of a non-bespoke sustainable software solution to affordably analyze reciprocal tariffs while simultaneously qualifying goods for free trade agreements.
Increased Compliance Complexity
The reciprocal tariffs are “…in addition to any other duties, fees, taxes, exactions or charges applicable to such imported articles…” with certain exceptions noted in the EO. The result is not only an increase in duty costs to the U.S. Importer of Record (IOR) but also increased complexity for trade compliance professionals tasked with both predicting and mitigating costs. Along with the increase in tariffs that negatively impact an importer’s gross margin, the business case and return on investment (ROI) for trade automation software improves exponentially.
Tariff Analytics
Importers are advised to look for a single-window out-of-the-box tariffs and trade analytics tool to calculate and forecast incremental trade remedy tariff costs as well as scenario planning. These can benefit product development, engineering, finance, procurement, and sourcing.
Any useful current-day tariff analytics tool should allow the user to input, modify, and report on the following attributes:
- Effective dates of new tariffs
- Price and country of origin of BOM components
- Simultaneous analysis of both regional value and, importantly, U.S. content
- Tariff shift analysis for all rules of origin for all trade agreements
- HS classification of end-products and BOM components
- Historical and new trade remedy tariffs, including reciprocal tariffs, on a global basis
- Unit cost and quantity of units imported
- Manage single items as well as millions of parts
- Ability to link a plethora of chapter 99 HS codes to base HS codes for CBP entry declarations
- Customs audit-ready documentation substantiating FTA and U.S. content claims
The above are the key attributes needed to:
- Calculate the historical versus new tariff cost
- Determine whether a good qualifies for allowable U.S. content exemptions
- Qualify a good for free trade agreements
- Quantify forecasted versus realized tariff savings to measure ROI
Ideally, the tool is also dynamic and enables importers to run scenarios by adjusting any one of the data elements listed above. The regulations include certain dependencies so it’s important that these tools calculate both if a product qualifies for a Free Trade Agreement and whether it passes or fails the U.S. content test for exception to the reciprocal tariffs.
Advanced, Dynamic Analysis with a Reciprocal Tariff Analyzer
For trade compliance professionals tasked with minimizing the impact of these new tariffs, an AI-assisted reciprocal tariff analyzer provides an easy but sophisticated solution. Such an interactive tool is engineered to streamline the process of calculating U.S. originating content, qualifying a product for a free trade agreement, and forecasting tariff implications.
Regulatory Framework and Key Provisions
The Executive Order outlines the basis for the 20% exception under Sec. 3(f), stipulating the ad valorem rates of duty apply only to the non-U.S. content of a subject good, provided at least 20% of the value of the subject good is U.S.-originating. This provision is designed to encourage the inclusion of domestic inputs in global supply chains, thereby reducing trade imbalances by incentivizing the use of American labor and resources.
Customs Audit Ready Documentation Requirements
The importance of substantiating U.S. content is specifically called out in Sec. 3(f) of the EO as follows:
“U.S. Customs and Border Protection (CBP), to the extent permitted by law, is authorized to require the collection of such information and documentation regarding an imported article, including with the entry filing, as is necessary to enable CBP to ascertain and verify the value of the U.S. content of the article, as well as to ascertain and verify whether an article is substantially finished in the United States.”
Similar to FTA or other preferential origin determination or transshipment audits, a good’s bill of materials along with transaction documents indicating dates, buyers, sellers, and transportation routes for each BOM component, a description of the manufacturing process, production records, and other documentary proof will certainly be required to support the U.S. content claims. The system used to determine and forecast tariff savings must therefore also be able to create, manage, and store immutable documentation to support CBP U.S. content audits.
Strategic Considerations for Compliance Officers
Given the explicit requirements of the Executive Order signed on April 2nd, 2025, it is essential for trade and customs compliance professionals to leverage sustainable trade tech software with features that integrate both trade analytics as well as audit-ready record keeping. Doing so not only facilitates accurate U.S. content calculations and FTA qualification but also supports strategic planning for tariff forecasting and risk mitigation.
Conclusion
The April 2nd Liberation Day tariffs introduced new compliance complexity for global trade professionals. Leveraging advanced AI-assisted trade technology tools and maintaining meticulous documentation are essential to qualifying for reciprocal tariff relief under the 20% U.S. content rule and FTAs. Stay informed, stay compliant, and utilize reliable non-bespoke but sustainable AI-assisted software to efficiently navigate the new stack of tariff calculations and reporting.
