Trump’s tariffs and international trade law

Ms. Nadakavukaren Schefer, can a US President impose tariffs on his own authority? Or does he need congressional approval?

Tariffs are one of the instruments that give a US President a lot of freedom to decide. According to the Constitution, Congress is responsible for taxation and financial matters but it has delegated some of its powers to the executive. Under the Trade Act of 1974, the President has been given broad competences over tariffs. This was in part to help liberalize international trade more quickly – allowing for the President to lower or eliminate tariffs without Congress’ approval.

What we are seeing now is the exact opposite of liberalization.

The Trade Act also allows the President to impose or raise tariffs on unfair trade practices – for example, if a foreign producer dumps prices and sells its products below value, or in the case of unlawful subsidies. Normally, these tariffs have to be raised under a regulated administrative procedure and allow for a minimum period of time for the public to raise concerns.

Nevertheless, Trump’s tariffs could now be implemented very quickly.

Right. That is possible under another law, the International Emergency Economic Powers Act from 1977. This empowers the President to take immediate action against countries he considers to be a threat to national security or the economy.

Trump imposed high taxes on imports from Canada, Mexico and China. Is that compatible with international trade law?

Basically no. There are different levels of international law regulation of tariffs. At the multilateral level, the World Trade Organization (WTO) binds the United States to its obligations under the General Agreement on Tariffs and Trade (GATT). Tariffs are permitted, but only up to a certain level that the US promised earlier, and the import tariffs that Trump has just introduced clearly go beyond those levels. There are also preferential agreements, which legally limit the United State to zero or low tariffs in trade with certain partners. Free trade agreements such as the United States-Mexico-Canada Agreement (USMCA) do not allow tariffs to be raised at all – in the case of these countries, the US tariffs of 25% that were threatened would directly contravene international law if imposed.

And yet the President can still impose tariffs?

All these trade agreements contain exemption clauses that can be invoked for a number of reasons, including national security. Trump is now claiming that America’s national security is under threat, and if that is the case, these tariffs are justified.

How reasonable is this recourse to national security interests?

It isn’t credible, but that won’t really prevent these measures. For example, the first Trump administration imposed tariffs on steel and aluminum on the grounds that imports endangered the security of the United States. Switzerland took legal action against it, and the WTO ruled in its favor. The report was appealed by the US, but the appeal is still pending because the Appellate Body – which would need to review the case – no longer exists because the US has been blocking the appointment of its members since 2016. So there is no final and binding decision holding the US in violation of its international obligations.

The US has free trade agreements with Canada and Mexico. Do these countries have no means of defending themselves?

They have already announced they will impose retaliatory tariffs. They could try to arbitrating at the USMCA instead of the WTO, but even this route is unlikely to succeed, because the Trump administration will probably ignore those decisions, too. So the whole legal system falls apart.

Are there no tools under international trade law for resisting the imposition of tariffs?

From a legal point of view, it is almost impossible to prevent the imposition of tariffs. In principle, you can challenge the tariffs – China says it is going to do so at the WTO – but this is unlikely to lead to the removal of the tariffs in the WTO, due to the absence of the Appellate Body.

Who is entitled to take legal action against tariffs? Just countries, or companies as well?

At the national level, companies can sue a government under national law, but at the multilateral level, only countries can do so. However, in both the EU and the US, there are procedures that allow companies to lodge a complaint with their government so that it can pursue that complaint at the multilateral level. Ultimately, however, it is up to the government whether it does so; whether or not to take legal action against another state is a political decision.

Does the WTO still have a future, or are we heading towards its end?

The United States has been blocking the appointment of new Appellate Body judges since the Obama administration for reasons that I personally believe to be partly justified – specifically, the fact that the Appellate Body ignored its own procedural rules with no consequences. Theoretically, the system could be changed to suit the US, which would then waive its veto. But I can’t see that happening under Trump, because they have no interest in making the WTO work. And you only fix something if you want it to work. This does not mean that the WTO has no future, but it may not be one that is based on protecting liberal trade through international law.

How likely is it that the US will leave the WTO?

I think it’s conceivable, but not necessarily very likely. That’s because the WTO is currently toothless with regard to the US. Leaving wouldn’t achieve much under these circumstances. The consequence of this situation is that, in practical terms, free trade agreements become the powerhouses of trade to an even greater degree. Although WTO rules remain the basis for bilateral and regional agreements, I, for example, will be changing my own lecture to take a closer look at FTAs. An increasingly complex landscape of laws is emerging.

And what are the consequences?

It becomes more interesting for students because the application of the basic principles becomes more varied. But for the practitioners, for the companies, it’s getting more complicated, because now they don’t have just one set of rules to look at, but 20 or 30 different ones, and they’re all slightly different. The lawyers and economic specialists in companies that have to manage supply chains are having a really hard time right now. It’s difficult enough for large companies, but for smaller companies and entrepreneurs in low-income countries, it is almost impossible to determine the optimal trading conditions.

What were the developments that led to this situation?

The growth of preferential trading areas is, in my view, a natural development of a system with 166 very different members who basically take decisions on the basis of consensus. Recently, the WTO has been blocked repeatedly by one or more members (and by no means always the US). This is why there is a great deal of willingness to agree on trade rules in smaller groups. Bilateral and regional agreements are a more effective, faster way of taking the individual preferences of members into account.

But the tariffs on Canada and Mexico are now directed precisely against members of this kind of small group.

The situation with Trump’s tariffs is difficult to explain. They violate both WTO rules and the rules of the USMCA – an agreement negotiated by the first Trump administration itself. The tariffs imposed on Canada and Mexico can only be destructive in this respect. I can’t explain it, except to say that the willingness to punish friends financially is to be found in the personality of the President himself. It seems that he simply wants to show that he can and will act without limits – and in particular without respect for international law.