Applied Materials Hit with $252M Penalty, EU Kills De Minimis July 1, U.S.-Taiwan Trade Deal Signed
U.S. and Taiwan Sign Reciprocal Trade Agreement – Taiwan Gets 15% Tariff Rate, Eliminates 99% of Barriers:
On February 18, 2026, the U.S. and Taiwan announced a comprehensive trade agreement. Taiwan receives a 15% reciprocal tariff rate (the higher of MFN or 15%) and preferential Section 232 semiconductor treatment. In exchange, Taiwan eliminates 99% of its tariff barriers on U.S. goods and removes significant non-tariff obstacles.
U.S. tariff treatment for Taiwan:
15% reciprocal tariff rate (similar to US-EU framework)
Zero reciprocal tariff on Schedule 2A (manufactured goods) and Schedule 2B (agricultural products)
Preferential Section 232 semiconductor treatment
Taiwan's commitments:
Eliminate 99% of tariff barriers and all import quotas
Accept U.S. FMVSS standards for vehicles, remove 75-unit per model cap
Accept FDA authorization for medical devices and pharmaceuticals within six months
Accept USDA FSIS certificates for meat/poultry/eggs without registration requirements
Adopt Codex-aligned ractopamine MRLs for beef and pork
Prohibit forced labor imports, recognize U.S. entity list determinations
Economic and national security:
Align export controls with U.S. rules, including Foreign Direct Product Rule on semiconductors
Phase out technology from "countries of concern" in critical infrastructure
Commit defense budget exceeding 3% of GDP
Purchase $44.4B in LNG/crude oil, $25.2B in power equipment, $15.2B in civil aircraft (2025-2029)
Entry into force: Effective the day after both parties complete internal approvals.
Termination: Either party can terminate with six months notice. U.S. may terminate immediately if Taiwan enters digital trade agreement or FTA with a "covered nation."
Applied Materials Pays $252 Million for Substantial Transformation Mistake:
Applied Materials just learned an expensive lesson about export controls. After their Chinese customer was placed on the Entity List, Applied partially manufactured semiconductor equipment in the U.S., finished production in South Korea, and shipped to China without a license. Their defense? The Korean manufacturing created a substantial transformation, making the goods foreign-origin and exempt from U.S. export controls.
BIS shut that down immediately. The settlement explicitly stated that "substantial transformation" is a customs concept under 19 CFR and does not appear anywhere in the Export Administration Regulations. It's not the correct test for determining whether an item is subject to U.S. export controls.
The damage: $126 million in shipments turned into a $252 million penalty—the second-largest BIS penalty ever issued.
The lesson: Customs compliance strategies don't transfer to export control regulations. Each framework has its own rules, and conflating them is a quarter-billion-dollar mistake. No matter your size, compliance mistakes are expensive.
EU Abolishes €150 De Minimis on July 1, 2026 – Earlier Than Expected: Big news for cross-border e-commerce. The EU just announced they're eliminating the €150 duty exemption starting July 1, 2026 (not 2028 as previously indicated) and implementing a €3 charge per item with a unique HS classification per parcel.
How it works: Two pairs of socks (same HS code) in one package = €3. One pair of socks + one shirt (different HS codes) = €6.
Who's impacted: Any merchant shipping DDP or DDU into the EU. U.S. merchants will see costs rise, but the real target is China-based merchants selling very low-value items on Temu/Shein. This €3 charge fundamentally changes the economics of the low-value cross-border business model and makes local EU businesses more competitive—a stated policy objective for the EU Council.
Broader trend: Another example of protectionist trade dynamics developing globally. The UK has a similar provision to eliminate their de minimis in 2028.
NY Fed Study Triggers Political Firestorm Over Who Pays Tariffs:
The New York Fed released a study showing that 90% of the 2025 tariff burden falls on U.S. firms and consumers. The data is clear—but White House economic advisor Kevin Hassett called for NY Fed staff to be "disciplined" for publishing the research.
What the study found: U.S. importers and consumers are absorbing the vast majority of tariff costs through higher prices, not foreign exporters through reduced margins.
The blowback: Rather than debate the methodology or findings, the response was to call for discipline of the researchers.
Trade compliance angle: The study reinforces what customs brokers and importers already know—tariffs are paid by the importer of record at the time of entry. The economic incidence question (who ultimately bears the cost) is separate from the legal obligation.
