Newest Tariff Announcements Scramble the Board for US Trade Partners

As August kicked off, so did the latest round of the administration's use of tariff announcements.  Having secured the announcement of an EU deal (the EU is the largest trading partner of the US) days earlier, the White House has unveiled its newest proposed global tariffs and says they will take effect in early August.  The tariffs are not at the same rates as were announced in April, in many cases.  The Executive Order setting out the new tariffs cites several factors to justify the revisions to the proposed tariff rates, including that “some trading partners have agreed to, or are on the verge of agreeing to, meaningful trade and security commitments with the United States[.]”  The latest announcements would institute import duties ranging from 10-41% on dozens of US trade partners.  The overall changes would take the effective US tariff rate to about 18%, up from 2.3% last year, according to Reuters.  

WHY IT MATTERS

The overall tariff schemes are justified by reference to a trade deficit emergency, a basis that has been challenged in court.  Hearings about the constitutional authority to use executive emergency powers to handle ongoing trade matters are expected to land in the Supreme Court eventually, but the tariff schemes have been allowed to proceed in the meantime.  Thus, the legal status of the tariffs is ambiguous at present, although that does not preclude their enforcement or negotiation about them for the moment.  

Meantime, the practical impact of the most recent announcement also remains unclear.  The markets dropped in response to the new tariffs, as they have done previously when new tariffs were unveiled.  Consumer price reports on goods such as furniture show prices edging upwards more steeply than in the past.  There is still uncertainty about enforcement mechanisms and other features of the new tariffs.  Finally, it has become clear in the last four months that the administration is using proposed tariff announcements as leverage to try to negotiate new trade deals with other countries.  Many countries held off on commitments following the April announcements, but news reports indicate that several major trade partners are in discussions with the US.  They may eventually decide that a negotiated outcome is better than continued uncertainty or volatility, but that is not yet a foregone conclusion.  Industry remains in a wait-and-see posture, where the best strategy seems to be looking for ways to hedge risk contractually and via other mechanisms such as tweaks to the supply chain.