Global trade routes were rocked with the announcement of up to 20% tariffs across the world for imports into the United States. The White House called the shock 2 April 2025 trade war ‘liberation day,’ cheerleading a return to protectionism and shattering the post-war free trade consensus.
For compliance teams, ‘liberation day’ might be more accurately called ‘ongoing tension headache day.’ While there’s a significant amount of noise hanging around these announcements and counter-tariffs, it’s important for compliance teams to focus on the key aspect of what a trade war might mean. Beyond that, firms should consider a new factor in their compliance agendas: geopolitical risk.
What are tariffs?
Tariffs are taxes imposed by a government on imported goods. The primary purpose is to make foreign products more expensive, encouraging consumers to purchase domestic alternatives and thereby boosting local industries. Tariffs can be targeted at specific products, industries, or even entire countries. Notably, tariffs on raw materials like steel and aluminium can extend to finished goods containing those materials, increasing the overall cost of imported products.
While tariffs are traditionally associated with physical goods, recent policy shifts indicate a growing focus on services and high-tech industries. Modern trade agreements, such as the USMCA, have included clauses covering digital products, data transfers, and intellectual property, meaning that tariffs could potentially apply to software, cloud services, and even AI-driven platforms. For compliance teams, this represents a significant challenge as service-based businesses might face additional costs or regulatory scrutiny when operating across borders. The risk of sudden tariff impositions on high-tech exports or digital transactions underscores the need for robust compliance strategies that account for both goods and services.
Types of tariffs
Ad Valorem Tariffs: Calculated as a percentage of the value of the imported goods. For example, a 10% tariff on imported cars.
Specific Tariffs: Imposed as a fixed fee per unit of an imported good, such as £5 per kilogram of imported fruit.
Compound Tariffs: A combination of ad valorem and specific tariffs.
Protective Tariffs: Designed to shield domestic industries from foreign competition.
Revenue Tariffs: Imposed primarily to generate income for the government.
Why are tariffs increasing?
The resurgence of tariffs, particularly from the United States, stems from political and economic factors. Some US leaders blame free trade for domestic economic decline, citing job losses linked to earlier trade agreements like NAFTA. Recent tariff policies aim to protect US industries from foreign competition, even at the cost of international trade relations.
Tariffs have played a significant role in shaping international trade policies. The Smoot-Hawley Tariff Act of 1930, for example, raised US tariffs on imported goods, which many economists believe worsened the Great Depression. In contrast, post-World War II agreements like GATT and the creation of the World Trade Organization aimed to reduce tariffs globally, promoting free trade. The recent shift back to protectionism marks a departure from decades of global trade liberalisation.
The impact of trade wars on compliance
A trade war occurs when countries impose tariffs or other trade barriers on each other in response to policy changes. The recent escalation between the US and EU demonstrates the potential for increased costs and market disruptions. Compliance teams should evaluate the risk of being caught in cross-border trade disputes, which may lead to unpredictable tariff hikes or restrictions on specific goods and services.
The world hasn’t seen a trade war of this scale in the digital age. This means that digital products and services could suddenly become a battlefield in this newly-erupted global trade war. If a trade war escalates, countries can use schemes like the EU-US data sharing agreement as leverage. This means companies may face restrictions on cloud services like AWS or communication platforms like Zoom, complicating compliance with GDPR and other data regulations.
It’s not just data protection but DEI initiatives that have been caught up in the trade and compliance conflicts. President Trump’s policies have singled out organisations (including top law firms) for their DEI practices and paused enforcement of key anti-bribery laws
Compliance risk assessments should be updated to account for political and regulatory volatility. This means recognising “regulatory whiplash” as a risk. For example, the risk that relaxing controls now could lead to violations if enforcement resumes later. Companies may need to elevate the risk scoring for doing business in high-corruption jurisdictions despite the current US leniency, because UK, EU, or future U.S. enforcement could still come into play. Additionally, risk assessments should include potential political retaliation risk: if your organisation is outspoken on DEI or involved in high-profile investigations, consider the chance of being targeted. This is a new dimension of risk: being compliant yet still facing punitive action for political reasons. Scenario planning is useful: e.g., What if our DEI program is investigated by the EEOC? What if our CEO’s public stance on ESG draws a federal inquiry? Preparing for such contingencies can be built into the risk management process.
The Trump administration’s actions, from tariffs to DEI, are causing a divergence in compliance expectations across jurisdictions. UK and multinational compliance functions must treat this as a new risk factor: geopolitical compliance risk. The cost of misjudging the US environment is high: too firm a stance on DEI or anti-corruption could draw U.S. government ire, while too lax a stance could trigger legal liability elsewhere (or future liability in the US).
