The legal landscape for U.S. President Donald Trump’s tariff policies underwent a significant shift last week, as both the U.S. Court of International Trade and the U.S. District Court issued rulings that deemed the tariffs imposed under the International Emergency Economic Powers Act (IEEPA) to be invalid.
Though these tariffs remain in effect for the time being due to temporary court stays, the decisions have raised questions and concerns among U.S. trading partners, some of whom may consider scaling back negotiations with the United States.
However, this reaction could be misguided.
In reality, Trump retains the authority to impose substantial tariffs under other legislative provisions, particularly Section 301 of the Trade Act of 1974, which are less vulnerable to legal challenges.
Therefore, rather than viewing these recent court rulings as an opportunity to disengage, trading partners might find it wise to pursue more stable agreements with a potentially more amenable negotiating partner in the Trump administration.
When Trump first announced IEEPA tariffs on imports from numerous countries in early April, nearly all of those nations sought to engage the U.S. in negotiations aimed at reducing or eliminating these tariffs.
Countries such as Mexico and Canada were already involved in discussions related to separate IEEPA tariffs aligned with the fight against drug trafficking, which had been announced earlier in February.
Since then, the United States and the United Kingdom have initiated a high-level framework, and substantial progress has reportedly been made in conversations with nations including India and Vietnam.
While talks with the European Union have proven more challenging, a temporary truce was reached with China, resulting in a reduction of reciprocal tariffs on goods originating from China to 10 percent for the time being.
Additionally, goods from Canada and Mexico were granted a temporary reprieve, as the Trump administration quickly exempted goods that qualify for preferential treatment under the US-Mexico-Canada Agreement (USMCA).
The novel application of IEEPA to impose tariffs—an approach never previously seen—was recently deemed unlawful by two courts.
Historically, IEEPA has been utilized for sanctions, but tariffs imposed via this route are uncharted territory.
Nonetheless, both Section 301 and Section 232 of the Trade Expansion Act of 1962 remain available options, and legal challenges to these authorities have largely proved unsuccessful.
During his first term, Trump used Section 301 to impose extensive tariffs on Chinese goods following an investigation into China’s trade practices related to intellectual property and technology transfer.
These tariffs were later expanded by President Joe Biden and continue to be effective today.
Another set of tariffs was implemented under Section 232, targeting steel and aluminum imports from various countries, which also persisted through the Biden administration with certain modifications or exclusions for specific countries.
In the early days of his second term, Trump strengthened and expanded these tariffs.
Looking ahead, it is expected that the Trump administration may use Section 232 as a foundation for certain sector-specific tariffs, with the Department of Commerce currently examining a comprehensive list of imports that ranges from timber and lumber to semiconductors and pharmaceuticals.
However, the focus here will be on Section 301, as it is a potentially effective authority for Trump to replicate the IEEPA tariffs, thus providing his negotiators with significant leverage.
In essence, Section 301 allows the U.S. Trade Representative (USTR) to investigate if a foreign country’s acts, policies, or practices are unjustified, unreasonable, or discriminatory, thereby impeding or limiting U.S. commerce.
While investigations must conclude within a year, there is no set minimum time required for completion.
Historically, USTR has published detailed reports during these investigations to validate findings and facilitate discussions with international allies about valid concerns.
However, publication of such reports is not mandatory and could be shortened or omitted if speed is prioritized.
Additionally, USTR is obligated to offer public notice and comment during the investigation and must hold a hearing if requested, followed by public input on proposed remedial measures if an affirmative finding is made.
Furthermore, a recent ruling by the Court of International Trade indicated that USTR must document its reasoning when rejecting significant counterarguments raised during the public comment phase.
Once implemented, Section 301 tariffs can be adjusted if deemed “appropriate,” though any such modifications would equally be subject to a notice and comment process.
Trump may have initially opted for IEEPA due to its ability to bypass these time-consuming procedures.
Unlike the broader scope of the IEEPA tariffs, Section 301 is primarily concerned with the actions of specific countries.
