Update: On February 1, 2025, President Trump signed three executive orders imposing U.S. tariffs on imports from Canada, China, and Mexico. These new tariffs are in addition to any already-existing duties and tariffs, including antidumping and countervailing duties, Section 232 tariffs on steel and aluminum imports, and Section 301 tariffs on Chinese-origin goods.

Just hours before the new tariffs on Canadian and Mexican imports went into effect, Trump delayed both until March 4. Although no tariffs have been announced in respect of other countries, Trump has also stated his intention for EU tariffs to follow. 

Key takeaways:

  • Effective February 4, the United States imposed an additional 10% tariff on all Chinese-origin imports, including products from Hong Kong. Although goods from Hong Kong have been marked as “made in China” since President Trump’s first term in office, this is the first time the United States has expanded the tariffs’ scope to include Hong Kong-origin products.
  • China retaliated with 15% tariffs on supercooled natural gas and coal from the United States and a 10% tariff on U.S.-origin crude oil. China’s retaliatory tariffs will go into effect on February 10.
  • The U.S. tariffs on Canadian- and Mexican-origin goods, as well as those countries’ counter-tariffs, have been delayed until March 4.
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China tariffs and response

Effective February 4, the United States imposed a 10% ad valorem additional tariff on all Chinese-origin imports entered for consumption, or withdrawn from warehouse for consumption, including products of Hong Kong. Until now, U.S. Customs and Border Protection’s (CBP) published guidance indicated that Hong Kong-origin goods should be marked as “made in China” but entered with Hong Kong as the country of origin. CBP’s guidance is expected to be updated to align with the recent tariff actions.

In response, China announced retaliatory measures, including:

  • 15% tariff on supercooled natural gas and coal from the United States
  • 10% tariffs on U.S.-origin crude oil
  • New export controls on tungsten, tellurium, bismuth, molybdenum and indium products

China’s new tariffs go into effect on February 10.

Canada and Mexico tariffs and response

Although tariffs on Canadian- and Mexican-origin goods were also originally scheduled to go into effect on February 4, Trump delayed those tariffs until March 4.

Once implemented, products of Canada and Mexico entered for consumption, or withdrawn from warehouse for consumption, will be subject to the following ad valorem tariffs:

  • Canada: Except for “energy or energy resources,” all products of Canada will be subject to a 25% additional tariff. Energy or energy resources will be subject to a 10% additional tariff. “Energy or energy resources” is defined by President Trump’s National Energy Emergency Executive Order dated January 20, 2025 as “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals.”[1] By reference to 30 U.S.C. § 1606 (a)(3), “critical minerals” is defined as any non-fuel mineral, element, substance, or material designated as critical by the Secretary of the Interior, who has published a comprehensive list, with further guidance available from the Department of Energy.
  • Mexico: 25% additional tariff on all imported products. No reduced tariff rate applies to energy or energy resources.

In response, Canada promised $155 billion in retaliatory tariffs:

  • Effective March 4, Canada will impose a 25% ad valorem tariff on U.S.-origin goods classified under 1,256 tariff lines falling into 217 tariff headings. The tariff headings cover a wide variety of items, including agricultural products, machinery, construction materials, household appliances, automobile parts, cosmetics, clothing, shoes, household items, furniture, chemical products, alcoholic beverages, tobacco products, sports equipment, lumber, and plastic products.
  • After a 21-day public comment period, Canada intends to impose tariffs on another $125 billion in U.S.-origin products. That list of products will be published in the coming days and is expected to include passenger vehicles and trucks (including electric vehicles), steel and aluminum products, additional fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.

In addition, Mexico is prepared to implement “Plan B,” which is expected to include tariffs and non-tariff measures. Mexico’s counter-tariffs will also be delayed until March. In the lead-up to Saturday’s tariff announcement, however, reports indicated Mexico was considering 5% to 20% tariffs on U.S.-origin pork products, cheese, certain agricultural products, bourbon, and manufactured steel and aluminum. Initially, Plan B is not expected to impact the auto industry.

Products of Canada, China, and Mexico

Products of Canada, China, and Mexico will include goods manufactured, produced, grown, or substantially transformed in those countries, consistent with how a product’s country of origin is currently determined at the time of import into the United States.

Savings clause

The new tariffs do not apply to goods entered for consumption, or withdrawn from warehouse for consumption, that were loaded onto a vessel at the port of loading or in transit on the final mode of transport prior to entry into the United States before 12.01 am (ET) on February 1, 2025. The importer of record must certify to CBP that the imported goods meet the conditions in the savings clause. In accordance with the Federal Registry notices, the importer must declare new HTSUS heading 9903.01.14 in respect of Canadian goods and new HTSUS heading 9903.01.23 in respect of Chinese goods, as set out in the annexes to the notices.

Providing a false certification to CBP can result in penalties under 19 U.S.C. § 1592 and create civil exposure under the False Claims Act.

USMCA duty-free treatment

The executive orders do not impact products’ duty-free treatment under the United States-Mexico-Canada Agreement (USMCA). Thus, originating products will still be entered without paying general duties, even though the new tariffs will apply.

