With the US Supreme Court striking down his imposition of reciprocal tariffs through the use of the International Emergency Economic Powers Act (IEEPA), US President Donald Trump has indicated that his administration will continue with its tariff policy using other legislation at its disposal.
Immediately after the court order, Trump held a press conference to slam the ruling and announced a 10% tariff on imports, to be imposed under Section 122 of the Trade Act of 1974 and new investigations under Section 301 and other statutes. Experts said that a fresh investigation could result in tariffs higher than those imposed under IEEPA.
Since the other legislations also have limitations, the Trump administration used the IEEPA. Arguing before a court last year in an IEEPA case, US Secretary of Commerce Howard Lutnick had flagged the limitations of other legal tools available to the administration to tackle rising trade deficits, particularly with countries like China.
Lutnick explained to the Court of International Trade that the alternatives – such as Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974 – are not designed for national emergencies, are procedurally time-consuming, and do not permit immediate action.
“Under Section 232, the Department of Commerce has up to 270 days to conduct an investigation and submit a report to the President, who then has up to 90 additional days to decide whether to act, and a further 15 days to implement any action. Similarly, under Section 301, the United States Trade Representative must complete an investigation within 12 months, with additional time for enforcement. IEEPA is different – it allows the President to act immediately to protect national interests, provided all conditions under IEEPA are satisfied,” Lutnick had told the court.
Section 122, 301, 338 options
Switzerland-based think tank Global Trade Alert (GTA) said that Section 301 of the Trade Act empowers the USTR to investigate violations of trade agreements and unfair trading practices by foreign nations. Tariffs resulting from such investigations carry no statutory cap and are, in principle, imposed for four years, though they may be renewed – as was the case with the China tariffs from the first trade war.
USTR Jamieson Greer, during the press briefing Friday, described Section 301 as “incredibly legally durable,” signalling that the administration regards it as the primary instrument for rebuilding and potentially heightening the US tariff wall once the Section 122 period expires.
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According to the GTA, Section 122 of the Trade Act of 1974 permits the imposition of an import tariff of up to 15%, or equivalent import quotas, for a period of up to 150 days, where the US faces international payments difficulties.
“These powers have never previously been invoked. Their legality is already being challenged on the grounds that the US does not face an international payments problem (an outcome some have argued is impossible in an era of floating exchange rates). In light of the Administration’s defeat in the Supreme Court, litigation against any Section 122 tariffs is likely,” the GTA said.
Section 122 statute requires that any tariff imposed be applied on a nondiscriminatory basis across trading partners, though it does permit the President to exempt countries that do not maintain a large and persistent bilateral surplus with the US, and to exempt certain products, provided the original balance-of-payments rationale remains central to the measure’s design, experts said.
The legal statutes allowing for broad-based tariffs, such as Section 122, only provide for tariffs up to 15% and up to 150 days. Meanwhile, Section 338 allows for up to 50% tariffs in theory – but is a little-known and never-used statute with no historical precedent, a Mitsubishi UFJ Financial Group (MUFG) report said.
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“Other tools, such as Section 232, Section 301, and Section 201, have a very strong legal footing, but are narrower in scope, focusing on specific sectors and countries. Second, the legal proceedings also add a cloud of uncertainty and complexity for countries currently negotiating the finer details of the implementation of trade deals, including the likes of Japan and South Korea, among many others,” the report said.
Trump may ultimately lean more on sectoral tariffs such as Section 232 to impose tariffs (which have a stronger legal footing), while using other legal tools (eg. Section 122 and Section 338) to at least temporarily impose broad-based tariffs, in the hopes of being able to recreate his existing tariffs if the usage of IEEPA is deemed illegal. Presumably, tariff revenues are also an important consideration here.
As such, sectoral tariffs, including on semiconductors, pharmaceuticals, furniture, among many others, may well become more important than reciprocal tariffs moving forward, and especially for the likes of markets where these exemptions are currently meaningful, such as Singapore (pharmaceuticals), and Taiwan and Malaysia (electronics and semiconductors).
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