The Trump administration, in its second term, has been on a mission to redefine the global economic order, marked by the ‘liberation day’ tariff announcements and a 90-day respite. Trump quickly announced and imposed a 30 percent tariff on China and 10 percent tariffs on the rest of the world, with an underlying threat to reimpose higher tariffs on almost all trading partners post the 90-day negotiation period, if the trading partners fail to secure a significant trade deal with the US. The recent verdict by the US Court of International Trade has condemned the ‘overreach’ of Trump’s executive powers, ruling them ‘illegal’ and halting their implementation.
However, a federal appeals court on May 29th paused the implementation of the Court of International Trade and allowed the government to continue collecting the tariff. This ruling from the federal circuit could be appealed to the Supreme Court, which has the final say in whether Trump gets to ‘legislate’ on America’s Trade Policy.
This means two things. Domestically, Trump may need to find ways to overcome the judicial blockade to continue his unilateral protectionist trade policies. One option could be to seek new authority from Congress or utilise other tariff-raising authorities, such as Section 232 of the Trade Expansion Act of 1962. However, it will be a lengthy process, and Trump may lose his current edge in pushing for speedy trade deals with trading partners. Internationally, this legislative uncertainty will give countries more leverage in negotiating a deal with the US, if they decide to proceed with the negotiations, as the threat of reciprocal tariffs remains impractical, at least at the scale Trump intended. It is in India's best interest to continue negotiating a trade deal with the US; however, with better negotiating power than ever since the inception of Trump’s second term.
Why are Trump’s Tariffs deemed ‘illegal’?
Unlike the Trump 1.0 tariffs, the second term has used the International Emergency Economic Powers Act (IEEPA), a 1977 law, to impose tariffs on its trading partners. In the first term, Trump utilised the US trade laws to raise taxes on imports, citing national security concerns or violations of trading rules by the trading countries. However, these laws have a much lengthier implementation process, as it requires gathering evidence and soliciting public comment before imposing tariffs. The appeal of using IEEPA comes from the fact that it is a fast process and does not require detailed reports from respective departments. This allows the President to impose tariffs at their whim. The IEEPA is primarily concerned with trade embargoes and sanctions, and grants the President certain authorities to deal with “unusual and extraordinary threat” to which a national emergency has been declared. However, the problem emerged when the Court of International Trade questioned the unchecked power of the executive to restructure the nation’s trade relationships through tariffs.
The Court of International Trade, with exclusive jurisdictional authority pertaining to any law regarding international trade, ruled that Trump’s tariffs exceeded the power granted to the president under the emergency powers law. The ruling also halts the implementation of tariffs that Trump imposed in April on all trading partners, including China, Mexico and India. However, the ruling does not affect tariffs issued under separate legal authorities on steel, aluminium and automobiles, levied under Section 232 of the 1962 Trade Act. The key concern posed by the court is the executive powers exercised by the current administration, which contradicts the separation of powers ensured by the United States Constitution. Article I of the American Constitution states that “Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations”. The federal appeals court has paused the implementation of the verdict, and this decision could be appealed to the Supreme Court, which has the final say.
What's Next?
The appeals court granted the administration’s request, temporarily pausing the trade court’s order allowing continuation of Trump’s tariffs for now. If it is further appealed, the Supreme Court will have the final say. However, there is a higher chance that the Supreme Court will reiterate that while the Executive branch of the government (the President’s office) possesses all the executive powers, it possesses none of the legislative powers, and the power to lay down duties is a legislative role. If so, the administration may need to explore alternative legal means to continue its trade policy.
One of the highly plausible options is imposing up to 15 percent tariffs for 150 days through Section 122 of the Trade Act. This allows immediate imposition of tariffs for a short term. Another option is the use of Section 232, which is concerned with national security. However, the caveat for this is that it requires lengthy investigations and reviews by the Commerce Department, which might take months to complete. One thing is clear: the ruling forces the administration to rely on standard statutory authorities to impose tariffs, which come with their inherent constraints.
While the Trump administration can use all these alternative means to reimpose the tariffs, the current judicial checks have provided some time and leverage for other countries that are negotiating a trade deal with the US. If countries decide to continue negotiations with the US, they will have significantly more negotiating power than they did a week ago, as the threat of tariffs may be impractical for the time being. It is still in the best interest of India and others to secure a trade deal with the US; however, this time, the motive can extend beyond mere threats and focus on free trade for economic growth.
(Anisree Suresh is a Research Analyst at the Takshashila Institution, which is an independent think tank and school of public policy.)
Views are personal and do not represent the stand of this publication.
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