In this first installment of our four-part trade series, we explore how President-elect Trump may implement proposed tariff increases on imports of foreign-origin goods into the United States.
As President-elect Donald Trump’s economic plan continues to take shape, we can begin to see tariffs arriving to the forefront of proposed action. In a series of LawFlashes and accompanying webinars, we hope to provide importers and other companies impacted by increased tariffs with information and guidance to understand the Trump-Vance administration’s anticipated trade strategy as well as recommended strategies to prepare. In our first piece of the series, we will discuss some of the tools at the new administration’s disposal to impose tariffs.
In a subsequent installment, we will discuss importers’ tools for addressing tariffs, including legal strategies for mitigating or challenging tariffs. The third piece in our series will help importers understand how tariffs impact their merchandise, and the fourth segment will provide an overview of enforcement risks for getting it wrong. Each LawFlash will be accompanied by a webinar, and our lawyers are available to discuss any of these concerns in more detail.
During his campaign, President-elect Trump advocated for greater trade protectionism to achieve a variety of foreign and domestic policy goals. Protectionist trade tools such as tariffs, quotas, and subsidies are designed to allow domestic producers to compete more effectively against foreign merchandise in the US marketplace or shift buying patterns to other imported goods. Tariffs, which are additional duties or taxes that are imposed by a government on imports of foreign-origin goods and merchandise, can be both a form of regulation of foreign trade by increasing the cost to sell foreign products into the domestic market as well as a source of revenue for the government.
Based on President-elect Trump’s campaign promises, the US trade landscape is expected to undergo significant changes in his second term. While President Biden extended and increased certain tariffs against Chinese-origin imports and in discrete industries (for instance, steel and aluminum and solar cells and modules), President-elect Trump seems inclined to use tariffs more broadly.
In particular, as discussed during his campaign or through other public statements, new or increased tariffs may include a 10%-20% universal tariff on all foreign-origin imports, a 10%-60% additional tariff on Chinese-origin goods, and/or a 25% additional tariff on goods from Mexico and Canada. We expect that tariffs will be a priority for the first 100 days as a tool to both rebalance global trade to favor US domestic manufacturing and raise additional revenue that could offset income tax cuts.
The primary questions facing those that may be affected by Trump’s trade agenda are how—and how quickly—tariffs may be imposed. Below we outline some of the various legal methods that the new administration may utilize to implement new or expanded tariffs as well as the accompanying timelines for each.
Executive Action
Any “Day 1” tariff actions will likely take the form of an executive order or unilateral directive from the president. Further action would be needed for any executive order to become effective, but such implementing regulations are not discretionary. President-elect Trump will have the ability to enact large parts of his trade policy with near immediacy through executive order issued under the authority of the International Emergency Economic Powers Act (IEEPA).
In particular, Section 203 of IEEPA provides the president with broad authority to regulate transactions in foreign exchange to deal with any “unusual or extraordinary threat” to US national security, foreign policy, or the economy following the president’s declaration of a national emergency with respect to such threat.
According to the Congressional Research Service, no president has used IEEPA to impose tariffs on imported products from a specific country or on products imported to the United States in general. However, based on its similarity to other laws used to impose tariffs, as well as its relatively frequent use to ban imports and exports from sanctioned countries, IEEPA remains a possible tool to impose tariffs and would be the likely authority for any immediate tariff action.
During President-elect Trump’s first term in office, he proposed using IEEPA authority when he threatened Mexico with a 5% across-the-board tariff unless Mexico took action to stem illegal immigration into the United States. A week later, however, Mexico agreed to take steps to reduce illegal immigration along the US-Mexico border, and no tariff was imposed.
President-elect Trump similarly declared on December 2 that he would issue an executive order on his first day in office to levy a 25% tariff on goods from Canada and Mexico in retaliation for alleged drug trafficking and illegal immigration into the United States. President-elect Trump also threatened an additional 10% tariff on all Chinese-origin goods until China takes action against drugs such as Fentanyl being sent into the United States.
Based on these statements tying the tariffs to border security and the drug crisis, President-elect Trump seems to be looking to his IEEPA authority to impose these additional tariffs, although whether he actually implements them or merely uses proposed tariffs as a negotiating tactic remains to be seen.
Reconciliation
One of President-elect Trump’s other primary agendas is providing varied tax relief, most of which would require congressional action. On the campaign trail, the Trump-Vance administration repeatedly championed a lower corporate tax rate to encourage domestic production (a protectionist aim) and proposed that revenue from increased tariffs could help offset some tax reform costs. Congressional action would be needed to count tariff revenue as an offset, which could be accomplished through reconciliation.
Reconciliation allows for expedited consideration of certain tax, spending, and debt limit legislation while avoiding the filibuster. With a Republican trifecta in both houses of the US Congress and the presidency, a reconciliation bill would need only a simple majority to cut taxes while raising revenue through tariffs. Tariffs would not completely offset taxes, however: the Congressional Research Service indicates that revenue from tariffs in fiscal year 2020 amounted to only $74.4 billion, or approximately 2.2% of total federal revenue.
Trade Investigations
President-elect Trump can also impose tariffs—albeit less immediately—through existing legislative means if he pursues tariffs under Section 201 of the Trade Act of 1974, Section 301 of the Trade Act of 1974, and/or Section 232 of the Trade Expansion Act of 1962. We saw use of Section 201 and Section 301 safeguard measures and Section 232 national security tariffs during President-elect Trump’s first term and may see continued and expanded use of these investigations during his second.
Each of these investigative measures allows the president to restrict imported merchandise and alter trading practices and patterns in response to specifically identified concerns. As some of these measures currently impose tariffs on designated imports, President-elect Trump may expand application under the existing authority, which would allow him to sidestep some of the procedural hurdles described below.
