After the Supreme Court struck down tariffs introduced under the International Emergency Economic Powers Act, the president responded by announcing a new global tariff of 15 percent. This was based on Section 122 of the Trade Act of 1974, which allows for the application of various Band-Aids to problems arising out of large and serious U.S. balance-of-payments deficits. The administration’s use of Section 122 to impose tariffs (which was unprecedented) has come under legal attack. But at this point that’s moot (apart from the tricky issue of the tariffs that have already been paid), as Section 122 tariffs could last no longer than 150 days, a period that has just expired.
Protectionists can relax, however. The administration will now be taking action under the Trade Act’s Section 301, a widely drawn provision that allows the U.S. to take action if its trade representative determines that an act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts U.S. commerce, and that action by the United States is appropriate. It has been used to impose tariffs fairly frequently before. In this case, tariffs have been slapped on countries for failing to “impose and effectively enforce a prohibition on the importation of goods produced with forced labor.”
The timing is . . . convenient.
The tariffs are being assessed at different levels. Countries with prohibitions on the import of goods made by forced labor, including the U.K. and tariff-piñata Canada, but have been found (by the U.S. trade representative) not to do enough to enforce them will be subject to an additional tariff of 10 percent (although this will not apply to goods covered by the USMCA), as will those that have either committed to introduce bans or have introduced partial bans. Some others will pay an adjusted rate (10–12.5 percent, net, of their most-favored-nation rate).
Countries that have not imposed a forced-labor import prohibition nor made a relevant commitment (or partial regime) will pay 12.5 percent.
All in all, 60 “trading partners” are affected; that figure understates the number of those covered because the 27-member EU is treated as one. In practice, therefore, nearly 90 countries will be hit.
There are various exemptions, such as for goods already subject to Section 232 tariffs and, in a nod to concerns about affordability, products that cannot be grown or produced in sufficient quantities (or at reasonable prices) in the U.S., such as, presumably, bananas and coffee. There are other exemptions too.
According to a report in the Financial Times, EU countries (as well as the U.K.) will emerge as marginal winners, with many Asian and Latin American countries taking a (smallish) hit. By far the biggest loser would be Brazil, with its effective rate increased from 11 to 17.7 percent.
Legal challenges will ensue, but, regardless of their merits, they may be trickier procedurally. The FT cites George Riddell, managing director of the Goyder trade consultancy, who argues (I think correctly) that taking this approach will not be vulnerable to a total wipeout. He maintains:
The practical effect [of the new tariffs] is to force litigation to be economy-specific. A successful challenge to the action against one economy would, on the face of the notice, be unlikely to unwind the other fifty-nine.
The FT:
The overall effective tariff rate holds steady at 10.8 per cent — approximately the same rate as before — but significantly below the 15.8 per cent rate at the time of the Supreme Court ruling.
Few seem to think that Trump will stop here. They are, unfortunately, probably right.
Congress? Congress? Anyone there?