Industry News

Presidential Authority over Trade

January 19, 2017
By: Alan Goggins

President Donald Trump has on several occasions talked about raising tariff rates on merchandise imported from China. These pronouncements have raised the question of the President’s legal authority to make these changes, The reality is that the President has broad powers over trade, and likely can unilaterally implement many of these proposals under existing United States law. However, all proposed changes come with potential ramifications.

Congress has the power to raise or lower tariff rates. However, over the years Congress has enacted several statutes which delegate some of this power to the President. A detailed analysis of these statutes is available here. Generally, these statutes that grant authority to the President to raise tariffs require the President to make findings that certain circumstances exist before the President can impose higher tariffs.Two statutory circumstances that might be the basis for action against China are (a) when foreign competition has an impact on U.S. individual domestic industries and/or causes unemployment, rising to the level of a threat to national security, or (b) whenever the U.S. is facing serious balance-of-payments deficits. Under the balance of payments scenario, a 15% surcharge can be added to imports for up to 150 days. U.S. trade statistics reflect a deep and persistent balance of trade deficit. If this same deficit is present with respect to goods and services and capital transfers, this could be the basis for Presidential action.

In either of these scenarios the United States would likely face retaliation from China (and eventually WTO findings), as well as other trade partners. This is true because the most obvious, immediate, unilateral tools available to the President are also blunt tools that will impact a broad swath of importers and exporters. For these reasons it may that these laws are more likely to be used as threats, rather than actions taken.

There are also more narrowly tailored laws that the President could use to target specific industries in specific countries. This may be attractive because it could allow the administration to target sensitive industries in China while limiting the negative impact on importers in the United States. For instance, the Department of Commerce has the authority to “self-initiate” anti-dumping and countervailing cases, rather than waiting for a domestic party to file a petition. These cases are very disruptive to trade, as companies try to plan for the imposition of duties. Similarly, Congress and the President have discussed a variety of “border tax” proposals that might be more narrowly tailored to meet the goal of pressuring U.S. trade partners.

While it is not possible to predict what action the President may take, or when he may take it with respect to trade with China, it is clear that he has broad authority to penalize imports from China. We will continue to monitor the situation and update as details (or additional possibilities) become clear. Please watch this space for developments in the coming weeks and months.