America’s emerging trade policy: Are there any constraints?

Two years ago, on March 4, 2023, to inject new energy into his bid for a second term in the White House, Donald Trump pledged “for those who have been wronged and betrayed: I am your retribution.” His war was to be on two fronts, at home against the “deep state” and abroad against America’s trading arrangements.

On trade, his first step was on February 1 of this year, to declare that he would impose additional tariffs, 25 percent on goods from Mexico and Canada (except for Canadian energy resources that would face a 10 percent tariff), and an additional 10 percent on those from China. The additional 10 percent China tariff took effect immediately in February. The tariff on trade with America’s two neighbors was paused until March 4. Trump has also said that the EU would face tariffs and that China’s goods would be hit with another 10 percent tariff, bringing the total tariff on Chinese imports to around 40 percent. Added to this welter of tariff announcements, on February 13, the broad reach of Trump’s tariff plans was described in a memorandum on Reciprocal Trade and Tariffs. The plan as it is described is to counteract every foreign measure the administration may view as adversely affecting US trade.[1] This is not the end; it appears to be but the beginning.

Why did Trump make this series of tariff announcements instead of those he campaigned on, namely, a 60 percent tariff on Chinese goods and a 20 percent tariff on all products from everywhere else? One possible explanation is the recently announced tariff regime would create a variety of bases for negotiating separate deals with each individual trading partner. The Trump administration’s forthcoming Reciprocal Trade and Tariff Plan might also provide a legal basis for the president to use delegated authorities to act against all or most trading partners individually. Trump instructed his cabinet officials in the February 13 memorandum to take aim at the US trade deficit and examine “non-reciprocal trade relationships with all United States trading partners” due to “unfair practices and limited access to foreign markets.”

Another answer is that a blanket tariff imposed by the president, without an act of Congress, would be more likely to be found to be unconstitutional than a series of retaliatory measures on varying stated grounds. A piecemeal approach is far more likely to be sustained. The effect may be the same. Negotiations with the four major US trading partners—Mexico, Canada, the EU, and China—would by themselves cover almost half of US imports.

American retribution

The first Trump administration began dismantling the world’s rules-based trading system by rendering World Trade Organization (WTO) dispute settlement provisions nonbinding and capable of being ignored without adverse consequences. The second Trump administration demonstrated it would not be bound by trade pacts by imposing tariffs first on America’s neighbors, even though the measures would violate the 2020 US-Mexico-Canada Agreement that Trump negotiated.

What counterforces exist?

There is no guarantee that the brakes on presidential action contained in the US constitutional system will hold. The Supreme Court might not buy an argument that Congress delegated (or even could have) all of its constitutional tariff power to the president to justify a blanket tariff. But the Court might find that Congress delegated emergency and retaliatory authorities sufficient to justify the increased tariffs if each bilateral trading relationship were attacked separately, with tailored reasons given for action against each major trading partner. The courts have a long-established record of deference to the president in the area of foreign affairs, especially in times of declared national emergency.

Nor has the Congress recently shown itself effective as a coordinate power. The president’s party, with proven loyalty to him, has majority control of both houses of Congress. The Democrats appear powerless and had engaged in their own interventionist trade policy in the Biden years. The slim Republican majorities can, at Trump’s bidding, pass legislation placing a broad tariff on all imports. No Congress has enacted a tariff wall since 1930, and every tariff act since then has given the president, starting with Franklin Roosevelt in 1934, the authority to negotiate tariff reductions on a reciprocal basis with America’s trading partners.

It appears certain that America’s trade agreement obligations will not serve as the slightest brake on Trump’s tariffs. The rules were not designed as an effective curb on massive violations of the world trading system by a major trading nation. The planned US tariffs, as a practical matter, take the US outside of the world trading system, whether the US withdraws from the WTO as a formal matter or not.

The bottom line

There is no evidence at present of trading nations having a coordinated response to the new US tariffs. Some may strike deals with Trump. Others may retaliate against US products. Trade retaliation did not change US policy toward placing restrictions on steel and aluminum imports in 2018, and retaliation has costs in terms of harm to the country choosing that path. But the extent of US measures may be sufficiently great to cause America’s trading partners to respond in kind. US leverage over friends and allies is already lessened as the Trump administration has put into question the reliability of its defense commitments.

What President Trump cannot fully control is the economic consequences of his tariff policies. The new trade policy is one of disruption that will likely damage the US economy, but the degree to which this occurs may not be immediately apparent. Investment plans may be put on hold due to the uncertainties created. Financial markets may reflect this and impose additional costs. Increased prices due to trade restrictions may bring pushback from consumers and businesses.

The principal constraints on US trade policy are likely to be a combination of foreign responses, economic forces unleashed by the new US tariffs, and the domestic political fallout from them. The president cannot necessarily control the actions of America’s trading partners, who may have their own political imperatives to retaliate or may choose to emulate US tariff measures. In addition, negative US economic consequences are likely to occur from the imposition of the panoply of envisaged tariffs that could undermine domestic political support for America’s new confrontational trade policies.

Note

1. Every imaginable measure deemed to be unfair to the United States is to be investigated: tariff disparities; “unfair, discriminatory, or extraterritorial taxes,” including value-added taxes, subsidies, and burdensome regulatory requirements; exchange rates at variance with market value; wage suppression; mercantilist policies; structural impediments; nontariff barriers, including sanitary and phytosanitary measures; technical barriers to trade; government procurement; export subsidies; lack of intellectual property protection; digital trade barriers; and government-tolerated anticompetitive conduct of state-owned or private firms.