With President Trump taking office last week, U.S. and non-U.S. companies are bracing for a new wave of potential tariffs, which the President has repeatedly promised to impose during his second term. In the months and days leading up to the election, President Trump touted his plan for extensive, across-the-board tariffs even against allies, including Canada, Mexico, and the European Union.
Although, to date, no tariffs have been officially imposed by President Trump, this alert explores the methods used during the first Trump administration to impose tariffs, the methods that the second Trump administration has threatened to use, and insights regarding such methods.
A Look Back on the First Trump Administration
During his first administration, President Trump used a number of statutory authorities to impose tariffs on solar panels, washing machines, steel, and aluminum, as well as sweeping, significant tariffs on most Chinese-origin products.
In particular, President Trump used Section 301 of the Trade Act of 1974 (“Section 301”) to impose sweeping sanctions on most Chinese-origin products. Broadly speaking, Section 301 allows the United States to impose trade sanctions (including tariffs) on foreign countries that either violate U.S. trade agreements or engage in acts that are unfair, unjustifiable, or unreasonable and harm U.S. commerce. In March 2018, the Office of the U.S. Trade Representative (“USTR”) and Executive Office of the President released a report detailing the results of a Section 301 investigation into China’s trade practices. USTR found that four “acts, policies, and practices” of the Chinese government were actionable under Section 301: (1) forced technology transfer requirements for U.S. companies operating in China; (2) cyber theft of U.S. IP and trade secrets; (3) discriminatory, nonmarket licensing practices; and (4) state-funded strategic acquisition of U.S. assets. USTR recommended the implementation of tariffs on $50 billion worth of Chinese goods. Following the USTR’s report, President Trump ordered tariffs on $250 billion of Chinese goods across three tranches and subsequently imposed a fourth tranche of tariffs to cover an additional $300 billion of Chinese goods, citing China’s alleged “refusal” to change its trade practices. Under the Biden administration, USTR completed a mandatory four-year review of the tariffs and determined to extend the tariffs, increasing rates on certain key items, such as electric vehicles, semiconductors, batteries, and solar items, among others.
In addition, the first Trump administration imposed tariffs on steel and aluminum products using Section 232 of the Trade Expansion Act of 1962 (“Section 232”). The Biden administration largely continued the imposition of such tariffs, many of which remain in place today. Section 232 authorizes the imposition of tariffs after an investigation by the U.S. Department of Commerce (“DOC”) finds that imports “threaten to impair” U.S. national security. Prior to President Trump’s imposition of Section 232 tariffs on steel and aluminum products, the DOC carried out investigations and found that: (1) steel and aluminum were each essential to U.S. national security (for national defense and critical infrastructure); (2) domestic steel and aluminum production is essential to national security and was, at the time, declining or stagnant and insufficient to meet demand; (3) steel and aluminum imports were increasing; and (4) steel and aluminum imports harmed the U.S. steel and aluminum industries and threatened to impair the national security of the United States.[1] The Trump administration quickly reached deals with Australia for permanent exemptions from the steel and aluminum tariffs, South Korea for a permanent exemption from the steel tariffs only, and Mexico and Canada for permanent exemptions from the steel and aluminum tariffs approximately one year after those tariffs were initially imposed. Deals with Brazil and Argentina for exemptions from the steel and aluminum tariffs ultimately fell through in 2019. The Biden administration subsequently reached agreements with the EU, Japan, and the United Kingdom to settle challenges to steel and aluminum tariffs brought before the World Trade Organization (“WTO”).
Further, the Trump administration imposed tariffs on solar panels and washing machines using Section 201 of the Trade Act of 1974 (“Section 201”). Such tariffs followed investigations by the U.S. International Trade Commission (“ITC”) into allegations of serious injury to U.S. industries as a result of significant imports of solar panels and washing machines. Where the ITC finds that imports are seriously injuring, or threatening serious injury to, U.S. industries, the ITC may recommend import restrictions (such as tariffs) to protect U.S. domestic production. Unlike Section 301 investigations, the ITC does not need to find that another country is engaged in “unfair” trade practices to recommend import restrictions. The Biden administration extended the Section 201 solar panel tariffs for another four years in February 2022, but allowed the Section 201 tariffs on washing machines to expire in February 2023.
Trump 2.0: What’s Potentially Coming
Shortly after his inauguration, President Trump announced that the first wave of tariffs by his second administration would be imposed on February 1, 2025, with a 25% tariff on goods from Canada and Mexico. As of the date of this publication, however, the exact source of authority for, and the effective date of, the tariffs remain uncertain. Although historically, as noted above, the first Trump administration used statutory processes to impose tariffs (which first required investigations under Sections 201, 232, and 301), President Trump has since stated that the International Emergency Economic Powers Act, 50 U.S.C. 1701, et seq. (“IEEPA”) authorizes him to impose significantly broader tariffs.
