Plenty of Tariff Tools at Trump’s Disposal, Say Experts
There are many tools that President-elect Donald Trump can use to levy tariffs on Mexico, Canada and China after he takes office, say legal experts.
Kent Bressie and Patricia Paoletta, partners at HWG, a Washington DC-based law firm, discussed these tools during a recent Auto Care Association webinar, “Trade and Tariffs in the Trump Administration: Policies, Impacts and Future Outlook.”
This past November, Trump said he will impose 25% tariffs on all products exported from Mexico and Canada. China, he added, would be subject to additional tariffs.
Bressie said Trump has not elaborated on the legal basis for these tariffs and added that he believes “China is really the primary target, followed by Mexico.”
Paoletta mentioned during the webinar that many of Trump’s economic advisors are “folks who have had substantive roles in his first administration, so you do have some experienced hands coming back into this ‘Trump 2.0.’
“It will be interesting to watch, but we can expect some activities,” she told attendees.
Available tariff tools
One tool Bressie believes Trump could use to enact tariffs is The International Emergency Economic Powers Act (IEEPA), which is a statute that gives presidents the latitude to act quickly in the event of a national emergency.
“IEEPA allows the president to prohibit transactions and regulate the importation and exportation of goods during a time of emergency presenting an ‘unusual and extraordinary threat... to the national security, foreign policy of economy of the United States,’” he said.
“Certainly, the president-elect has talked about the threat of immigration and illegal narcotics as a national security threat and could potentially base his actions with tariffs on particular countries on that basis.”
Bressie reminded attendees that in 2019, Trump announced he would rely on IEEPA to impose escalating tariffs of up to 25% on all goods imported from Mexico under the pretense of addressing immigration issues.
The United States and Mexico agreed on an additional border measure before any tariffs were implemented.
Bressie also reminded attendees that President Joe Biden relied on the IEEPA to declare a national emergency regarding illicit drug trafficking and sanction persons involved in - or benefitting from - drug trafficking.
“Although (the) IEEPA itself has never been used to impose tariffs, there is a fair likelihood that president-elect Trump will rely on it to find a national emergency of one or more types” in order to justify the imposition of new tariffs, said Bressie.
Bressie believes the IEEPA is the most obvious tool for president-elect Trump to use because of the speed at which it can be utilized. Other tools require agency process.
He also mentioned Section 301 of the Trade Act of 1974 as another way to enact new tariffs.
Section 301 is “designed as a forceful tool to ensure compliance with existing trade agreements and to take action against other unfair practices,” said Bressie.
During the first Trump administration, the United States Trade Representative (USTR), which Trump has indicated the U.S. Department of Commerce will oversee, initiated six Section 301 investigations, resulting in tariffs in two cases that involved China and the European Union.
“Section 301 is not the only remedy with an exclusion process,” added Bressie. “Section 232 of the Trade Expansion Act of 1962 authorizes the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) to investigate the effect of specific imports on U.S. national security and recommend remedial actions.”
BIS has 270 days to complete an investigation. A president then has 90 days to decide to accept the report's findings and its recommendations or not.
During the first Trump administration, BIS conducted eight Section 232 investigations. Bressie said he expects a similar level of activity after Trump takes office on Jan. 20.
According to Bressie, another mechanism, Section 338 of the Tariff Act of 1930, authorizes the president to impose new tariffs – up to 50% - upon a finding by the U.S. International Trade Commission (ITC) that a foreign country has taken unreasonable or discriminatory actions that disadvantage U.S. commerce.
Section 338 has not been used since the 1940s, he added.
“The president-elect has not made any reference to any statutory provision, but certainly Section 338 could allow him to impose new tariffs up to 50%,” said Bressie.
Another option is Section 201 of the Trade Act of 1974, which authorizes the ITC to investigate whether an import surge constitutes a substantial cause of serious injury to the U.S. industry producing the product in question and requires a remedy.
Similar to that is Section 122 of the Trade Act of 1974, which allows a president to impose new tariffs of up to 15% on imports for 150 days in order to address large and serious U.S. balance-of-payment deficits, prevent a depreciation of the dollar in foreign exchange markets and cooperate with other countries in correcting an international balance-of-payments disequilibrium.
“We note this because the president-elect has talked a lot about his concerns about trade deficits and about the relative valuations of various currencies as well,” said Bressie.
Bressie explained that these potential remedies may be designed to gain advantage in ongoing trade agreement processes and force concessions and in other cases, it may just be to retaliate.
A look at the USMCA
Bressie and Paoletta also discussed the United States-Mexico-Canada Agreement (USMCA), which entered into force during the first Trump administration and superseded the North American Free Trade Agreement (NAFTA) that President Bill Clinton ratified in 1993.
“It was the first Trump administration that forced essentially the renegotiation of NAFTA, but it’s clear the president-elect is still not happy with it,” noted Bressie.