Section 201
Section 201 permits the president to impose safeguard measures like tariffs or quotas on imports of a particular product where there has been such a surge of imports of that product that the US International Trade Commission (USITC) determines it constitutes a substantial cause of serious injury to the US industry producing the product in question.
These measures are designed as temporary relief for a specific US industry to facilitate positive adjustment to allow the industry to compete with imported merchandise. These investigations are typically initiated following a written petition by industry but can also be initiated by Congress or on the USITC’s own initiative.
The investigation proceeds in two phases: injury and remedy. First, the investigation focuses on whether the affected US industry is being seriously injured and whether imports are a substantial cause of those imports. This injury finding is typically made within 120 days of the date of initiation, or 150 days in more complicated cases. If the USITC makes an affirmative injury determination, it will then consider what action would remedy the injury and make a recommendation to the president within 180 days of initiation. These safeguard measures have proceeded under both the Trump-Pence and Biden administrations and are focused on specific industries with a longer investigation and implementation timeframe.
Section 301
Section 301 gives the president broad authority to take all appropriate action—including imposing tariffs—to obtain the removal of any act, policy, or practice of a foreign government that is unjustified, unreasonable, or discriminatory, and that burdens or restricts US commerce. The US Trade Representative (USTR) may initiate a petition on its own or in response to a petition from industry.
If a petition is received, USTR has 45 days to initiate an investigation, after which it must request consultation with affected foreign governments. If the targeted foreign government is not a party to a US free trade agreement, USTR must issue its recommendations within 30 days from when the dispute settlement procedure concludes. Otherwise, USTR has 12 months to complete its investigation and issue its determination.
If USTR determines that a foreign government’s conduct is unfair or violates US rights under a trade agreement, it may impose import duties or restrictions, withdraw or suspend trade agreement concessions, or enter into binding agreements with those foreign governments to eliminate the conduct in question.
President-elect Trump previously used this authority to impose tariffs on imports from China on the basis that China’s technology transfer, intellectual property, and innovation policies created an unjustifiable or unreasonable burden on US commerce. This determination led to tariffs ranging from 7.5% to 25% on a broad swath of Chinese-origin products. These tariffs have been expanded throughout the Trump-Pence and Biden administrations both in terms of products and rates imposed and have largely withstood judicial scrutiny, though litigation on multiple fronts is ongoing.
Section 232
Section 232 allows the president to impose tariffs if an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the nation’s national security. Since Section 232 was enacted, the US Department of Commerce (Commerce) has authorized 31 investigations, finding a threat to national security about half of the time. Note, however, that prior to the Trump-Pence administration presidential action rarely involved imposition of tariffs.
In 2017, then-President Trump asked Commerce to investigate national security threats involving steel and aluminum imports, with Commerce recommending that imports be reduced to a level that would enable US steel mills to operate at least 80% of rated production capacity. Trump then imposed global tariffs of 25% on imported steel and 10% on imported aluminum, with several countries imposing retaliatory tariffs. The Section 232 tariffs were expanded in 2020 to include derivative articles after the initial round of tariffs failed to increase capacity utilization in the domestic industry.
Several countries negotiated and are now subject to either absolute quotas, tariff rate quotas, or exemptions under trade agreements, but the otherwise broad Section 232 tariffs remain in place. We expect that any tariffs imposed under Section 232 would be within a specific industry and that general tariffs would not be imposed under this authority, but note the courts have regularly deferred to presidents on matters of foreign affairs and trade policy so Trump’s actual use of this statute remains to be seen.
Legal challenges to Trump’s Section 232 tariffs have further supported the president’s action. For instance, USP Holdings, Inc. v. United States, 36 F.4th 1359 (Fed. Cir. 2022), affirmed the Court of International Trade (CIT) determination upholding the Trump administration’s Section 232 tariffs on steel imports, and American Institute for International Steel (AIIS) v. United States, 806 F. App’x 982 (Fed. Cir. 2020), affirmed the CIT determination that Section 232 did not violate the US Constitution’s Separation of Powers.
Other Tariff Tools
There are some older and less frequently used authorities that President-elect Trump could employ to impose tariffs. One additional measure would be the president’s balance-of-payments authority in Section 122 of the Trade Act of 1974, which allows the imposition of an additional 15% tariff on imports where special measures are needed to address serious balance-of-payments deficits or prevent “imminent and significant depreciation of the dollar in foreign exchange markets.” Notably, this approach is limited by statute to 150 days.
Section 338 of the Tariff Act allows the president to impose tariffs of up to 50% on any country that discriminates against US products as well as block imports completely from any country that continues or increases discrimination against US products following the initial tariff. This provision has not been used in more than 70 years and would arguably conflict with US commitments to the World Trade Organization and other trade agreements, so challenges could be expected should President-elect Trump use this authority.
With a variety of mechanisms at the Trump-Vance administration’s disposal under compressed or expanded timelines for imposition depending on the instrument used, many importers are assessing imported merchandise, supply chains, and trading partners in preparation. In our next LawFlash in this series, we will provide an overview of the tools that importers may use to challenge the imposition and mitigate the effects of tariffs.
Morgan Lewis has assembled a cross-disciplinary bipartisan team of lawyers who are former government agency officials and regularly represent clients before all federal agencies, including executive agencies (the Departments of Justice and Education, Consumer Financial Protection Bureau, Federal Trade Commission, Equal Employment Opportunity Commission, and US Securities and Exchange Commission), and congressional committees and inquiries.
Our team is primed to help clients navigate the post-election landscape by providing executive order analyses and updates on key agency developments and regulations and will develop programming and guidance regarding legal and business developments in the weeks and months to come.
Subscribe to our 2024 US Election mailing list for the latest on evolving developments around the 2024 US presidential election and the impact on companies.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: