Trump's Tariffs

There is no doubt that the word ‘tariff’ has appeared on the news more than ever in the past year or so, when Donald Trump announced his ridiculous ‘reciprocal tariffs’ on pretty much every country, with some as high as 100%.  

Last week, on the 20^th of February, the US Supreme Court ruled, pursuant to the previous court’s decision, that the tariff Trump so ambitiously laid down was indeed unlawful.  

In this article, I will briefly explain the legal and economic basis on which the initial tariffs are based, then touch on the actual ruling itself, and end with the consequences of this.  

Before we begin, I think it is important to remind ourselves that the US’s tariff is currently 10%, for now anyway.  

The tariff was imposed on two separate grounds, national security and national emergency. Let’s start with national security. 

Under Section 232 of the Trade Expansion Act of 1962, the US Department of Commerce reported that imports of steel, aluminium, and automobiles posed a threat to the US’ national security and therefore imposed tariffs on these products.  

The national emergency tariffs are imposed under the International Emergency Economic Powers Act (IEEPA), which was used to address illegal immigration and drugs, to increase the US’ competitiveness in the international market, and to protect the country’s sovereignty. These tariffs mainly affected Canada, Mexico, and China.  

It was the tariffs under IEEPA that were refuted and challenged by the US Supreme Court, on the grounds that imposing tariffs to stop the influx of drugs and migrants goes beyond the powers granted to the President. In other words, the separation of powers. The President does not have the authority to impose across-the-board tariffs without the authorisation of Congress. 

Now, what are the potential ramifications of this ruling?  

First, it creates even more uncertainty than there already is. Trump terminated the tariffs issued under IEEPA on the 24^th of February and established a new 10% tariffs under Section 122 of the 1974 Trade Act. The Act allows him to put in place tariffs up to a maximum of 15% for 150 days before Congress must step in and agree to extend the term. This shows a significant shift of the power dynamics from Trump ‘dictating’ the tariffs to his powers being restricted by Congress, which is supposed to impose checks and balances on him.  

Second, many businesses that suffered from the tariffs are demanding a refund from the government. The court did not clarify the exact procedure; instead, they just left it to the lower court to decide this matter. The challenge of this exists in the way tariffs affect businesses. For most businesses, they would’ve trickled down the tariff to the consumers by increasing the price instead of paying the tariffs from their own revenue. This is even more of a headache when it comes to B2B transactions, as the chain does not terminate on the buyer, as the buyer will then use the product to facilitate their own sale, and might have increased their price, resonating the effect of the tariffs down a chain of suppliers.  

As we can see, there are so many uncertainties and no one, even the most revered economist, can give a definitive answer. With the war in Iran and oil prices skyrocketing, it will only worsen the matter. Perhaps even when this article is published (probably in a month since our editor is lazy) it won’t be relevant anymore.