Additional provisions

Other key provisions include:

  • Changes to the Harmonized Tariff Schedule of the United States (HTSUS): The HTSUS has been modified to implement these tariffs. For goods subject to the tariffs, importers will declare the products’ normal HTSUS classification, as well as a tariff-related classification in Chapter 99.
  • Goods admitted to Foreign Trade Zones (FTZs): Any goods eligible for “domestic status”[2] that are also subject to these tariffs must be admitted to an FTZ under “privileged foreign status.”[3] When these goods are entered for consumption, the new tariffs will still apply, even if President Trump has since withdrawn the tariffs.
  • Drawback ineligibility: These tariffs are not eligible for drawback.
  • No de minimis exemption: The goods covered by the executive orders will not be eligible for the duty-free de minimis exemption, which typically applies to goods imported by one person on one day having a fair retail value not exceeding $800.[4] Supply chains that are modeled around using this exemption to keep consumer prices down, a practice particularly prevalent in e-commerce businesses, will therefore be impacted by the tariffs.

Further tariff activity in relation to the EU

According to President Trump’s press notice on January 31, the United States will “absolutely” impose tariffs on the EU. The president made repeated calls in the last month for the EU to increase its U.S. oil and gas purchases to rebalance the current U.S. trade deficit but to no avail. Although it is currently unclear what the scope of the tariffs is likely to be, the EU has promised to respond robustly.

President Trump also has suggested global tariffs may be imposed on semi-conductors, oil, steel, aluminum, and copper.

Anticipated EU response

The EU would certainly respond with tariffs of its own on U.S. products. However, it is unlikely that this response would be immediate.

During Trump’s first term as president in 2018, his administration imposed tariffs of 25% on EU imports of steel and 10% on EU imports of aluminum. The EU retaliated with ad hoc tariffs on approximately $6 billion of U.S.-origin goods. However, the implementation of these tariffs took several months, as the EU commission was required by EU law to first take steps to comply with the World Trade Organization’s rules. While the EU now has a regulation that allows it to respond more rapidly to U.S. measures (the Anti-Coercion Instrument introduced in December 2023), its use is limited to situations in which U.S. tariffs are not punitive or do not aim to alter EU policy. As such, unconditional tariffs, such as those imposed against Canada, Mexico, and China, may fall outside the scope of the regulation, and thus take longer for the EU to respond to. That said, with an EU summit starting in Brussels on February 3 that includes discussion of the anticipated “trade war,” the EU is likely to want to demonstrate both agility and readiness in countering any forthcoming U.S. tariffs.

If the EU imposes retaliatory tariffs on U.S.-origin products, moving production would be unlikely to benefit U.S. businesses, as it could be considered an attempt to circumvent the tariffs, which would not be permitted under EU law. This was the case in 2018 when Harley Davidson tried to shift its production of motorbikes from the EU to Thailand, but still had to pay the 25% tariff.

Assessing the impact on supply chains

The new tariffs and countermeasures are likely to have a significant economic effect on both existing supply agreements and wider trading patterns. Depending on how contractual responsibility for additional tariffs falls between producers, traders, and end users, existing agreements may become uneconomic to perform, and sources of supply that were intended to satisfy existing contractual commitments may no longer be economically viable. Market participants will need to review the economic implications of the new measures on their relevant cross-border business, relationships, and contracts. 

An assessment of the impact of the new tariffs and countermeasures on existing contracts and a plan to mitigate their potential impact should involve:

  • For the relevant contract goods, reviewing the country of origin, valuation, and classification of imported goods. For imports into the United States, country of origin and valuation will be most important for across-the-board tariffs. Classification will also be critical for imports into Canada given the published list of tariff codes that will become subject to additional duties.
  • Assessing which party is liable contractually to bear the cost of tariffs and any contractual right that may be invoked as a result of or in response to the tariffs. Such rights may include:
    • Exercising optionality around the source of supply and country of origin in a manner that is most cost effective.
    • Invoking rights to renegotiate commercial terms, e.g., under price review and price reopener clauses.
    • Exercising termination rights that may arise where performance of a contract becomes economically onerous, e.g., under “hardship” clauses, force majeure clauses, or “new and changed regulations” clauses.
  • Monitoring updates to the tariffs in each jurisdiction, including notably the specifics behind Mexico’s Plan B; the second list of goods Canada intends to tariff; whether any agreements can be reached that may further delay or cancel tariffs imposed on China, Mexico, or Canada; and whether the United States creates an exclusion process to exempt certain imports from the tariffs. By way of example of potential exemptions, the American Petroleum Institute has stated it will continue to work with the Trump administration to developing exclusions to the tariffs with the objective of protecting energy affordability for consumers. It may be that more detailed government guidance therefore develops an exclusion process for certain commodities.

It is likely that the energy, automobile, manufacturing, agriculture, steel, and aluminum sectors will be particularly affected by tariffs in the United States, China, Canada, and Mexico once these come into effect. In the energy sector, for example, the United States imports approximately four million barrels of crude oil per day from Canada and 500,000 barrels per day from Mexico. Prices on West Texas Intermediate crude oil increased nearly 4% shortly after the tariffs were announced, but whether the price spike will continue remains to be seen. Nearly all of Canada’s crude oil exports go to the United States, so Canadian suppliers may have few options in terms of alternative shipping markets.

Market participants will need to continue to assess and monitor which imports are caught by the tariffs as they come into effect to understand the extent to which supply chains can be modified to reduce the long-term impact of these tariffs. Operational limitations such as requirements by refineries to use specific fuel specifications may mean that the tariffs will cause permanent complications for supply chain economics if such imports do not become exempt. For example, refineries in the Midwest rely extensively on Canadian crude oil because it is relatively heavy compared to U.S. shale oil, and those refineries are configured to run on heavier forms of crude.

[1] Executive Order No. 14156 (January 20, 2025).

[2] “Domestic status” may be granted to goods that are or have been: “(1) The growth, product, or manufacture of the US on which all internal-revenue taxes, if applicable, have been paid; (2) Previously imported and on which duty and tax has been paid; or (3) Previously entered free of duty and tax.” 19 C.F.R. § 143.43(a).

