How Trump Could Make Good On His Tariff Threats

President-elect Donald Trump has an arsenal of trade laws he can use to make good on his campaign tariff promises. But advisers are still deliberating about how quickly and broadly to move, just days ahead of his inauguration for a second term.

One possibility is that Trump will simply launch lots of investigations that raise the threat of tariffs, rather than immediately imposing them.

“My guess in the first week is that it will be a little bit more roadmap than action,” said Michael Smart, managing director at Rock Creek Global Advisors, a business advisory firm. “But the one exception could be China,” which unlike Mexico and Canada, two other frequent Trump targets, “is not rushing preemptively to offer concessions.”

“To the contrary, China continues to retaliate against the U.S. for other ongoing actions on economic security,” Smart continued. “So, the Trump team may move quickly to ratchet up tariffs by 10 percent on goods already subject to” tariffs imposed by then-President Trump in 2018 and 2019.

“To me, that's quite plausible, because that's just kind of a down payment on where they're headed,” said Smart. “But I think they haven't made some of these decisions. They've just kind of got their inventory of authorities.”

That would be a walk back of sorts for Trump, who has threatened on multiple occasions to raise tariffs on key trading partners like Canada and Mexico as soon as he enters office. And he continues to claim his administration will raise billions of dollars from the increases, helping pay for the renewal of his 2017 tax cuts.

Earlier this week, he proposed creating an External Revenue Service to collect a flood of new tariff revenue, although U.S. Customs and Border Protection already performs that function for the United States.

Here’s a refresher course on some of the more potent tools Trump could wield on trade once he takes office on Monday:

Section 232 of the 1962 Trade Expansion Act

This law gives the president broad authority to restrict imports of a particular good or set of goods to protect national security. Trump used his authorities under Section 232 during his first term to impose tariffs on billions of dollars worth of steel and aluminum imports from around the world and to threaten similar duties on autos.

It’s not well suited for speedy action since it requires the Commerce Department’s Bureau of Industry and Security to launch an investigation that can take up to 270 days. Once that is complete, the White House has another 90 days to decide what, if any, action to take.

Still, one benefit of the 232 approach “is that it gives them a lot of time for Trump to go wheel and deal on it,” said Scott Lincicome, a former trade litigator now in charge of the Cato Institute’s Center for Trade Policy Studies. “They can hunt and peck for data that supports whatever finding they want, which is going to be a finding of national security threat, and then Trump can use that [to threaten tariffs] and they don't have to publish the report.”

“That's kind of the best of all worlds for Trump World,” Lincicome continued. “They can go out and make a lot of headlines without actually damaging the manufacturing sector or and or seeing the stock market freak out.”

Section 301 of the 1974 Trade Act

Trump used this provision during his first term to impose duties on hundreds of billions worth of Chinese goods and could turn to it again to increase the duties in his second term.

Lincicome said he doubted Trump will actually increase duties on China on his first day in office because that would raise concerns under the Administrative Procedure Act.

“But they can do it pretty quickly,” Lincicome said. “Issue the Federal Register notice, ask for comments, pretend to read the comments and boom, you get new tariffs 45 days later, maybe give or take.”

Trump also could assert that China has not lived up to all of the provisions of the “Phase One” trade deal the two countries signed in early 2020.

“Unfortunately, the hard-fought Phase One deal was disrupted by some combination of Covid, the Biden Administration’s disinterest, and China’s unwillingness to follow through,” Clete Willems, a former Trump administration official, said in an email.

“One action President Trump could take out of the gates is to test whether China really meant what it said by bringing an enforcement action,” Willems said.

Any completely brand-new Section 301 investigation against China or some other country could take up to a year to complete. However, the U.S. Trade Representative’s office, which is responsible for conducting such an investigation, could act faster than that.

In a podcast interview last year with Newton Investment Management, Trump’s nominee to head USTR, Jamieson Greer, said he expected the incoming administration would explore using both Section 232 and 301 to impose new duties.

International Emergency Economic Powers Act of 1977

During his campaign, Trump said he wanted to impose a tariff of either 10 or 20 percent on all imported goods. One way he might do that is by declaring that the large and persistent U.S. trade deficit is a national emergency.

That would empower him to use the International Emergency Economic Powers Act of 1977 to impose tariffs or other import restrictions to bring trade in balance.

Lincicome said he would be “stunned” if Trump actually used IEEPA to invoke a universal tariff on his first day in office. But he might declare a national emergency since that would give him “this Sword of Damocles to say I can invoke IEEPA whenever I want,” Lincicome said.

“Guys like me will scream bloody murder, but it doesn't really do much except then give Trump this kind of loaded weapon to run around the world,” he added.

Trump could also use IEEPA to make good on this threat to impose a 25 percent tariff on imports from Canada and Mexico to pressure them to crack down on illegal immigration and cross-border shipments of fentanyl.

Trump has also threatened a 10 percent tariff on China to pressure Beijing to do more to stop Chinese-made fentanyl from entering the United States.

Congress can terminate a national emergency declared by the White House by passing a joint resolution. However, that would effectively need a two-thirds vote in both houses to overcome a presidential veto.

Section 338 of the Tariff Act of 1930

No president has used Section 338 of the Tariff Act of 1930 in the nearly 95 years that it’s been on the books. But in theory, Trump could draw on the power to quickly impose tariffs of up to 50 percent on any country that “discriminates” against the United States.

That could potentially include countries that do not have a free trade agreement with the United States or that have a large trade surplus with the United States, Lincicome said.

“The big question, though, is to what extent 338 is still valid law,” Lincicome said. Even though it was never repealed, many people believe it was supplanted by Section 301, he said.

Opponents could also challenge the law in court as an overly broad delegation of Congress’ authority over trade to the White House, Lincicome added.

“But for someone like (Commerce secretary nominee Howard) Lutnick, who has said repeatedly that he loves using tariffs as threats, this is gold because it is so broad and ambiguous,” Lincicome said. “It allows tariffs up to 50 percent and the term ‘discrimination’ is open ended. So you can find discrimination anywhere.”

It does require the U.S. International Trade Commission to issue a report on discriminatory treatment. But that’s “not really that much of a procedural check because the requirements are so vague,” Lincicome said.

Smart agreed Trump’s team might find Section 338 provision appealing, despite its potential vulnerability to a legal challenge.

“The benefit of Section 338 from Trump’s perspective is that, unlike Section 301 and Section 232, it does not require a lengthy investigation before tariffs can be imposed,” Smart said.