A new across-the-board 10% tariff on imported goods took effect Tuesday, part of an effort by President Trump to replace a sweeping set of tariffs on trading partners around the world that were invalidated by the Supreme Court last week.
Soon after the high court ruled against one of the cornerstones of his economic policy, Trump vowed to apply a 10% tariff on all imports and then raised the promised tariff level to 15%. However, the tariff took effect at 12:01 a.m. EST today at the 10% level. White House officials said the administration is working on a formal declaration that would raise the tariff to 15%, but the timeline for doing so is still up in the air.
Trump’s new tariff is being imposed under a different legal authority than the tariffs rejected by the Supreme Court last week. Section 122 of the Trade Act of 1974 authorizes the president to impose temporary tariffs as high as 15% for a maximum period of 150 days for the purpose of addressing balance-of-payments issues. In a proclamation released last Friday, Trump said that he has determined that the U.S. is facing just such a problem, warranting the imposition of the 10% tariff, though with a list of exemptions including energy products, passenger vehicles, certain agricultural goods and products from Mexico and Canada covered by separate trade agreements.
Overall tariff level drops: The end of Trump’s earlier tariff scheme and its replacement by a 10% general levy is lowering the average tariff rate. Analysts at Bloomberg calculate that the average tariff rate has now fallen to 10.2%, down from 13.6% previously. If the general tariff is raised to 15%, the average tariff rate will rise to about 12% (see the Bloomberg chart below).
The lower tariff rate will be good news for several major trading partners, which will see their products become more competitive in the U.S. market. “In either scenario, several economies — including Brazil, China and others in Asia — now find themselves in much better positions,” economist Stephen Brown of Capital Economics told The New York Times.
Still, a lower average rate does little to reduce uncertainty among trading partners. Trump threatened countries not to “play games” by reneging on recent trade deals, but that didn’t stop China, which is scheduled to meet with Trump next month, from urging the U.S. on Tuesday to abandon the “unilateral tariffs” it has relied on since Trump began his second term in office.
Carsten Brzeski, an analyst with investment bank ING, said the rapid-fire changes in tariffs are destabilizing. “I think it simply adds to the chaos and mess,” Brzeski told the BBC. “In terms of uncertainty we're back to where we were last year. The risk of a real fully-fledged tariff war – trade war – escalation is clearly higher than last year.”
More trouble ahead? Trump’s new strategy for his tariff war raises a new set of questions about the legality of his approach. Some critics say the 1974 law Trump is relying on was written during a tumultuous time for exchange rates and the international economy but is no longer relevant. The Trump administration argued in court last year that Section 122 had little relevance to its current situation.
Scott Lincicome of the conservative-leaning Cato Institute told The New York Times that Trump “was a little out over his skis when he said that was a legally tested provision.” He said he expects to see lawsuits over the issue.
The results of such a suit are hard to predict, with some experts saying Trump is acting within his rights. That said, no president has ever invoked Section 122 before, and no court has ruled on its use, suggesting that the fate of Trump’s trade strategy could once again be determined by the courts.