[3] See id. § 143.41.

[4] See id. §§ 10.151-10.152.

Update: After a February 3 call with Mexico’s president, President Trump announced on Truth Social that the tariffs on Mexican goods will be paused for one month. He is also scheduled to speak with Prime Minister Trudeau, which could result in the Canadian tariffs being paused. More details to come.

Key takeaways

  • U.S. imposes tariffs on Canada, China, and Mexico, triggering immediate retaliation threats.
  • New tariffs apply from February 4, covering key imports with varying rates by country.
  • Canada, China, and Mexico announce countermeasures, including tariffs and non-tariff barriers.

On February 1, President Trump signed three executive orders imposing tariffs on imports from Canada, China, and Mexico. These new tariffs are in addition to any already-existing duties and tariffs, including antidumping and countervailing duties, Section 232 tariffs on steel and aluminum imports, and Section 301 tariffs on Chinese-origin goods.

Ad valorem tariff rates, effective February 4

Effective at 12:01 a.m. (ET) on February 4, products of Canada, China, and Mexico entered for consumption, or withdrawn from warehouse for consumption, will be subject to the following ad valorem tariffs:

  • Canada: Except for “energy or energy resources,” all products of Canada will be subject to a 25% tariff. Energy or energy resources will be subject to a 10% tariff. “Energy or energy resources” means “crude oil, natural gas, lease condensates, natural gas liquids, refined petroleum products, uranium, coal, biofuels, geothermal heat, the kinetic movement of flowing water, and critical minerals, as defined by 30 U.S.C. § 1606 (a)(3).”[1]
  • China: 10% additional tariff.
  • Mexico: 25% tariff.

The executive orders do not define “products of” Canada, China, or Mexico. The Secretary of Homeland Security is expected to define these terms in a Federal Register notice published this week. Typically, however, the phrase would be interpreted to mean Canadian-, Chinese-, or Mexican-origin goods.

Savings clause

The new tariffs do not apply to goods entered for consumption, or withdrawn from warehouse for consumption, that were loaded onto a vessel at the port of loading or in transit on the final mode of transport prior to entry into the United States before 12.01 am ET on February 1. The importer of record must certify to U.S. Customs and Border Protection (CBP) that the imported goods meet the conditions in the savings clause. The forthcoming Federal Register notice will provide further details on the specific requirements for the certification.

Providing a false certification to CBP can result in penalties under 19 U.S.C. § 1592 and create civil exposure under the False Claims Act.

USMCA duty-free treatment

The executive orders do not impact products’ duty-free treatment under the United States-Mexico-Canada Agreement (USMCA). Thus, originating products will still be entered without paying general duties, even though the new tariffs will apply.

Additional provisions

Other key provisions include:

  • Changes to the Harmonized Tariff Schedule of the United States (HTSUS): The forthcoming Federal Register notice will modify the HTSUS to implement these tariffs. For goods subject to the tariffs, importers will declare the products’ normal HTSUS classification, as well as a tariff-related classification.
  • Goods admitted to Foreign Trade Zones (FTZs): Any goods eligible for “domestic status”[2] that are also subject to these tariffs must be admitted to an FTZ under “privileged foreign status.”[3] When these goods are entered for consumption, the new tariffs will still apply, even if President Trump has since withdrawn the tariffs.
  • Drawback ineligibility: These tariffs are not eligible for drawback.
  • No de minimis exemption: The goods covered by the executive orders will not be eligible for the duty-free de minimis exemption, which typically applies to goods imported by one person on one day having a fair retail value not exceeding $800.[4]

Response from Canada, China, and Mexico

Despite President Trump signaling that any retaliation from Canada, China, or Mexico could result in further action, all three countries have promised to retaliate.

Canadian Prime Minister Trudeau held a news conference on February 1, promising $155 billion in retaliatory tariffs:

  • Effective February 4, Canada will impose a 25% ad valorem tariff on U.S.-origin goods classified under 1,256 tariff lines falling into 217 tariff headings. The tariff headings cover a wide variety of items, including agricultural products, machinery, construction materials, household appliances, automobile parts, cosmetics, clothing, shoes, household items, furniture, chemical products, alcoholic beverages, tobacco products, sports equipment, lumber, and plastic products.
  • After a 21-day public comment period, Canada intends to impose tariffs on another $125 billion in U.S.-origin products. That list of products will be published in the coming days and is expected to include passenger vehicles and trucks (including electric vehicles), steel and aluminum products, additional fruits and vegetables, aerospace products, beef, pork, dairy, trucks and buses, recreational vehicles, and recreational boats.

Canada is also considering a number of non-tariff measures. To date:

  • British Columbia’s premier directed provincial liquor stores to stop buying and selling American liquor from “red states.” The provincial government and Crown corporations have also been directed to buy Canadian goods and services first.
  • Nova Scotia announced it is doubling the cost of tolls at the Cobequid Pass for commercial vehicles entering from the United States and removing all U.S. alcohol from its provincial liquor stores. The provincial government also promised to cancel contracts with U.S. firms and limit American companies’ access to provincial procurement.
  • Ontario is also taking American alcohol products off the shelves in its government-run liquor stores. Wholesale sales of American alcohol products to restaurants, bars, and retailers will also be suspended by February 4.

China’s Ministry of Commerce promised to initiate a dispute resolution proceeding before the World Trade Organization (WTO). China took a similar approach when President Trump first imposed Section 301 tariffs in 2018. Although the WTO panel reviewing those tariffs sided with China, the United States appealed the decision to the Appellate Body. The appeal remains pending because the WTO’s Appellate Body currently does not have any appointed members to hear the case. The United States continues to block appointments to the Appellate Body.

