1. Introduction: the executive order of April 2, 2025

On April 2, 2025, the Trump Administration issued Executive Order No. 14256, which introduced a sweeping set of tariff measures aimed at addressing the United States’ ongoing and significant trade imbalances.

The measure formally declares a state of “national emergency” and implements a new reciprocal tariff regime targeting foreign imports.

From April 5, a flat 10% ad valorem tariff applies to all imported goods, followed by an escalation, effective April 9, in the form of differentiated tariff rates depending on country of origin and product category. Imports from the European Union are now subject to a general 20% duty, unless otherwise exempted.

  1. Exemptions and differentiated tariffs: analysis of affected product categories

The executive order does not apply uniformly across all goods. A closer review of the legal text reveals numerous exemptions that exporting companies must evaluate with precision. Among the excluded goods are:

  • pharmaceutical and healthcare products, classified under HS codes 3001–3005;
  • copper and certain raw materials deemed essential to U.S. strategic industries;
  • select aerospace and defense components;
  • semiconductors and high-tech components (HS 8541 and 8542);
  • materials not sufficiently available within the United States, including some specialized woods and raw inputs.

Conversely, several categories remain subject to higher tariffs or are cumulatively affected:

  • steel products, already subject to a 25% tariff as of March 12, 2025;
  • the automotive sector, with a 25% tariff on vehicles and components effective April 2;
  • a range of semi-finished goods and intermediate products, with rates varying from 10% to 15% depending on their deemed strategic importance.

Given this complex tariff architecture, companies must conduct a detailed mapping of their product lines, ensuring correct customs classification to avoid misapplication of duties and potential penalties.

  1. Operational supply chain impact: understanding Incoterms

Tariffs are not just a policy issue—they directly affect the day-to-day operations of companies involved in international trade. As emphasized in leading supply chain guidance, the duty becomes payable immediately upon customs clearance and must be accounted for accordingly.

The operational impact varies depending on the Incoterms used in the transaction:

  • under DDP (Delivered Duty Paid) terms, the exporter (often the EU-based parent company) absorbs the duty cost, which directly impacts the sales invoice and profit margin.
  • under EXW (Ex Works) or FCA, the U.S. subsidiary typically pays the duty, which affects its purchase order and cost structure.
  • for mixed terms like FOB or CIF, contractual clarity is essential to determine which party bears the duty.

In practical terms, the correct use of Incoterms determines not only how duties are paid, but also how they are recorded in the ERP system (e.g. SAP, Oracle), influencing both financial reporting and cost control.

Companies should review their logistics flows and intercompany contracts to ensure the accurate allocation of customs duties and associated expenses.

  1. Inventory valuation and insurance considerations

A key consequence of these new duties is their impact on inventory valuation. In standard cost accounting systems, increased import costs result in purchase price variances (PPVs). If not updated promptly, this leads to distorted cost structures and inaccurate margins in internal reporting.

Furthermore, the increased customs value of stored goods demands a review of insurance coverage. Without adjusting declared values, companies risk underinsurance for stored goods, especially in the event of loss, theft, or logistics incidents.

  1. Pricing complexity: you can’t just add 20%

Raising prices by 20% to reflect the new tariffs is rarely a viable solution. Most finished goods are composed of multi-origin components, and only some of them may be affected by the new duties. A proper pricing strategy requires:

  • clear breakdown of costs by origin;
  • verification of applicable exemptions or suspensions;
  • simulation of real margin impact per product and channel.

A data-driven, analytical approach is the only way to maintain competitiveness while avoiding errors in market positioning.

  1. Intercompany cost allocation: who pays the duty?

For Italian and European companies operating through U.S. subsidiaries, intercompany duty allocation is a key strategic and legal question.

Traditionally, goods are sold by the parent company “ex works” to the U.S. entity, which imports and bears the cost of duties. However, given the inflationary pressure and margin compression, it may now be necessary to:

  • consider shared risk structures;
  • revise transfer pricing policies;
  • clearly define in intercompany contracts which party is responsible for duty costs, ensuring tax compliance and avoiding double taxation issues.

Miscalculating duty allocation can create internal audit issues, regulatory risks, and inconsistencies in group-level reporting.

  1. Accurate tracking of actual costs

To effectively manage the impact of tariffs, businesses must implement systems that enable precise tracking of duty-related costs, distinguishing them from other logistics, insurance, and exchange rate charges. Failure to do so may result in:

  • distorted operating margins;
  • incorrect product pricing decisions;
  • flawed insights into business unit profitability.

Integrated cost visibility is now essential to making sound financial and operational decisions.

  1. Rethinking strategy: localizing and restructuring U.S. supply chains

In light of this evolving scenario, companies must consider a structural review of their U.S. market strategy. Continuing to serve the American market solely via exports may no longer be viable in the long term.

A compelling alternative is the partial localization of production, including:

  • assembling or final packaging in the U.S. to reduce customs exposure;
  • strengthening local credibility, especially in government and institutional contracts;
  • taking advantage of S. incentive programs for domestic investment.

 The U.S. offers a wide range of fiscal incentives at the federal, state, and local levels to attract foreign direct investment.

Companies establishing a manufacturing or logistics presence in the country may benefit from corporate income tax credits, property tax abatements, non-repayable grants for job creation or capital expenditure (e.g. machinery), and discounts on utilities or infrastructure development.

Many U.S. states design customized incentive packages based on the economic impact of the investment – such as job creation, real estate development, and technology transfer. These benefits are often subject to negotiation and conditional upon the company signing a “performance agreement” to meet specific milestones within a set timeframe.

While such a shift requires strategic planning, legal support, and fiscal optimization, it may be the only path to sustained competitiveness in a tariff-driven economy.

  1. Additional mitigation tools available to exporters

Beyond redesigning their commercial and logistics strategies, Italian and European companies can adopt technical and customs tools to reduce the impact of rising U.S. tariffs. Specifically:

Customs suspension regimes

Tools such as Inward Processing Relief (IPR) allow companies to import raw materials and components into the EU without paying duties and VAT, provided that the goods are processed and re-exported. This solution helps manage cash flow efficiently and neutralizes duty exposure for imports and exports. It is particularly useful for firms with U.S. clients or subsidiaries relying on intermediate processing in Europe.

Authorized Economic Operator (AEO)

AEO status, recognized both in the EU and the U.S. under mutual recognition agreements, grants faster customs procedures, fewer inspections, and greater operational predictability. In a climate of trade tension, having AEO certification can be a tangible competitive edge, reducing delays and indirect costs.

First Sale Rule

Under U.S. customs law, companies may base import duties on the first sale in a multi-tier transaction chain rather than on the final sale price to the U.S. customer. This rule can lead to substantial savings, particularly for multinational groups with internal transfers prior to the final U.S. sale.

Customs valuation and classification optimization

A detailed technical review may reveal more favorable tariff classifications, or opportunities to exclude certain ancillary charges from the customs value. Though this requires specialized expertise, it can lead to significant savings and stronger regulatory compliance.

Managing the risk of EU retaliatory tariffs

As the European Union has already announced its intention to retaliate against U.S. tariffs, exporters must be prepared for potential countermeasures on U.S. products. This may require revisiting pricing, sourcing strategies, and the structure of relationships with U.S. clients and distributors.


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EXP Legal stands ready to assist Italian and European companies in navigating this complex transition.

Our Internationalization of Enterprises Department continues to monitor policy developments daily and supports clients in building resilient, competitive strategies in the face of new trade realities.

 

Stefano Rossi

Partner

Head of Business Internationalization Dep.