2025 Tariffs & LIFO Tax Benefits Guide

2025 Tariffs & LIFO Tax Benefits

Tariffs Overview
2025 Tariffs Overview
- The following tariff authorities have been delegated to and are currently being used by the executive branch
  - Most-favored Nation (MFN) tariffs
    - Are “baseline” or standard rates applied to goods when a country joins the WTO or negotiates bilateral agreements
    - Also includes provisions for increasing tariff rates to prevent or remedy market disruptions
  - International Emergency Economic Powers Act or IEEPA tariffs: Grants president broad authority to regulate international economic transactions during a declared national emergency in response to an “unusual and extraordinary threat” to U.S. national security, foreign policy, or economy, originating substantially outside the United States
  - Section 301 tariffs: This authorizes tariffs or restrictions on imports from countries engaging in “unreasonable or discriminatory” practices that burden U.S. commerce, after an investigation by the U.S. Trade Representative (USTR) with public input
  - Section 232 tariffs
    - Allows president to “adjust imports” (including imposing tariffs) if they threaten national security, following a Department of Commerce investigation and report (typically within 270 days, with public hearings)
    - It could be broadened to cover more sectors (e.g., semiconductors or pharmaceuticals) by framing trade deficits or supply chain dependencies as security risks
    - Unlike IEEPA, it requires evidence of impairment to U.S. national security and is not unlimited in scope, but it enables high rates without congressional approval post-investigation
- Estimated tariff rates & revenues by statutory authority (as of 10/28/25)
  - 2025 Calendar Year: Effective tariff rate of 18%. Year to date receipts are as follows:
    - IEEPA: $80B
    - MFN: $68B
    - Section 232: $23B
    - Section 301: $15B
    - Totals: $186B
  - 2024 Calendar Year: Effective tariff rate of 2.5%. Total receipts were as follows:
    - Section 301: $38B
    - MFN: $37B
    - Section 232: $2B
    - Totals: $77B
Tariffs: IEEPA Court Ruling
Tariffs: IEEPA Court Ruling
- August 2025 Federal Circuit Appeals Court ruling on IEEPA tariffs
  - Federal Circuit appeals court ruled that IEEPA tariffs imposed by Trump administration were invalid
  - Trump administration appealed court ruling, Supreme Court agreed to review the case, will hear arguments beginning 11/03/25 & a decision is expected by year end
  - Ruling has been stayed until the Supreme Court decision is rendered (which preserves IEEPA tariffs collected prior to court ruling & also allows additional tariffs to be imposed/collected between now and Supreme Court ruling date)
- Supreme Court ruling outlook
  - Uncertainty exists regarding whether
  - If Supreme Court deems IEEPA tariffs invalid, they will cease to be collected after
  - Uncertainty exists regarding whether IEEPA tariffs being refundable; dependent on how Supreme Court rules
  - Non-IEEPA tariffs will remain in effect regardless of IEEPA case outcome
  - Trump administration will likely increase or impose new Section 301/232 and MFN tariffs to offset IEEPA tariff revenue losses
2025 Tariff Environment
2025 Tariff Environment
- Average effective tariff rate on U.S. imports is 18% as of 10/28/2025
- Rates range from 10% – 50%, with a 10% default rate for countries without specific agreements
- Tariffs by commodity
  - Steel, aluminum & copper: 50%
  - Automobiles and parts: 25% for non-USMCA countries
  - Heavy-duty trucks: 25%
  - Pharmaceuticals: Up to 200%
  - Lumber, cabinets & furniture: 10% – 50%
- Tariffs by country for those with completed trade deals
  - United Kingdom: 10%
  - European Union: 10%
  - Japan: 15%
  - South Korea: 15%
- Tariffs by country for those without completed trade deals
  - China: ~40% (additional 100% proposed effective 11/1, but will be lifted if pending trade talks successful)
  - Canada: 35% for non-USMCA goods
  - Mexico: 25% for non-USMCA goods
  - Brazil: 50%
  - India: 50%
How Inflation & Tariffs Create LIFO Tax Benefits
How Inflation & Tariffs Create LIFO Tax Benefits
- Inflation
  - There is a direct relationship between the level of inflation & the amount of the LIFO tax benefit
  - High inflation creates more LIFO tax benefits than low inflation (deflation creates taxable income)
- Tariffs
  - Tariffs must be included as a component of inventory costs. They CAN NOT be expensed as period costs!
  - Because of this, tariffs will increase LIFO inflation & tax benefits in the first year those costs are incurred
  - See Key LIFO Considerations slide for inflation measurement alternatives
Figure 1. Inflation Calculation Detail: 12/31/25 Year End

Figure 2. Inflation Calculation Summary: 12/31/25 Year End

Figure 3. LIFO Calculation Summary: 12/31/25 Year End
Historical Inflation & 2025 Environment/Outlook
Historical Inflation & 2025 Environment/Outlook
- Historical Inflation Rates: Average annual inflation rates for the most predominant industries using LIFO:
  - Auto dealers: 1% – 2%
  - Metals & metal products: 3% – 6%
  - Food & beverages: 2% – 3%
  - Machinery & equipment: 2% – 3%
  - Oil & gas: 3% – 5%
  - Plastics & plastic products: 2% – 4%
- Current Inflation Environment
  - Year to date and/or annualized inflation is above historical averages in 10 of 14 Bureau of Labor Statistics Producer Price Index (BLS PPI) major commodity groupings
  - Annualized 2025 inflation is 2x – 5x higher than historical averages in many industries as most companies have now sold through non-tariffed goods
- 2025 Year End Inflation Outlook
  - By the end of the year, nearly all industries carrying goods subject to tariffs will likely have high inflation when compared to historical average rates
  - At a current average effective tariff rate of 18%, 2025 inflation & LIFO tax benefits are forecasted to be between 2x – 10x higher than historical averages
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Comparing LIFO Tax Benefits to Lower of Cost or Market Write-downs

2025 Tariffs & LIFO Tax Benefits Guide

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PPI Category Updates

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Consumer/Producer Price Index Inflation History

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IPIC LIFO Advantages

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2025 Tariffs & LIFO Tax Benefits Guide