Tariff Tracker, May 31: Court restores status quo, only for Trump to stir the pot again

Appeals court stays order invalidating IEEPA-based tariffs

On Wednesday, a three-judge panel of the US Court of International Trade ruled that Trump had exceeded his presidential authority in using the International Emergency Economic Powers Act, 1977 (IEEPA) to tariff nations.

As explained in the May 29 Tariff Tracker, the judges ruled as illegal Trump’s use of emergency powers to impose tariffs on virtually every country. The law, used by presidents of yore to impose emergencies, has been used thus far in a sanctionary capacity, bypassing Congressional approval.

In question were two sets of tariffs:

• The punitive fentanyl tariffs at 25% on Mexico and Canada, and 20% on China, meant to pressure the nations into imposing stricter curbs on purported fentanyl trafficking.
• The “Liberation Day” tariffs he announced on April 2, which include a 10% baseline tariff on all US trading partners, and country-specific “reciprocal” tariffs on countries with which the US had its largest trade deficits.

This order was stayed by the US Court of Appeals for the Federal Circuit on Thursday (May 29), allowing the status quo to persist. This means the Trump administration would not need to immediately wind up both sets of tariffs listed above. However, this matter will likely be heard in the Supreme Court, where a final word is awaited.

The Wednesday ruling brought to the fore Trump’s continuing tussle with the judiciary, including with judges he appointed.

Also of note, this ruling does not affect other sector-specific Trump tariffs, including:

• Tariffs on steel, aluminium and automobiles under Section 232 of the 1962 Trade Expansion Act, which depend on a 2019 Commerce Department investigation ruling these imports a ‘national security’ risk.
• Tariffs on solar energy under Section 201 of the 1974 Trade Act, dating back to Trump’s first term (2017-21). These are safeguard tariffs meant to protect domestic industries from foreign competition.
• The Section 301 tariffs on imports from China, punishing unfair trade practices.
• Potential tariffs on pharma products and semiconductor chips under Section 232, pending an investigation into these industries.

Rekindling the trade war with China

On Friday (May 30), Trump accused China of reneging on the agreement it made with the US earlier this month. In a post on TruthSocial, he wrote, “China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!”

While he did not specify what the purported violations were, US Trade Representative Jamieson Greer told CNBC later that day that China had been slow to remove its non-tariff barriers or “countermeasures” in response to Trump’s tariff announcements. The countermeasures included restricting exports of rare earth minerals, which are vital inputs in several tech products and defence items, as well as the blacklisting of American companies.

“We haven’t seen the flow of some of those critical minerals as they were supposed to be doing,” Greer said.

Meanwhile, the US suspended some sales of critical technology to China, taking both nations a step closer to ‘supply chain warfare’, The New York Times reported Wednesday. A Bloomberg report on Friday claimed that the Trump administration will double down on this, with officials framing a rule to impose US licensing requirements on deals with subsidiaries of companies already sanctioned by the government.

By choking off access to vital inputs needed by companies in both countries, the move could revive the trade war and send markets spiralling downward once again.

The US and China had agreed to reduce tariffs on each other by 115%, effective May 14, for 90 days. This reduced effective US tariffs on China from 145% to 30%, and Chinese tariffs on the US from 125% to 10%.

Doubling the steel, aluminium tariffs

On Friday, Trump announced that he would double the Section 232 tariffs on steel and aluminium from 25% to 50%, effective from June 4.

“We’re going to bring it from 25 per cent to 50 per cent, the tariffs on steel into the United States of America, which will even further secure the steel industry,” he said at a Pennsylvania rally. “Nobody is going to get around that … At 25 per cent, they can sort of get over that fence. At 50 per cent, they can no longer get over the fence,” he added, referring to the tariffs as a fence to boost domestic metals production.

This development comes a week after Trump endorsed a contentious $15 billion partnership between Japanese company Nippon Steel and US Steel. He had earlier opposed the same while campaigning for President. Former President Joe Biden had earlier blocked the potential acquisition of the beleaguered American steel company by Nippon, citing a national security risk.

Trump described the deal between the two countries as a “blockbuster agreement” with a “great partner” that he said would “ensure this storied American company stays an American company”.