Steel and Aluminum Tariff Relief Signals Emerging:
White House trade advisor Peter Greer told Bloomberg that the U.S. is "open to changing" steel and aluminum tariffs. Nothing official yet, but the comments signal potential relief is under discussion.
Why the pressure is mounting: Another U.S. aluminum smelter just shut down—but the culprit is power costs, not tariffs. This is the real-world evidence driving the relief discussions. The derivative tariff structure was supposed to protect domestic aluminum production. Instead, high electricity costs are making U.S. smelters uncompetitive regardless of tariff protection, while downstream manufacturers (who use aluminum as an input) are paying higher prices due to the tariffs.
The disconnect: Tariffs on aluminum raise costs for U.S. manufacturers without solving the underlying competitiveness issue (energy costs). This is why the administration is being pushed to provide relief.
White House Maritime Action Plan Could Mean New Fees and Shipping Restrictions:
A new 42-page White House action plan aims to "strengthen U.S. maritime infrastructure" and "enhance the global competitiveness of the U.S. shipbuilding sector." Importers could face higher costs and tougher restrictions.
Proposed fees:
Universal infrastructure or security fee on all foreign-built commercial vessels calling at U.S. ports, assessed on weight of imported tonnage (no specific amount recommended yet)
Land port maintenance tax equivalent to Harbor Maintenance Tax (0.125% of goods value) to discourage cargo diversion from U.S. ports to foreign ports, then across U.S. land borders
Proposed shipping restrictions:
Establish a Strategic Commercial Fleet of U.S.-built vessels
Require high-volume exporting economies to transport a gradually increasing percentage of U.S.-bound containerized cargo on qualifying U.S. vessels
Timeline: No implementation dates specified yet. This is the planning stage, but the proposals signal where policy could be headed.
Duty-Free Limits Set for Haiti and Africa Apparel Imports:
The Committee for the Implementation of Textile Agreements published quantitative limits on apparel assembled in Haiti or sub-Saharan Africa that may be imported duty-free in 2026. Entries exceeding these amounts will face otherwise applicable tariffs.
Haiti (CBTPA value-added provision): For February 3 through December 19, 2026, the quantity eligible for duty-free treatment is 267,063,493 square meters equivalent.
Sub-Saharan Africa (AGOA): For February 3 through September 30, 2026, the aggregate quantity is 1,046,888,893 SME. Of this, 523,444,446 SME is available to apparel from lesser-developed beneficiary countries.
What this means: Monitor your entry volumes if you import apparel from these regions. Once the limits are hit, tariffs apply.
Classification Corner
Automobile Coolant Heaters Reclassified – Duty-Free Treatment Revoked: CBP is proposing to reclassify automotive coolant heaters from HTSUS 8419.50.50 (duty-free heat exchange units) to HTSUS 8419.89.95 (other heating machinery, 4.2% duty). Rulings HQ H065718, HQ H065720, and NY N233110 would be revoked.
The merchandise: Auxiliary heating systems that heat and regulate heated coolant flow to a vehicle's interior, engine, and fuel tank. They operate by drawing fuel from the vehicle's tank into a combustion chamber where a pump circulates cold engine coolant through a heat exchanger.
CBP's reasoning: The most important attribute of a heat exchanger is physical contact between two closed systems resulting in temperature changes in both fluids. These devices simply heat cold engine coolant—they don't exchange heat between two separate fluid systems. That makes them heating machinery, not heat exchangers.
Impact: If finalized, importers of these products will face a 4.2% duty where they previously cleared duty-free.
Prosthesis Alignment Systems Now Eligible for Duty-Free Treatment: CBP is proposing to modify ruling NY A85213 and hold that titanium alignment systems for below-the-knee modular limb prostheses are eligible for duty-free treatment under HTSUS 9817.00.96 (articles specially designed for physically handicapped persons).
The merchandise: A 30mm diameter tube adaptor with integrated four-screw alignment head and sliding adaptors for either a laminate or thermoplastic socket, used in prosthetic limbs.
What changed: CBP originally classified the system as a part for artificial body parts under HTSUS 9021.30.0000 but ruled it was ineligible for duty-free treatment. CBP now proposes that the alignment system meets all five factors used to determine whether articles qualify for the Nairobi Protocol's duty-free treatment for articles specially designed for the benefit of physically handicapped persons.
Impact: If finalized, importers of prosthesis alignment systems will clear duty-free rather than at the 9021.30.0000 rate.
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