A Guide to Understanding and Mitigating Trump's Tariff Plans
As the political landscape continues to evolve, one of the most significant economic policies that have garnered attention is the imposition of tariffs. With President-elect Donald Trump set to take office, there is a renewed focus on his plans to raise tariffs on various countries. In this blog post, we delve into the legal authorities Trump might use to impose these tariffs, including Section 232 of the Trade Expansion Act of 1962, Section 301 of the Trade Act of 1974, the International Emergency Economic Powers Act (IEEPA), and the role of executive orders. While these legal tools to impose tariffs are probably not new to this audience, the emerging technologies discussed below, to mitigate the impact of increased tariffs, are brand new and worth understanding.
Trump’s Announced Tariff Plans
President-elect Trump has made several key announcements regarding his plans to impose or increase tariffs on imported goods from certain countries. One of the most significant announcements is the imposition of a 25% tariff on all imports from Mexico and Canada, effective on his first day in office. This measure is aimed at addressing issues related to illegal immigration and the influx of illicit drugs, such as fentanyl, into the United States. These tariffs are meant to remain in place until these countries effectively address these issues.
In addition to the tariffs on goods imported from Mexico and Canada, Trump plans to impose an additional 10% tariff on all imports from China. This increase is also intended to halt the flow of illegal substances into the U.S. and is part of a broader strategy to address trade imbalances and security concerns. Trump has stated that he intends to implement these tariff increases through executive orders on his first day in office, January 20, 2025. Executive orders provide a swift and direct means for the president to announce and implement these tariff measures. What remains to be seen is to what degree these announcements are a negotiating strategy versus an actual plan Trump intends to implement. But Trump has used tariffs in the past to protect the United States’ interests and there is plenty of support to protect domestic manufacturers with increased tariffs. It seems likely there will be some increases in tariffs on Chinese imports and, to a lesser degree, Mexican and Canadian imports. There is also consideration of a worldwide increase in tariffs into the US since the average US tariff rates are significantly lower than other countries.
Legal Authorities for Imposing Tariffs
To understand the legitimacy of Trump’s tariff plans, it is essential to examine the legal authorities that enable him to impose these measures. One of the primary tools at his disposal is Section 232 of the Trade Expansion Act of 1962. This section grants the president the authority to adjust imports, including imposing tariffs, if they are deemed a threat to U.S. national security. The process begins with an investigation by the Department of Commerce to determine whether the imports pose a national security risk. If the investigation concludes that the imports are indeed a threat, the president can impose tariffs or other trade restrictions. Trump has previously utilized Section 232 to impose tariffs on steel and aluminum imports, citing national security concerns.
Another critical legal authority is Section 301 of the Trade Act of 1974. This section allows the president to take action, including imposing tariffs, if a foreign government's acts, policies, or practices are found to be unjustified, unreasonable, or discriminatory and burden or restrict U.S. commerce. The Office of the U.S. Trade Representative (USTR) conducts an investigation to determine if the foreign country's actions violate U.S. trade agreements or burden U.S. commerce. Trump has extensively used Section 301 to impose tariffs on imports from China, the European Union, and other countries during his previous term.
The International Emergency Economic Powers Act (IEEPA) also provides broad presidential authority to deal with international economic emergencies. To invoke IEEPA, the president must declare a national emergency due to an "unusual and extraordinary threat" to the national security, foreign policy, or economy of the United States. This declaration enables the president to regulate imports without significant procedural hurdles. Although Trump considered using IEEPA in 2019 to impose tariffs on Mexican goods, he ultimately did not need to after a deal was reached. However, this option remains available for future use. It’s possible the illegal importation of fentanyl, the equipment and parts needed to make fentanyl, China’s extensive espionage network and the flow of illegal aliens across the southern US border could be positioned as “unusual and extraordinary threats.”
Economic Implications
The proposed tariffs have significant economic implications. Estimates suggest that these tariffs could generate $1.2 trillion in tax revenue from 2025 through 2034. However, they are also expected to reduce U.S. GDP by 0.4% and result in a loss of approximately 344,900 jobs. The broader impact on global trade, consumer prices, and business operations will be closely watched as these policies unfold. The tariffs could lead to increased costs for consumers, potential retaliation from affected countries, and disruptions in global supply chains. At the micro economic level, US businesses will have to deal with increased landed costs and trade consultants and attorneys will experience another “tariff windfall” as companies scramble to figure out how best to manage the economic disruption.
Leveraging Advanced Technology to Mitigate the Effects of New Tariffs
In the face of these new tariffs, companies can leverage advanced technologies, including generative AI, to navigate and comply with the changing trade landscape. KYG Trade's platform offers several key features that can significantly aid in managing the impact of these new tariffs.
Reviewing Products for New Duties
KYG Trade's AI-assisted technology continuously reviews products and their classifications on the platform to determine if they are subject to new duties or different tariff codes. This automated process, using tools like ChatHTS™ and Trade Korpus™ (AI-assisted research of CROSS ruling)ensures that companies can quickly identify which products will be affected by the new tariffs, reducing the risk of customs delays, misclassification and any associated fines and penalties.
Determining Tariffs for New Products
For new products entering the market, KYG Trade's platform can efficiently determine the applicable tariffs. The AI-assisted HTS classification process streamlines the gathering of product data from various sources and generates precise, 10-digit Harmonized Tariff Schedule (HTS) codes. This ensures that companies can accurately classify new products and understand the tariffs that will be imposed on them.
Simulating Sourcing Options and Comparing Duty Rates
KYG Trade's technology also enables companies to simulate different sourcing options and compare duty rates among different areas of manufacturing. This capability helps in determining non-preferential origin and preferential duty treatment under various free trade agreements (FTAs). By analyzing the rules of origin and comparing duty rates, companies can make informed decisions about where to source their products to minimize tariff costs and maximize duty savings.
Conclusion
As President-elect Trump prepares to take office, his plans to impose or increase tariffs on various countries are set to have far-reaching economic and political consequences. Leveraging advanced technologies can help companies comply with the new tariffs quickly and efficiently and make strategic decisions to mitigate their impact. Whether these measures achieve their intended goals or lead to unintended consequences remains to be seen, but one thing is clear: the coming months will provide business leaders with a large dose of their nemesis, uncertainty, and, in addition to planning, one of the few tools to manage that uncertainty with be technology.
