Reducing Tariff Impact on Goods from China Under 20% Rule

On April 2, 2025 President Trump signed the Executive Order establishing a new duty bracket colloquially called by U.S. Customs and Border Protection (“CBP”) as “IEEPA Reciprocal,” referring to the long name of executive action: “Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficit.” IEEPA Reciprocal tariff went through modifications from 34% to 84% to 125%.

125% IEEPA Reciprocal tariff on China adds to an existing 20% tariff in place pursuant to President’s Trump’s March 3, 2025 Executive Order, colloquially named by CBP as “IEEPA Fentanyl.” This brings total duties accessed upon Chinese imports to at 145% and counting.

But 125% IEEPA Reciprocal rate is subject to exceptions. One such exception is the 20% Rule, which can reduce IEEPA Reciprocal tariff rate based on the value of U.S. content within the Chinese product, provided that the U.S. content is at least 20%. Specifically, paragraph (f) of the Executive Order states:

More generally, the ad valorem rates of duty set forth in this order shall apply only to the non-U.S. content of a subject article, provided at least 20 percent of the value of the subject article is U.S. originating.  For the purposes of this subsection, “U.S. content” refers to the value of an article attributable to the components produced entirely, or substantially transformed in, the United States.  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. 

CBP, following Trump’s Executive Order, issued a guidance – CSMS # 64680374 – specifying the type of information the agency needs to give IEEPA Reciprocal tariff reductions under 20% Rule. First, CBP announced a new HTSUS provision for importers using the 20% Rule: 9903.01.34.

Next, CBP provided 20% Rule reporting instructions:

For articles that have a U.S. content of at least 20% and are subject to 9903.01.34, the article must be broken up onto two entry summary lines to accurately report and pay the applicable rate of duty.  The reciprocal tariff additional duty is to be reported based on the non-U.S. content.  

The first line will include the U.S. content while the second line will include the non-U.S. content. Each line should be reported in accordance with the below instructions.

In the first line, for U.S. content, report:

• Ch 1-97 HTSUS, this same HTSUS must be reported on both lines.
• Country of origin, same must be reported on both lines. 
• HTSUS 9903.01.34.
• Total entered value of the article less the value of the non-U.S. content.
• Total quantity of the product. 
• All applicable duties.

In the second line, for non-U.S. content, report:

• Same Ch. 1-97 HTSUS reported on the first line.
• Same country of origin reported on the first line. 
• HTSUS 9903.01.25 or 9903.01.43 – 9903.01.76.
• Total entered value of non-U.S. content of the article.
• Zero for quantity for the product.
• All applicable duties.

CBP’s 20% Rule guidance gives a preview of record keeping and accounting practices for U.S. importers that would like to continue doing business with China without paying 125% rate under IEEPA Reciprocal tariff. U.S. importers who explore 20% Rule duty savings will find following reductions:

U.S. importers are already exploring 20% Rule, which also brings benefits to domestic U.S. production, ultimately contributing to the goal of current administration of creating more jobs in the United States by providing growth incentives to the U.S. manufacturing sector. If used wisely, 20% Rule can be a win-win situation for U.S. importers, as well as, manufacturers in the United States and China.