Mexican President Sheinbaum directed the Ministry of Economy to implement Mexico’s “Plan B,” which she said has been in the works since President Trump threatened tariffs on Mexico. Although the specifics have not yet been announced, Plan B is expected to include tariffs and non-tariff measures. In the lead-up to Saturday’s tariff announcement, reports indicated Mexico was considering 5% to 20% tariffs on U.S.-origin pork products, cheese, certain agricultural products, bourbon, and manufactured steel and aluminum. Initially, Plan B is not expected to impact the auto industry.

Next steps

To assess the impact of these new tariffs and countermeasures and mitigate the potential impact, companies should:

  • Review the country of origin, valuation, and classification of their imports. For imports into the United States, country of origin and valuation will be most important for across-the-board tariffs. Classification will also be critical for imports into Canada given the published list of tariff codes subject to additional duties.
  • Assess existing contractual provisions to determine which party bears the cost of these tariffs, whether the force majeure or termination provisions can be invoked based on these new government orders, and how surcharges can be used to mitigate the unexpected expenses.
  • Monitor updates in each jurisdiction, including whether the United States establishes an exclusion process to exempt certain imports from the tariffs, the specifics behind Mexico’s Plan B, and the second list of goods Canada intends to impose tariffs on later this month.

[1] Exec. Order No. 14156 (Jan 20, 2025).

[2] “Domestic status” may be granted to goods that are: “(1) The growth, product, or manufacture of the U.S. on which all internal-revenue taxes, if applicable, have been paid; (2) Previously imported and on which duty and tax has been paid; or (3) Previously entered free of duty and tax.” 19 C.F.R. § 146.43(a).

[3] See id. § 146.41.

[4] See id. §§ 10.151-10.152.

With U.S. President Donald Trump’s recent return to the White House, major regulatory changes are on the horizon for 2025. On Thursday, January 23rd, we gathered a group of regulatory attorneys from across Reed Smith to provide a one-hour CLE that outlined the key trends to watch for this year. In their latest alert, our lawyers recap the top takeaways from the event, which includes key regulatory changes and the practical implications of a second Trump administration from various angles, including international trade, antitrust, labor and employment, consumer protection, and data privacy.

On December 23, 2024, President Biden signed The National Defense Authorization Act (NDAA) for Fiscal Year 2025 (P.L. 118-159) into law. The legislation authorizes $895.2 billion in funding for Department of Defense (DoD) and Department of Energy (DOE) national security programs. Beyond authorizing spending and setting other priorities, NDAA introduces a range of provisions – some effective immediately and others requiring implementing regulations – that impact procurement practices for government contractors and have broad implications on national security. Below are the provisions most significant to companies across various industries – including defense, technology, life sciences, and commercial items – engaging in U.S. government contracting.

Federal acquisition policy and administration-related changes

Acquisition provisions

Sections 804, 805, and 861 establish new acquisition authorities for expedited contracting and streamline the acquisition of innovative technologies.

Section 804 codifies – at 10 U.S.C. section 3602 – a new Middle Tier of Acquisition authority for rapid prototyping and rapid fielding. This authority will allow DoD to conduct expedited acquisitions within the rapid prototyping pathways if the operational capability is fielded within five years and meets other requirements under section 804.

Section 805 enhances DoD’s existing software acquisition pathway by authorizing use of the pathway for the procurement of commercial or non-developmental hardware in which software acquired via the pathway is embedded.

Section 861 directs DoD to create a pilot program aimed at expediting the acquisition of innovative technologies through competitive, merit-based solicitations, with preferences for small businesses and nontraditional contractors.

Bid protest provisions

Under Section 885, the U.S. Government Accountability Office (GAO) and DoD must develop a proposal to change several existing practices and submit their recommendations by June 1, 2025. Combined with another attempt by Congress to make protestors pay for unsuccessful bid protests, the most important protest-related change is an increase to the threshold for GAO protests of task orders under DoD indefinite delivery, indefinite quantity (IDIQ) contracts from $25 million to $35 million, effectively limiting the number of DoD task orders eligible for protest. Section 885 also requests a process for enhanced pleading standards for GAO protests prior to production of the agency report.

Additionally, Section 885 requires a proposal for recouping certain protest costs, which is to include the average costs of protests to DoD and GAO based on the value of the contract being protested and lost profits for the awarded contractor while contract performance is stayed, as well as a process for unsuccessful protesters to pay the government and the awarded contractor.

Nontraditional defense contractor provisions

Section 815 amends 10 U.S.C. section 3702(a)(3) to allow nontraditional defense contractors to submit recent price history instead of cost or pricing data for subcontracts under $5 million.

Section 863 extends the pilot program for streamlining awards for innovative technology projects to small businesses and nontraditional defense contractors from October 1, 2025, as set in the FY 2022 NDAA, until October 1, 2029.

Section 864 requires DoD to establish a pilot program that allows contracting officers to use an alternative, capability-based analysis to determine the reasonableness of proposed prices or fees of commercial products or services offered by nontraditional defense contractors.

Section 888 requires DoD to establish a process to track other transaction awards to small businesses and nontraditional defense contractors.

Small business provisions

Sections 871, 874, and 876 require DoD to establish pilot programs and initiatives geared toward small businesses.

Section 871, which amends section 9 of the Small Business Act, 15 U.S.C. section 638, requires DoD to establish a pilot program allowing military research and educational institutions to participate in the Small Business Technology Transfer program.