The USMCA generally prohibits new tariffs, although it contains an exception for new duties that are designed to maintain or restore international peace or security.
The five-year-old agreement is subject to a trilateral review by the three branches of the U.S. government in 2026.
“There’s been a lot of speculation about whether or not (Trump’s) threatened tariffs are designed to create negotiating leverage,” says Bressie. “But Mexico and Canada have already indicated that if these tariffs come to fruition, they are likely to seek dispute settlement under the USMCA and particularly in the case of Mexico, impose retaliatory tariffs.
“And that’s exactly what Mexico did under NAFTA in 2018. Mexico retaliated against tariffs in the first Trump administration, imposing more targeted tariffs in certain sectors like steel, pork, cheese, apples and bourbon.”
In 2023, Mexico was the second largest exporter of passenger tires to the U.S., having shipped 22.6 million units to the country, a 6% year-over-year increase, according to MTD’s 2024 Facts Issue.
Canada was the sixth largest exporter of passenger tires to the U.S. that year, having shipped around 10 million units, a 3.7% jump from 2022, according to MTD data.
Looking at overall consumer tire exports – both passenger and light truck – Mexico was the second largest exporter to the U.S. in 2023, while Canada was the fifth largest exporter to the U.S. that same year.
Canada also was the fourth largest exporter of TBR tires to the U.S. market in 2023, having shipped 1.4 million units.
‘A lot of uncertainty’
“There’s a lot of uncertainty” around threatened tariffs, just “as there was the first time around," Bressie told webinar attendees.
"But as we’ve seen, there’s also a track record to see what happened during the first Trump administration (and) to see what continued during the Biden administration in terms of these trade remedies, in order to pick out what might happen going forward,” he said.
“Certainly, President-elect Trump has a pattern of pursuing certain kinds of actions or remedies quickly and (in) other cases, they remain threats that have not been implemented. And that has resulted in concessions in some cases, although not all cases.”
Bressie said Trump likes to see himself as a dealmaker and likes to make deals with countries and companies.
“We should expect to see more of that, as well, which although it creates opportunities for the industry to obtain relief, it means the rules of the road maybe a little less clear than they might be otherwise if we were just following an agency’s procedures and proceedings.”
Industry responses
Possible industry responses at the commercial level could include many things, according to Bressie, who added that there are concerns about new tariffs and import restrictions on relevant products or inputs for those products, like steel and aluminum.
One response from the automotive aftermarket could be identifying alternative sources of goods, both domestic and foreign. “However, these are not quick remedies and should be used more as a long-objective or tool for the industry,” he noted.
Other things, like custom valuations, could reduce the impact of particular tariffs.
“It’s important for companies to consider ... their own supply chain and material needs (and) consult with their counsel or knowledgeable counsel about what option they might have for trying to blunt the impact of some of this.”
On a legal level, Bressie said it’s important for companies to participate in investigations and show the adverse impacts of tariffs – both on themselves and even in other industries.
“As I noted with some of these remedies, (even though) the U.S. Court of International Trade and other courts actively upheld actions by the president and various federal agencies, they generally take a pretty broad view of the president’s foreign affairs.”
The last legal and legislative response Bressie discussed was engaging with Congress, though he noted "we’re not convinced that Congress is really going to act as a brake on these particular remedies."
Paoletta agreed and noted that Congress was a little frustrated at being kept “at arm's length” on President Biden’s trade agenda, which, she added, “generally was more about facilitation and helping other nations deal with trade issues, as opposed to trade agreements with tariff targets and substantive measures that are enforceable.
"So I think there is a hunger for this incoming Congress to get more engaged in trade and more in a support role with the president, as opposed to an objective overseer of policies.”
‘There will be some tension’
After their presentation, a webinar attended asked Bressie and Paoletta to explain how actions related to tariffs on imports will impact U.S. and overall market prices.
Bressie prefaced his response with “keep in mind, I am not an economist,” but said it’s important to remember who's actually paying the tariff.
“In the first instance, the tariff is assessed on the importer and the importer is often trying to recover that from the foreign supplier, but the foreign supplier is not paying unless they have set up a separate entity to act as its importer.
"So in some cases, it's a trickle-down or indirect effect in terms of pricing. But we do see (that) tariffs drive up retail prices. And foreign suppliers often try to adjust to try and keep the pricing of their products more competitive.”
Bressie cited what’s happening with currency valuations right now. The Chinese yuan and the Euro are declining in value, which can potentially make products from those countries and zones a little more competitive than they might otherwise be.
Paoletta said she believes there is a desire to use Trump’s proposed tariffs to not only protect domestic industries, but also develop more domestic manufacturing capabilities where they have not existed.
“I think past tariff activities indicate that that hasn’t always been successful. It takes a very long time and in many cases, these tariffs are not sustained over time, although they have been sustained between administrations recently.”
Paoletta added she believes “there will be some tension in the implementation” of Trump’s proposed tariffs “and trying to keep prices down.”
