This memorandum represents a preliminary analysis of potential measures that the Trump Administration might employ to increase duties or taxes on goods imported into the United States. Set forth below are the current authorizations pursuant to which the President may impose increased duties through an executive order, as contrasted with actions requiring an act of Congress. Also set forth below is a summary of the latest proposal to revise the corporate income tax laws to create a so-called “border adjustable” tax system.
I. AUTHORITY TO IMPOSE ADDITIONAL TARIFFS
Generally, the President cannot increase tariffs via executive action. Article 1, Section 8 of the U.S. Constitution gives Congress the sole authority to impose tariffs and to “regulate Commerce with Foreign Nations.” Thus, any attempt to increase tariffs would have to be approved through a new Act of Congress, or it would have to be expressly delegated by Congress to the President through existing statutes.
In addition to complying with U.S. law, increased duties or similar measures must be consistent with the United States’ obligations under the World Trade Organization (“WTO”) Agreements. Two of the most fundamental WTO obligations are the concepts of “Most Favored Nation” and “Tariff Bindings.” Most Favored Nation means that WTO members must treat imports from one member the same as the others. GATT Art. I. 1 In other words, a member cannot place a tariff of 10% on apples from China while only placing a tariff of 5% on apples from Japan. Tariff Bindings refer to the agreement that WTO members cannot impose tariffs that are different than those agreed upon. GATT Art. II. As part of WTO membership, all countries agreed to certain tariff levels on most goods.
1 Under Article II of the 1994 “Agreement Establishing the World Trade Organization,” the contracting parties are obligated to comply with the General Agreement on Tariffs and Trade 1947 (GATT 1947), 55 U.N.T.S. 194. References in this memo to GATT Art. I and II are from the GATT 1947.
If the U.S. applies a tariff or trade measure that is inconsistent with the WTO Agreement, then the affected countries have the ability to dispute the measure through the WTO dispute settlement mechanism. If the WTO finds against the U.S., the WTO can authorize retaliation against the violating country. Retaliation can include (a) increased tariffs totaling the value of the violation, (b) sanctions on intellectual property and (c) restrictions on services (e.g., preventing U.S. from providing financial services to the country), among other possibilities.
With that background in mind, there are several options President Trump has for increasing tariffs against a specific country. These include:
New legislation (act of Congress)
Section 301 of the Tariff Act of 1974
Section 122 of the Trade Act of 1974
Section 232(b) of the Trade Expansion Act
Trading with the Enemy Act of 1917
International Emergency Economic Powers Act
Each of these are discussed in turn below.
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