IEEPA is the statutory authority that underlies most U.S. sanctions programs—it authorizes the President to take broad actions to regulate economic activity upon declaring a national emergency to deal with an unusual and extraordinary threat to the United States. President Trump has referenced the need to address the threat to the United States presented by illegal immigration into the United States through Canada and Mexico, as well as fentanyl trafficking from China, leading many to believe that the President is poised to impose tariffs pursuant to IEEPA pursuant to already-declared, or to-be declared national emergencies relating to these issues. Although IEEPA previously has not been used by any U.S. president to impose tariffs on foreign countries, IEEPA would, in theory, allow for more immediate imposition of tariffs than Sections 201, 232, and 301, which, as noted above, require formal investigations and findings.
On January 26, President Trump threatened 25% tariffs on Colombian-origin products in response to a diplomatic dispute with Colombia. Although the legal basis for these tariffs was never provided (as the Trump administration has since backed down from the threat after the dispute was resolved), the immediate imposition of retaliatory tariffs over disputes with foreign parties would likely be based on the President’s assertion of such powers under the IEEPA. It is presently unclear whether retaliatory tariffs of this nature will ever be implemented, but the Trump administration’s success in extracting concessions from Colombia suggests the threats may continue. We expect that such tariff threats could similarly be used as bargaining tools for negotiating deals or extracting concessions from trading partners.
As of the date of this publication, the administration has threatened 60% (or possibly greater) tariffs on all Chinese-origin goods, but it is unclear how these tariffs would be implemented and the administration has yet to formally announce its intent to introduce the tariffs, as it has with Canada and Mexico. There is some discussion that the administration may target specific products, potentially starting with lower tariffs and expanding the tariffs depending on the response from China. Likewise, the Trump Administration could, as it has done in the past, modify the Section 301 action already in effect to include additional products or to increase tariff rates. Such modifications likely also could be implemented quickly given that the Section 301 investigation was already completed.
The Trump administration also released a January 20 memorandum, “America First Trade Policy,” directing the U.S. Departments of the Treasury, Defense, Commerce, and Homeland Security, as well as the Office and Management and Budget, USTR, and Presidential advisors, to commence an expansive review of U.S. trade with foreign countries, including initiating investigations under Sections 201, 232, and 301, as well as other provisions of the Tariff Act of 1930. For example, the memorandum declared plans to pursue antidumping and countervailing duties (AD/CVD) under Title VII of the Tariff Act of 1930, which could be imposed after investigations and reviews by the ITC and DOC (although this can be a lengthy process).
In addition to these authorities, the Trump administration potentially could use Section 122 of the Trade Act of 1974 (“Section 122”) or Section 338 of the Tariff Act of 1930 (“Section 338”) to impose more immediate tariffs. Section 122 expressly ties the imposition of temporary (150 days) tariffs to trade deficits, with the possibility of extension by Congress. Section 338 allows the President to impose tariffs on foreign countries upon a finding that those foreign countries impose unfair burdens on U.S. products or otherwise harm U.S. commerce.
Apart from the above-described potentially country- or product-specific tariffs, President Trump has publicly cited support for the imposition of sweeping general tariffs—a standard increased tariff rate for all imports into the United States regardless of the country of origin of the imported goods. Tariffs of this nature potentially could be more difficult for the President to successfully implement in the short term and likely would be subject to challenge at the WTO.
Mitigating Impacts of Tariffs
At this time, importers are limited in the steps they can take to mitigate the imposition of new or additional tariffs, particularly given that it is not yet clear when and what types of tariffs might be imposed. Once introduced, one method of minimizing the impact of such tariffs could be to change supply chains/sourcing patterns or relocating manufacturing operations. Of course, any such measures, particularly relocating manufacturing operations, often requires substantial capital expenditures.
In addition to those potentially more significant changes, there historically have been exclusion processes available for Section 201, Section 232, and Section 301 tariffs for importers to request that certain products be excluded from the imposition of additional tariffs. Importers should be aware of exclusion processes to determine whether they may qualify. In many cases, these exclusions were tied to the type of item, the tariff classification of a product under the Harmonized Tariff Schedule of the United States, and other factual information regarding the product, as well as the availability of the items from U.S. suppliers. With that in mind, depending on the scope of products on which any new or additional tariffs are imposed, importers should consider conducting a review of the tariff classification and country of origin of imported goods. For example, it is possible that a product is being imported using an incorrect tariff classification that is subject to tariffs, but the correct tariff classification may not be subject to such tariffs. In addition, to the extent new or additional tariffs are imposed on a country-specific basis, importers should consider taking steps to ensure that the country of origin of imported products is correct. Indeed, given that the “substantial transformation” test generally used to determine the country of origin of a particular product is a complex test, importers may have arguments that would allow them to take the position that a different country (i.e., a country that is not subject to new or additional tariffs) is the correct country of origin for a particular imported product.
Cleary’s international trade team is continuing to track developments on the Trump administration’s tariff policy, and is available to provide guidance on navigating the impact of any tariff-related actions taken by the second Trump administration.
[1] Public versions of DOC’s Section 232 reports on steel and aluminum are available on DOC’s website here (steel) and here (aluminum).