However, there are mechanisms to widen the scope of Section 301 investigations to achieve a more extensive impact akin to the invalidated IEEPA tariffs.
For instance, USTR could initiate a series of parallel investigations targeting common concerns, similar to the approach taken in 2020 regarding digital services taxes enacted by multiple jurisdictions.
There is also a unique provision within Section 301 that permits remedies to be applied broadly and nondiscriminatory, despite the initial focus on just one country.
While Section 301 may impose a greater procedural burden and limitations, it still offers a viable path for imposing broad-based tariffs.
The aim of remedies under Section 301 is to eliminate the problematic acts, policies, or practices identified during investigations.
This provision mandates that the USTR address any goods or sectors without requiring those goods to be involved in the initial investigation.
Therefore, regardless of the nature of the unfair practices identified, an affirmative finding would grant broad powers to impose tariffs on diverse products.
This approach closely mirrors the leverage rationale that the courts rejected in the IEEPA context.
Should Trump pursue Section 301 tariffs, this would have important implications for bilateral negotiations.
Trump has consistently demonstrated a commitment to altering trade relations and using tariffs not just as economic policy tools, but also as mechanisms to influence negotiation dynamics.
If negotiations with specific trading partners fail to meet expectations, it is highly likely that tariffs under Section 301 would follow.
U.S. trading partners should therefore actively seek to prevent such an outcome.
The expediency afforded by IEEPA allowed for the quick adjustment of tariffs, which also enabled the administration to quickly respond to positive negotiations by swiftly removing or reducing tariffs when necessary.
While some may welcome the added deliberation inherent in Section 301, this same process could render Section 301 tariffs considerably more entrenched once they are enacted.
This could complicate negotiations by making it more difficult to roll back tariffs, even if a trading partner makes meaningful concessions that are not directly connected to the problematic actions being investigated.
The durability of Section 301 and Section 232 tariffs from Trump’s first term highlights this potential challenge.
While the Trump administration may look to implement sector-specific tariffs under Section 232, these tariffs lack the versatility needed to replicate the comprehensive IEEPA tariffs.
The limitations within Section 232 regarding national security may restrict the range of products that can be tariffed and inhibit adjustments to tariff rates based on evolving negotiations and economic situations.
The Court of International Trade noted Section 122 as a possible avenue to address trade deficits.
However, Section 122 caps tariffs at 15 percent and restricts their duration to 150 days, limiting the strategic leverage that Trump is likely aiming for.
Additionally, there is a consideration of invoking Section 338 of the Tariff Act of 1930, or the Smoot-Hawley Tariff Act, which allows tariffs in response to foreign discrimination against U.S. goods.
Although Section 338 does not impose a time restriction on tariff duration, it is capped at a 50 percent rate and has not been utilized in modern trade practices.
Given its age and lack of precedents, there is uncertainty surrounding Section 338, posing challenges for the administration should it attempt to apply this nearly century-old authority.
Thus, it is likely that the Trump administration may prefer to reserve Section 338 as a potential threat in negotiations while avoiding the risks of judicial scrutiny inherent in its actual invocation.
In conclusion, despite recent legal hurdles, Trump retains a variety of tools to impose tariffs.
Should he choose to exercise these powers, especially through Section 301, they might become more challenging to retract.
Therefore, U.S. trading partners should view the recent court rulings not as an opportunity to disengage, but rather as a catalyst to expedite negotiations toward mutually beneficial agreements.
The uncertainty generated by the court decisions, the complexities in replicating a wide range of tariffs through other authorities like Section 301, and the procedural limitations imposed on the administration’s flexibility, should all create a sense of urgency for both sides to pursue discussions that can lead to a more stable and predictable trade environment.
image source from：https://www.atlanticcouncil.org/blogs/new-atlanticist/even-as-courts-step-in-trump-still-has-plenty-of-tariff-options-us-trading-partners-should-intensify-negotiations/
