Trump Tariff, Round 2?

Election season is over, meaning that big changes to United States trade policy could be right around the corner. While changing laws can be a source of anxiety for the trade community, our goal going forward is to explain these changes and to help the community make informed decisions. To that effect, we will be publishing a series of articles highlighting different aspects of the proposed changes. Please stay tuned, as we navigate these new trade policies together.

Part 1

INTRODUCTION

The recent electoral victory by President-Elect Donald Trump has a particular word on everyone’s lips – “tariffs”. The President-Elect has proposed a shakeup to U.S. trade policy that could see a significant change in tariff rates on imports, especially those from China. On one hand, it is important to note that campaign promises are just that – promises; they are little more than a hope or a dream of what actual policy will look like. For that reason, analyzing policies proposed on the campaign trail is almost completely a work of speculation. For the United States, any implemented tariffs would inevitably be a product of diplomacy, domestic political considerations, and the bureaucratic process. Consequently, the incoming Trump Administration’s trade policy will almost certainly look different than as promoted today.

On the other hand, it would be wrong to understate the importance of tariffs. Because import tariffs are such a big player in international shipping and trade, it is important to understand 1) how the President of the United States can impose tariffs, 2) what President-Elect Trump promised regarding tariffs, 3) the history of Section 301 and Section 232 tariffs under the previous Trump Administration, and under the Biden Administration.

Overall, we hope you will come away with a better understanding of the President’s ability to impose tariffs, and see that, despite what you may hear, there is little reason to worry.

WHERE TARIFFS COME FROM

As a threshold matter, Article 1 of the U.S. Constitution gives Congress the power to impose tariffs. This power, however, can and has been delegated to executive agencies, under the authority of the President. Two such delegations are Section 301 of the Trade Act of 1974 (“Section 301”) (19 U.S.C. §§ 2411-2420) and Section 232 of the Trade Expansion Act of 1962 (“Section 232”) (19 U.S.C. §§ 1862-1864). You may have heard of Section 301 before, as this was the law used by the previous Trump Administration to raise 25% tariffs on Chinese goods in 2017. More recently, in May of 2024, the Biden Administration extended the Section 301 tariffs and even directed an increase of tariff. Section 232, while also used to impose tariffs, is less commonly discussed; its application is more limited.

Section 301

          Section 301 is a tool for the President to use when he determines that the United States is being harmed in the sphere of international trade. Under Section 301, the United States Trade Representative (“USTR”) has the duty to investigate allegedly harmful trade practices by other countries. If the USTR finds harmful practices, he has the authority to negotiate the elimination of harmful foreign practices, to suspend trade agreements and duty free treatments, and most importantly, to impose tariffs and import restrictions.

The law sets out a process and timeline that actions under Section 301 must follow. First, an investigation is initiated. Next, the USTR consults with officials from the foreign country at issue. Then, the USTR makes a determination. Finally, the USTR will take action. This process can be time consuming, making any action under Section 301 rather slow.

Let’s begin with the grounds for action under Section 301. There are some cases where the USTR can take action, and there are others where he must take action. The USTR can use Section 301 at his discretion, when he determines that an “unreasonable or discriminatory” practice of a foreign country harms U.S. commerce. On the other hand, the USTR must use Section 301 when he determines either that a trade agreement is being violated, or a harmful foreign practice is “unjustifiable.” The statute defines “unreasonable” as “unfair and inequitable,” including non-market economic policies, violation of workers rights, or intellectual property violations; “unjustifiable” acts are defined as violations of the international legal rights of the United States.

Section 301 investigations are meant to determine if a foreign practice meets any of the above criteria. Investigations under Section 301 begin one of two ways: either petitions by interested parties, or sua sponte determinations by the USTR. Section 301 allows entities to submit petitions to the USTR alleging harmful trade practices; once a petition is received, the USTR has 45 days to determine whether or not to start an investigation. The USTR may also choose to start an investigation on his own, without any petition; in this scenario, the investigation would begin immediately.

After an investigation begins, the USTR must consult with the foreign country under investigation. Presumably, this process is meant to find a friendly resolution to the issue without having to resort to trade remedies, such as tariffs. Requests for consultation must be sent immediately at the start of an investigation, but can be delayed for up to 90 days to “ensure an adequate basis for consultation.” If consultation requests are delayed, all other deadlines are extended by the same time as the delay.

After the period of investigations and consultations, the USTR must make a determination whether a practice is harmful or in violation of a trade agreement. For trade agreement violations, determinations must be made within 18 months of the start of the investigation. For intellectual property agreement violations, the USTR has 6 months. For all other issues, the deadline is 12 months after the start of the investigation.

Once a determination of harmful practices is made, the USTR may take action. The deadline to do so is 30 days following a determination. However, this deadline may be extended up to 180 days, at the request of domestic industries. At this point, USTR, under the guidance of the President may take any of the actions described above, including the imposition of tariffs. Actions taken under Section 301, such as the imposition of tariffs, last for 4 years; however, they may be continued or reinstated on request.

Section 232

Section 232 is used to address trade related threats to national security, rather than to the U.S. economy. Compared to Section 301, Section 232 is relatively straightforward.

Instead of the USTR, the Secretary of Commerce handles investigations under Section 232. Investigations can be initiated by interested parties, any department or agency head, or by the Secretary of Commerce sua sponte. During the investigation, the Secretary of Commerce must consult with the Secretary of Defense and other officers of the United States, and hold a period for notice and comment by the public. The Secretary of Commerce has 270 days to determine whether the imports at issue are harming national security.

If the Secretary of Commerce determines that the imports are harmful to national security, the President then has 90 days to review the determination. At the end of the 90 day period, the President must either reject the Secretary’s determination, or identify what steps will be taken to remedy the harm. The remedy is left solely to the discretion of the President, meaning that tariffs are a possibility. If the President agrees with the Secretary, he then has 15 days to implement the remedy.

The discussion will continue in Part 2.