In accordance with section 874, DoD must establish a pilot program that streamlines access for small businesses and higher learning institutions to shared classified commercial infrastructure. This aims to increase small business participation in classified contracts by increasing access to shared classified commercial infrastructure and to simplify the process for small businesses and higher education institutions to apply for and maintain facility clearances.

Under the pilot program, DoD must update or establish policies and regulations governing commercial classified infrastructure and determine how small business contractors may obtain necessary facility sponsorship, authorization, and accreditations. The pilot program will expire on September 20, 2030.

In addition to pilot programs, section 876 directs DoD’s Small Business Integration Group to develop a Small Business Bill of Rights for DoD and its components.

Contract administration provisions                                                                                

Section 803 amends 10 U.S.C. section 3372(b) to clarify that a DoD contracting officer’s unilateral definitization of an undefinitized contract action is a final decision that may be directly appealed to the Armed Services Board of Contract Appeals (ASBCA) or the United States Court of Federal Claims. Congress’s change is contrary to recent decisions of the ASBCA and United States Court of Appeals for the Federal Circuit that required a contractor seeking to challenge a unilateral definitization to first submit a separate claim to the contracting officer. The provision will increase efficiency in claims resolution as it enables contractors to directly challenge the contracting officer’s decision without additional procedural hurdles.

Section 824 amends section 822 of the FY 2023 NDAA, which permitted contractors and subcontractors impacted by inflation to file claims for relief. This same amendment also clarifies that DoD may use appropriated funds to pay contractors’ and subcontractors’ claims for relief and extends the authority to provide relief to December 31, 2024.

Other key acquisition provisions

Turning to commerciality determinations, section 814 requires that a product or service previously acquired using Federal Acquisition Regulation (FAR) part 12 procedures qualifies as having a prior commerciality determination, even if minor modifications are made after the initial determination. To disregard this determination, the contracting officer must submit a writtendetermination explaining why the product or service is not commercial, which, in turn, puts the decision in the hands of the senior procurement executive of the military department concerned.

Under section 881, which amends FAR subpart 9.503 (Waiver), requests for organizational conflict-of-interest waivers must include a written justification, and this provision also prohibits delegation of the waiver authority below the deputy head of an agency.

National security-related changes

China-related provisions

Section 839 expands upon the reporting requirements of section 855 of the NDAA FY 2022 for contractors to disclose employees, including affiliates, who perform work “for, or are subject to the laws or control of the People’s Republic of China on covered contracts.” “Covered contracts” are now any “contract or subcontract for, or including, any information and communications technology,” including contracts for commercial products or services. Certain contractors must also make disclosures regarding any required vulnerability disclosures to a Chinese government entity.

Section 851 prohibits DoD from contracting with an entity or its parent or subsidiary companies if that entity is party to a contract with a “covered lobbyist,”[1] effective June 30, 2026. “Covered lobbyist” is defined as any entity that engages in lobbying activities – as described in the Lobbying Disclosure Act – for any entity on the Chinese Military Companies List (CMC List). But there is an exception for contractors that conduct “reasonable” due diligence into their lobbyists’ activities.

Section 853 prohibits DoD from entering into or renewing a contract for “covered semiconductor products and services” with any entity that “knowingly provides covered semiconductor products or services: to Huawei” and its affiliates or subsidiaries. This section further directs DoD to create a process for a “covered semiconductor products and services” provider to certify that it is not providing such services to Huawei and, therefore, is not subject to the prohibition. Additionally, the Secretary of Defense (SecDef) can waive the ban in certain instances where the provider is the only entity that can provide the services and it is necessary for DoD’s “national security systems or priority missions.”

Section 1346 outlines modifications of public reporting of Chinese military companies operating in the United States, and now requires SecDef to include the justification for each entity’s inclusion on the unclassified version of the CMC List. Section 1346(4) requires that before December 31, 2026, SecDef is also required to submit a report to the House and Senate Armed Services Committees “on the status of DoD procurement restrictions on entities included” on the CMC List.” Additionally, under the revised definition of “Chinese military company,” all subsidiaries who are held, 50% or more, by a CMC List entity will be considered a Chinese military company, and, as such, DoD procurement-related restrictions would apply to those subsidiaries.

Cybersecurity provisions

Section 1502 restructures command of DoD’s Information Network to improve cybersecurity and designates the Joint Force Headquarters-Department of Defense Information Network as a subordinate unified command under the United States Cyber Command.

Section 1504 mandates that, within the next year, the Assistant Secretary of Defense for Cyber Policy must establish and conduct a “Cyber Threat Tabletop Exercise Program” to prepare DoD and the defense industrial base for cyberattacks preceding or during times of conflict or wars.

Section 1514 establishes that, by no later than June 21, 2025, SecDef, through the DoD Chief Information Officer, must develop a strategy for the management and cybersecurity of the multi-cloud environments of the Department.

Section 1515 requires SecDef to carry out a detailed evaluation of the cybersecurity products and services for mobile devices to identify products and services that may improve the cybersecurity of mobile devices used by DoD, including mitigating the risk to DoD from cyberattacks.

Supply chain provisions

Section 162 requires DoD to identify risks and increase the resiliency of the supply chain for small unmanned aerial systems through the disassembly and analysis of commercially available foreign drone aircraft.

Section 848 establishes that, on an annual basis, the Under Secretary of Defense for Acquisition and Sustainment shall develop and maintain a list of all domestic nonavailability determinations, submit the list to Congress, and develop a plan for sharing such list with industry partners.

Reed Smith’s Government Contracts and National Security practices will closely monitor the implementation of the NDAA and are prepared to help your company navigate the direct and indirect implications of this law.

