This is a brief summary of a client-issued memorandum. Should you be interested in more detailed information, please contact Jessica Rifkin or Denise Calle.
What Does a Second Trump Administration Mean for Tariffs?
The short answer is that while it is very difficult to predict what will actually occur, those with international supply chains should prepare for the potential of significant and wide-ranging tariff increases, as well as general uncertainty and market disruptions. It is clear that Mr. Trump intends to use tariffs and non-tariff barriers to address what he believes to be unfair trade practices engaged in by a number of countries, with (as in the first Trump administration) a special focus on China. Unlike the first Trump administration, however, where (with the exception of steel and aluminum) the most significant tariff actions were largely confined to Chinese-origin products, new tariff actions in the second Trump administration may very well be imposed more widely (perhaps even universally), and may even extend to Mexico and/or Canada notwithstanding the existence of the USMCA.
What’s Past is Prologue?
During his previous term as president, Trump employed rarely used laws to impose tariffs on steel and a broad range of Chinese goods (e.g., sections 201 and 301 of the Trade Act of 1974, and section 232 of the Trade Expansion Act of 1962).
Similarly, Trump became one of the few presidents to use the International Emergency Economic Powers Act (IEEPA) to attempt to impose tariffs in 2019, when he threatened a gradually increasing tariff, starting at 5 percent, on Mexican goods unless the country stemmed illegal migration into the United States. Unlike other US trade laws, IEEPA does not require the executive branch to conduct an investigation or issue a report prior to taking action.
What Trump Has Said He’ll Do if Elected to a Second Term
Trump has indicated that he is considering taking a number of possible actions, including imposing a new 10-20% universal tariff on all imports (regardless of origin) and a 60% tariff on all imports from China; imposing substantial tariffs on industries greatly relying on Chinese inputs in assembly/manufacturing operations; and imposing general tariffs on Mexican goods to combat migration flows to the U.S.
Primary targets of Trump tariff actions could include goods perceived as critical to U.S. security interests, including a proposed “4-year plan to phase out all Chinese imports of essential goods” such as pharmaceuticals, electronics, and steel. However, all industry sectors are potentially on the table.
Whether the universal tariffs would apply to USMCA or Central America Free Trade Agreement member countries is unknown at this time. If Trump enacts tariffs on products of Mexico or Canada, it would violate the USMCA, which mandates that generally no tariffs are to be imposed on articles originating in Canada, Mexico, and the U.S.
Could These Tariffs be Blocked?
Attempts to block these and other tariff measures may be initiated by Congress and/or by court challenges; while it is difficult to predict the outcome of any such actions with any certainty, attempts to block or overturn the tariffs imposed in the first Trump administration have generally been unsuccessful.
Will Trump Go as Far as He’s Said?
While Trump’s proposals are draconian, ultimately, Trump is recognized as a “tariff-heavy” candidate and a negotiator, and some have characterized his comments as simply the start of negotiations (but with the caveat that tariff hikes can be imposed very quickly, perhaps as soon as March 2025). Moreover, Trump may provide carve-outs for firms from tariff hikes; the likelihood of such carve-outs would increase for those firms with significant manufacturing in the U.S. (similar to Section 301 tariffs being waived for Apple in exchange for Apple opening operations in Texas).
What Will the Trade Do?
In the immediate term, there is an expectation by some commentators that importers will start stockpiling imported merchandise to cushion the effects of any potential Trump tariffs; such stockpiling may lead to spikes in shipping rates and difficulty in obtaining cargo space through the end of this year, especially since the holiday season is by far the busiest time of year for U.S.-bound freight.
In the longer term, there has been substantial speculation as to whether and to what extent the prospect (or reality) of substantial new Trump tariffs on Chinese-origin goods will cause increased movement of supply chains out of China; while at least one major manufacturer has already announced that Trump’s election has accelerated its plans to relocate the majority of its supply chain, others have said that the costs of relocation and the difficulty in finding skilled workers and knowledgeable suppliers in other countries outweigh the cost of any additional tariffs.
Conclusion and Recommendations
Those involved in international supply chains should brace again for a protectionist approach to trade, meaning a high likelihood of costly tariff increases and stricter trade regulations, particularly in dealings with China – even for raw materials. To prepare for the likelihood that tariffs will be imposed, we have various recommendations available to clients of the firm. Please contact Jessica Rifkin or Denise Calle for more information.
