Tariff Starts and Stops
After announcing a series of new tariffs, primarily aimed at Canada and Mexico, in the first quarter of the year, and subsequently pausing most of them, the Trump administration entered the second quarter announcing new tariffs on most U.S. trading partners (the most significant of these being targeted at China). These were soon paused for 90 days until July 9, on the promise of forthcoming bilateral trade agreements – an effort the White House branded as “90 deals in 90 days”.
On July 7, the Trump administration signed an executive order further extending the pause until Aug. 1. At this point, only agreements with the U.K., China, and Vietnam are in place. While the President again paused steep new tariff rates from taking effect, he was announcing new ones, including a 25% tariff on Japanese and South Korean imports, and a 50% tariff on copper.
Meanwhile, significant levies are still in effect on steel, aluminum, and auto parts and assembled vehicles not in compliance with the USMCA. Steel and aluminum imports are being taxed at 50%, while non-USMCA-compliant auto parts and imported cars are being taxed at 25%.
The impact? Economists warn that higher tariffs could hinder economic growth by reducing demand for goods in the domestic market and for U.S. exports globally. Ongoing uncertainty is also taking a toll, as businesses postpone investment and hiring decisions while awaiting clarity on their access to the world’s largest market.
US-China Truce Fragile, but Still Holding
Following a series of trade talks in London in mid-June between the United States and China, a fragile trade truce remains in effect between the world’s two largest economies. Under the current agreement, Chinese imports to the American market are taxed at 55%, while U.S. imports to China are charged 10%. Also, of great significance to American auto companies, the deal lifted Chinese export restrictions on rare earth minerals and allows Chinese students access to U.S. universities.
Tariffs in the Courts
In late May, the federal judiciary entered the tariffs tumult, when the U.S. Court of International Trade ruled the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs was unlawful. The Administration promptly appealed the decision to the U.S. Court of Appeals for the Federal Circuit, which issued an immediate stay while the appeals process takes place, meaning tariffs imposed under IEEPA remain in effect.
The various lawsuits – there are 10 in all – seeking to halt the tariffs center on the President’s authority to impose tariffs under IEEPA, which has never before been used to do so. Indeed, the decision by the Court of International Trade ruled that IEEPA did not provide the President the authority to issue “unlimited tariffs,” and that concurring with the government’s interpretation of IEEPA would amount to an unconstitutional abrogation of legislative powers.
While this case and others challenging the President’s tariffing authority under IEEPA (or others to come challenging steel and aluminum tariffs) seem to be on solid legal footing, it is important to note, as the Court of International Trade did in its ruling, there remain a variety of other legal auspices the President could use to impose tariffs. In other words, even if these cases make it to the Supreme Court and the plaintiffs prevail, it would likely only temporarily slow the President’s tariff agenda.
A Cloudy Industry Forecast
Roughly six and a half months in, the America First Trade Policy continues to cast tremendous uncertainty upon global trade and supply chains. Developments in the economy have been decidedly mixed – healthy jobs reports, an up-and-down stock market, weakening consumer confidence, steady new vehicle sales – but some worrying signs are emerging in macroeconomic data that seem to signal how the highest rate of tariffs since the 1930s may be weighing down the automotive industry. Among these include the loss of 7,000 manufacturing jobs in June and manufacturing payrolls falling by 8,000 in May. Both of these changes seem consistent with an environment where companies remain in a holding pattern, wary of shifting policy deadlines and skeptical of political posturing that has yet to yield clarity or relief, leading to a wait-and-see approach that pauses new investments and hirings.
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