[1] This provision appears to be missing critical language. While we have outlined the presumptive intent of section 851, titled “Prohibition on Contracting with Covered Entities that Contract with Lobbyists for Chinese Military Companies,” Congress and DoD should address any ambiguity before it takes effect on June 30, 2026.

Effective January 15, the Department of Homeland Security (DHS) added 37 China-based companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List, marking the single largest expansion of the UFLPA Entity List since its creation in 2022. Included in the additions is a large supplier of critical minerals, as well as one of the world’s largest textile manufacturers, Huafu Fashion Co., Ltd., and 25 of its subsidiaries.

These companies will now be subject to the UFLPA’s rebuttable presumption that the raw materials or goods they mine, produce, or manufacture, wholly or in part, are prohibited from entering the United States. In total, 144 entities are now on the UFLPA Entity List.

DHS’s action follows the U.S. Trade Representative’s release of the first-ever Trade Strategy to Combat Forced Labor earlier this week.

On January 13, the Bureau of Industry and Security (BIS) released an interim final rule to revise U.S. export controls on advanced computing integrated circuits (ICs) and add a new control on artificial intelligence (AI) model weights for certain advanced, closed-weight, dual-use AI models. According to news reports, Biden administration officials have indicated that they consulted with President-elect Trump’s team on the interim final rule. The rule’s key changes are outlined below.

New worldwide license requirements:

  • Items controlled under Export Control Classification Numbers (ECCNs) ECCNs 3A090.a, 4A090.a, and corresponding .z items, including those subject to the Export Administration Regulations (EAR) through the advanced computing foreign direct product (FDP) rule, will require a license to export, reexport, or transfer (in-country) to or within destinations worldwide.
  • Items controlled under ECCNs 3A090.b, 4A090.b, and corresponding .z items will require a license to export, reexport, or transfer (in-country) to or within Country Groups D:1, D:4, and D:5, except those destinations that are also in Country Groups A:5 and A:6.[1]
  • Additionally, BIS is expanding the destination scope of the advanced computing FDP rule. Consequently, a foreign-produced item will meet the destination scope if there is knowledge that the item is destined worldwide or will be incorporated into any part, component, computer, or equipment not designated EAR99 to any destination worldwide.

New controls on AI model weights: The rule imposes a global licensing requirement on the model weights of the most advanced AI models. Model weights are central to how AI models learn and make decisions. A worldwide license will be required to export, reexport, or transfer (in-country) model weights trained on more than 1026 computational operations (specified in the newly created ECCN 4E091). BIS will apply a presumption of denial to every license application for these model weights.

New AI model weights FDP rule: Because many foreign entities are training advanced AI models using advanced computing ICs and related items produced with U.S. technology, BIS is adding a new AI model weights FDP rule to controlled certain closed-weight models produced in foreign destinations.

New license exceptions: Because of the worldwide license requirements, BIS is adding three new license exceptions applicable to advanced computing ICs:

  • License Exception Artificial Intelligence Authorization (AIA): This license exception authorizes the export, reexport, or transfer (in-country) of eligible advanced computing ICs and associated software and technology to and within the United State and 18 allied countries: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. License Exception AIA also applies to the export and reexport of model weights to end users in these destinations.
  • License Exception Advanced Compute Manufacturing (ACM): This license exception authorizes the export, reexport, or transfer (in-country) of eligible items to “private sector end users”[2] in a destination other than those included in Country Group D:5[3] or Macau if (1) the private sector end user is not headquartered in Macau or a destination included in Country Group D:5; (2) the private sector end user does not have an ultimate parent company headquartered in Macau or a destination included in Country Group D:5; and (3) the ultimate end use is the development, production, or storage of the eligible items. License Exception ACM cannot be used if the ultimate end use is training an AI model or any other activity not related to the development, production, or storage of eligible items.
  • License Exception Low Processing Performance (LPP): This license exception authorizes the annual export and reexport of low amounts of compute that do not present significant national security risks to any individual ultimate consignee. Under License Exception LPP, the ultimate consignee is the entity that owns the items. The license exception is not available for exports or reexports through distributors or in-country transfers. The ultimate consignee must (1) be outside of destinations in Country Group D:5 or Macau;(2) not be headquartered in Macau or Country Group D:5; and(3) not have an ultimate parent company headquarters in Macau or Country Group D:5. License Exception LPP also includes certification and notification requirements.

Amended license exceptions: BIS is amending two existing license exceptions:

  • License Exception Advanced Computing Authorized (ACA)’s destination scope is being expanded to include any destination worldwide except Macau; a destination in Country Group D:5; any entity headquartered in, or with an ultimate parent headquartered in, Macau or a destination in Country Group D:5; and transfers (in-country) within Macau or a Country Group D:5 destination.
  • License Exception Notified Advanced Computing (NAC)’s notification process for exports and reexports to Macau or destinations in Country Group D:5.

Expanded Data Center Validated End Users (DC VEUs) Authorization: BIS is expanding the DC VEU Authorization with (1) universal VEUs for companies headquartered in, or whose ultimate parent is headquartered in, the United States or one of the 18 allied countries eligible to use License Exception AIA and (2) national VEUs for companies headquartered outside of, or whose ultimate parent is headquartered outside of, Macau or a Country Group D:5 destination. Limitations will apply to where universal VEUs can located their AI computing power. Certain total processing performance (TPP) limitations will apply to national VEUs.

