Key Points
- President-elect Trump’s tariff threats have created considerable uncertainty for importers and U.S. businesses relying on imports.
- The incoming president could impose 25% tariffs on Canada and Mexico, and 10% tariffs on China on Day 1 of his presidency using emergency powers. But he has an array of additional options.
- Other proposed tariff measures — such as 60% tariffs on Chinese imports — likely would require an investigation and more time to implement.
President-elect Donald Trump has repeatedly vowed to impose tariffs, which he has called “the most beautiful word in the dictionary,” on imports from a variety of U.S. trading partners. Although it is unclear which, if any, of these measures will ultimately be taken, importers can begin to assess their risk by mapping out how different tariff scenarios might unfold.
We outline several scenarios below, based on the president’s legal authorities.
Tariff Talk
During his campaign, President-elect Trump invoked tariffs as a tool to serve a range of policy objectives. He advocated imposing a 10% to 20% across-the-board tariff on all imports entering the U.S., which some have dubbed a “universal tariff,” and a 60% tariff on all imports from China.
A few weeks after he was elected, President-elect Trump announced that, if the governments of Canada, China and Mexico did not address certain immigration and drug trafficking issues, he would on his first day in office impose 25% tariffs on all imports from Canada and Mexico, and an additional 10% tariff on all imports from China.
‘Day 1’ Tariff Risks
President-elect Trump could use the International Emergency Economic Powers Act (IEEPA) — an emergency authority typically used by presidents to impose economic sanctions — to add new tariffs on Day 1 of his presidency. IEEPA grants the president the power to impose duties in response to an emergency involving “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.”
To invoke IEEPA, the president would need to declare a national emergency under the National Emergencies Act. Although no president has used IEEPA to impose tariffs, former President Richard Nixon used a predecessor to IEEPA to impose a 10% tariff on all imports in response to a U.S. balance-of-payments deficit.
President-elect Trump has signaled his desire to declare an emergency concerning illegal immigration and illicit drug trafficking. If he does so, that declaration potentially could serve as the predicate for imposing tariffs under IEEPA against Canada, Mexico and China.
While it is not possible to predict with certainty how events will unfold with respect to these proposed tariffs, four scenarios appear most likely:
- President-elect Trump does not impose tariffs on the three countries. It is possible that President-elect Trump will announce on Day 1 that he has decided the tariffs do not need to be imposed. There is precedent for this scenario. During his first term, President-elect Trump threatened to impose tariffs on imports of goods from Mexico based on immigration issues, then refrained from doing so after Mexico agreed to a package of immigration measures. Some observers, such as Sen. Chuck Grassley, R-Iowa, have downplayed the incoming president’s more recent pronouncements and called the threatened tariffs a “negotiating tool.”
- President-elect Trump imposes tariffs, but only on China. The president-elect may decide to impose a 10% tariff only on Chinese imports in response to drug trafficking. The economic consequences of imposing moderate additional tariffs on Chinese imports (many of which already are subject to tariffs under Section 301 of the Trade Act of 1974) are less severe than imposing 25% tariffs on imports from Canada and Mexico.
- President-elect Trump imposes tariffs on all three countries, but only for a limited period. Imposing tariffs on Canada and Mexico likely would prompt those countries to retaliate with tariffs of their own and pursue state-to-state dispute settlement under the U.S.-Mexico-Canada Agreement (USMCA). Given the economic effects of the tariffs and any retaliation, the governments of Canada, Mexico and the U.S. may be motivated to strike a deal quickly in order to remove these measures. As noted above, the U.S. may be less motivated to strike such a deal with China.
- President-elect Trump imposes tariffs on all three countries for an extended period, with exclusions. This is the least likely outcome, given the economic impact of maintaining tariffs on Canada and Mexico for a substantial period of time and the challenge of administering a product-specific exclusion process with respect to all imports from these countries.
The Day After: Longer-Term Tariff Risks
In addition to his Day 1 tariff threat, President-elect Trump has asserted an array of other tariff proposals, which he could deploy at various points over the course of his administration.
Universal tariff. President-elect Trump could seek to enact his universal 10% to 20% tariff proposal using IEEPA, given the broad scope of authorities available to presidents under IEEPA. He could do so by executive order after declaring a national emergency, to immediate effect: The tariff could, in theory, be in place on Day 1. But if President-elect Trump first imposes 25% tariffs on Canada and Mexico under IEEPA for a significant period, it may not be politically feasible for him to later attempt a more expansive universal tariff.
Sixty percent tariffs on Chinese imports. During his campaign, President-elect Trump threatened to impose tariffs of 60% or more on Chinese imports for alleged unfair trade practices. Section 301 provides for the imposition of trade sanctions on foreign countries that, based on an investigation and affirmative determination by the Office of the U.S. Trade Representative (USTR), are found to have violated U.S. trade agreements or engaged in acts that are “unjustifiable” or “unreasonable” and burden U.S. commerce. In 2018, during President-elect Trump’s first term, USTR imposed Section 301 tariffs on a range of goods imported from China, marking what was then a major shift in U.S. trade policy.
The incoming administration could either modify existing Section 301 tariffs or conduct a separate investigation — for instance, by continuing the investigation that the Biden administration recently launched into China’s policies with respect to legacy semiconductors — to cover all or an expanded range of Chinese goods at a 60% rate.
Section 232 tariffs on strategic goods. Section 232 of the Trade Expansion Act of 1962 allows the president to impose import restrictions or tariffs based on an investigation and affirmative determination by the Department of Commerce that certain imports threaten to impair U.S. national security. In 2018, the Trump administration imposed tariffs of 25% and 10% on certain imports of steel and aluminum, respectively, using this authority. Although President-elect Trump has not expressly threatened to do so, he could use Section 232 again to impose tariffs on, for instance, automobiles and auto parts.
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This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.