Country-specific advanced IC allocations: Exports and reexports of advanced ICs will be subject to country-specific allocations. From 2025 through 2027, countries will be subject to a cumulative maximum installed base allocation of 790 million TPP. The TPP allocations can be increased up to 100% for destinations whose governments commit to protecting advanced computing ICs consistent with U.S. national security interest. BIS will annually review allocations for subsequent years.These country-specific allocations will require license applicants to include the total aggregated TPP volume of each item to be exported on their license application.

New “red flag” guidance on AI model weights: The rule also adds one new red flag for companies providing Infrastructure-as-a-Service (IaaS) products or services, or other computing products or services, to assist in training an AI model with model weights captured by ECCN 4E091 for an entity headquartered, or whose ultimate parent is headquartered, in any destination other than those listed in paragraph (a) of Supplement No. 5 to Part 740, which includes the United States and 18 other allied countries. According to the new “red flag,” this type of assistance creates a substantial risk that the AI model weights will be exported or reexported to a destination for which a license is required and, if a license is not obtained, that the IaaS provider will have aided and abetted in a violation of the EAR. In these cases, IaaS providers should inquire if the customer intends to export the model and apply for a license if required.

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Although the rule is effective on January 13, 2025, exporters, reexporters, and transferors are not required to comply with the new rules until 120 days after its publication in the Federal Register (scheduled for January 15). Certain security requirements for national and universal VEUs have a delayed compliance date of January 2026.

BIS will accept public comments on the interim final rule until May 15, 2025.

[1] The destinations in Country Groups D:1, D:4, and D:5 that are not also in Country Groups A:5 and A:6 are: Afghanistan, Armenia, Azerbaijan, Belarus, Bahrain, Burma, Cambodia, the Central African Republic, China, Cuba, Cyprus, the Democratic Republic of the Congo, Egypt, Eritrea, Georgia, Haiti, Iran, Iraq, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Moldova, Mongolia, North Korea, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Somalia, South Sudan, Sudan, Syria, Tajikistan, Turkmenistan, Ukraine, the United Arab Emirates, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe.

[2] A “private sector end user” is either (1) an individual who is not acting on behalf of any government other than the U.S. government or (2) a commercial firm that is not wholly owned by, or otherwise controlled by, any government other than the U.S. government.

[3] Country Group D:5 includes Afghanistan, Armenia, Azerbaijan, Belarus, Burma, the Central African Republic, China, Cuba, Cyprus, the Democratic Republic of the Congo, Eritrea, Haiti, Iran, Iraq, Lebanon, Libya, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Venezuela, and Zimbabwe.

On January 10, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a sweeping set of actions to further reduce Russian revenues from energy, including blocking two major Russian oil producers, Gazprom Neft and Surgutneftegas, and imposing sanctions on a very significant number of oil-carrying vessels, opaque traders of Russian oil located in jurisdictions like Hong Kong and the UAE, Russia-based oilfield service providers, and Russian energy officials.  The U.S. Department of State also took steps to block two active liquefied natural gas projects, a large Russian oil project, and third-country entities supporting Russia’s energy exports. Lastly, the United Kingdom also joined the U.S. in sanctioning Gazprom Neft and Surgutneftegas – which, coupled with the joint Memorandum of Understanding issued by OFAC and OFSI on January 13, is a testament to the increased cooperation between the U.S. and UK authorities. Although there are wind-downs in place for most of these entities, this round of designations is likely to cause major disruptions in the market. We summarize the new restrictions in turn below:

Continue Reading U.S. and UK Intensify Sanctions Against Russia’s Oil Sector in one of the Largest Rounds of Designations Since the Outbreak of the War

The sudden collapse of the Assad regime in Syria has led to a rapidly evolving sanctions landscape. Notably, on January 6, 2025, the United States relaxed sanctions on certain transactions with Syria when the Office of Foreign Assets Control (OFAC) issued Syria General License 24 (GL 24), “Authorizing Transactions with Governing Institutions in Syria and Certain Transactions Related to Energy and Personal Remittances.” While this general license relaxes some of the long-standing U.S. sanctions, companies must keep in mind that the United Kingdom and the European Union currently maintain robust sanctions on Syrian energy-related transactions. At the date of publication, there have been no official publications by the UK or the EU on a change of their stance on this.

Valid through July 7, 2025, Syria General License 24 in pertinent part authorizes:

  1. transactions with governing institutions[1] in Syria following December 8, 2024;
  2. transactions in support of the sale, supply, storage, or donation of energy, including petroleum, petroleum products,[2] natural gas, and electricity to or within Syria.

That said, there are significant carve-outs to the authorizations permitted under GL 24, and many of the U.S. sanctions against Syria remain in place.[3] For example, GL 24 only covers energy transactions “to or within Syria.” Other relevant restrictions that are still in place:

  • U.S. persons/non-U.S. persons using U.S. dollars are still prohibited from engaging in “new investment” in Syria. The term is defined as “a commitment or contribution of funds or other assets.” 
    • Practically, this means U.S. persons/non-U.S. persons using U.S. dollars would generally be prohibited from providing financing for or assisting in the development of oil projects in Syria.
    • However, contributions of funds for salaries or wages of employees of governing institutions in Syria are permitted to the extent payments are not made to persons blocked pursuant to the Syrian Sanctions Regulations (SySR), the Global Terrorism Sanctions Regulations (GTSR), and the Foreign Terrorist Organizations Sanctions Regulations (FTOSR) unless explicitly authorized or, as relevant here, for the purpose of effecting the payment to governing institutions in Syria for taxes, fees, or import duties or the purchase or receipt of permits, licenses, public utility services, or other public services in Syria.
  • The importation into the United States of petroleum or petroleum products of Syrian origin is prohibited.
  • Transactions related to the provision of Russian-origin or Iranian-origin goods, technology, software, funds, financing, or services to Syria are prohibited.
    • Accordingly, even if the Russian-origin product is price cap compliant, it cannot be transferred to Syria.
  • Many entities and individuals in Syria that are on the Specially Designated Nationals and Blocked Persons List are still blocked.
    • Having a U.S. nexus to transactions with SDNs is prohibited and, even without a U.S. nexus, OFAC may pursue secondary sanctions on non-U.S. persons in certain instances. Thus, due diligence would still be required and each transaction must be reviewed.

Distinct from the sanctions restrictions that remain, export controls still apply, where the U.S. Department of Commerce Bureau of Industry and Security prohibits the export or reexport of any U.S.-origin items, other than food or medicine classified as EAR99, to Syria.

Finally, the EU and UK regimes continue to maintain their own sanctions programs against Syria. Overall, the EU and UK asset freeze restrictions currently remain in place against a number of entities (including those associated with the oil industry), so transactions with Syria would likely still face practical challenges to the extent there is an EU/UK nexus. Substantive due diligence across the entire transaction chain is required to ensure there are no relevant asset freeze targets involved.

[1] Transactions with the new government in Syria are allowed despite Specially Designated National (SDN) individuals having leadership roles in its institutions (see FAQ 1208). Practically, the fact that the government institutions are not considered sanctioned notwithstanding the sanctioned leadership may be relevant in certain scenarios, such as when paying customs duties to the Syrian authorities or dealing with certain ports. A carve-out, however, is that transactions involving military or intelligence entities, or any persons acting for or on behalf of such entities, are still prohibited. 

[2] What constitutes “petroleum products” has not been enumerated specifically in the context of the Syria sanctions; however, OFAC has provided them in the context of the Iran sanctions to include “unfinished oils, liquefied petroleum gases, pentanes plus, aviation gasoline, motor gasoline, naphtha-type jet fuel, kerosene-type jet fuel, kerosene, distillate fuel oil, residual fuel oil, petrochemical feedstocks, special naphthas, lubricants, waxes, petroleum coke, asphalt, road oil, still gas, and miscellaneous products obtained from the processing of: crude oil (including lease condensate), natural gas, and other hydrocarbon compounds. The term does not include natural gas, liquefied natural gas, biofuels, methanol, and other non-petroleum fuels.”  See FAQ 620.

[3] Syria is still among the U.S. list of State Sponsors of Terrorism (SST). The main categories of sanctions resulting from SST designation include restrictions on U.S. foreign assistance; a ban on defense exports and sales; certain controls over exports of dual use items; and miscellaneous financial and other restrictions. In addition, it implicates other sanctions laws that penalize persons and countries engaging in certain trade with state sponsors.

On December 9, 2024, the U.S. District Court for the Eastern District of Arkansas (the Court) issued a preliminary injunction enjoining Arkansas’s enforcement of Acts 636 and 174 (the Acts), which impose certain restrictions on foreign ownership of land and digital asset mining businesses in Arkansas. The Court’s decision addresses concerns a crypto mining company (the Company) raised about the Acts’ constitutionality and their preemption by other federal regulations.

We provide an overview of the decision below:

  • Arkansas prohibits certain foreign entities and individuals from owning or acquiring interests in land or digital asset mining businesses under Acts 636 and 174, respectively. The Acts target “prohibited foreign parties,” including entities and individuals from certain countries listed in the International Traffic in Arms Regulations (ITAR) and those owned or controlled by such parties.
  • The Company is owned by a naturalized U.S. citizen from China and has digital asset or crypto mining operations in Arkansas. China is currently a country listed in the ITAR and subject to the Acts’ restrictions.
  • In December 2023, the Arkansas Governor’s Office directed the Arkansas attorney general to investigate the Company and another entity that may have had significant ties to China for violations of Act 636.
  • In response, the Company filed suit challenging the investigation and potential enforcement of the Acts on federal preemption grounds. The Company asserted that the Acts conflicted with federal regulations governing foreign investment – specifically, the Committee on Foreign Investment in the United States, as statutorily codified by the Foreign Investment Risk Review Modernization Act, and the ITAR.
  • The Court held that the Company was likely to succeed on the merits of its claims because the Acts (1) clearly conflict with the federal government’s cautious, transaction-specific approach to foreign investment, (2) use broader and inconsistent definitions of foreign ownership, and (3) intrude on foreign affairs, which should be exclusively within the federal government’s domain.
  • The Court also determined that the Company would suffer irreparable harm in the absence of a preliminary injunction because the ongoing investigation and potential enforcement actions were causing significant damage to the Company’s reputation and goodwill, which could not be adequately compensated through monetary damages.

Approximately half of U.S. states currently have laws restricting foreign ownership of land, and many others are seeking to enact similar laws following broader federal and state trends to regulate foreign ownership of U.S. real estate. The Court’s decision to halt the Acts’ enforcement may have significant implications by setting a precedent for others to bring constitutional challenges to other state or local foreign ownership laws. All investors and businesses should be vigilant in conducting thorough due diligence on proposed transactions to ensure compliance with the expanding and changing regulatory landscape.

On November 5, 2024, the United States elected former President Donald Trump to become its 47th president. Following Trump’s re-election, and with Republicans gaining control Congress, U.S. trade policy is expected to undergo several significant changes based on Trump’s previous administration and his campaign promises.

In a recent blog post, our trade team outlines key changes we can expect to see under a second Trump administration, including increased tariffs, increased duties on Chinese imports, continued use of economic sanctions as a key foreign policy tool, increased scrutiny of foreign investments, and expanded export controls on China.