Experts: If IEEPA Tariffs Struck Down, Tariffs Still Will Rise
Two former general counsels from the Office of the U.S. Trade Representative disagreed sharply about the need for the current aggressive tariff hikes. But Jennifer Hillman, who is helping to write amicus briefs for members of Congress challenging the legality of International Emergency Economic Powers Act tariffs, and Steven Vaughn, who served in the first Trump administration, agree what would happen if the current administration loses the case.
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There will be more high tariffs.
Both Hillman and Vaughn were panelists at the June 27 International Tax Policy Forum event at Georgetown Law School.
Hillman, who was also an International Trade Commissioner and World Trade Organization appellate body member before joining the Georgetown Law faculty, told the audience of lawyers: "In my personal view, [the IEEPA tariffs] are totally unlawful and unconstitutional. Two courts have already ruled to that effect."
She said she believes they are unlawful because the IEEPA statute doesn't use the word "duty" or "tariff" at all, and that regulating imports and exports is not the same as imposing tariffs. She noted that export tariffs are expressly prohibited in the Constitution, and said that IEEPA was designed for economic sanctions.
Even if the statute were to cover tariffs, she agrees with the Court of International Trade opinion that a trade deficit -- which the U.S. has had for 50 years -- is not an unusual and extraordinary threat.
She asked: "How can it be unusual and extraordinary if it’s happened every single year?"
The entire panel of judges at the appellate circuit court hearing the CIT case will hold oral argument on July 31. Hillman said she bets that before the end of August, they will issue a ruling, and said she thinks there's "a better than even chance" that the appellate court will rule on the side of importers.
Former Commerce Undersecretary for International Trade Grant Aldonas, on another panel at the event, made a different prediction. "I think the CIT got it right on the substance," he said, adding, "You can always count on CAFC [the U.S. Court of Appeals for the Federal Circuit] and the Supreme Court to screw things up when it gets to their level. I wouldn’t be surprised if this was overturned."
If the Supreme Court strikes down IEEPA, Hillman said she expects the first thing that will happen will be that List 4b from the China Section 301 action --- which covers about $125 billion in goods -- will be hit with tariffs.
There also are Section 301 tariff actions against Austria, India, Italy, Spain, Turkey and the U.K. that could be imposed, though presumably, the U.K. deal might preclude action against those products.
Vaughn said the administration has been happy with the revenue coming in from the 10% tariffs on most trading partners and higher tariffs on China and some Mexican and Canadian goods, particularly given that inflation has been muted, unemployment has not risen, and the stock market is rising.
"They feel like the markets are willing to live with these tariffs," he said. If the Supreme Court rules against IEEPA, "I don’t think you’re going to see the President say: 'Well, no, I tried,' and then just walk away" from a broad tariff approach. "They have a lot of other statutory authorities."
Vaughn said that without tariffs, it was not possible to get other countries to engage on issues that are trade irritants for the U.S.
"As long as they have their current access to the U.S. market, they're very, very happy with the status quo, and so they're not going to change."
Experts at the event also talked about the business fallout from an average effective tariff rate for imports being 15.7% -- up from 2.4% in February.
Peterson Institute for International Economics senior fellow Mary Lovely, a trade economist, said data on the price of goods entering the country and on retail receipts suggests that while, for most goods, importers are paying 100% of the tariffs, the consumer is paying 40% to 60% of the cost.
She said, "What we hear from companies is, the faster these tariffs go in place, the more it comes out of profits."
Hillman said small businesses are having to forfeit some shipments from China, because they don't have the cash on hand to pay higher tariffs, and a bank won't lend it to them.
"We do not believe you have any ability to cover these 40% to 60%" tariffs, she described the banks saying. Although the most recent round of tariffs on China is 30%, the average tariff on Chinese goods is over 50%, Hillman and Lovely said, given the earlier round of Section 301 tariffs, most favored nation (MFN) rates, and goods subject to Section 232 tariffs, such as 25% on auto parts or 50% on the value of metal in steel derivatives.
Hillman said smaller importers that are seeking larger surety bonds -- or are hoping to secure a first surety bond, since they can no longer import through the de minimis channel -- are being turned down.
"No sureties are issuing new bonds," she said. "They are completely tapped out."
If the president imposes many different rates under the reciprocal tariffs action, compliance burdens will become much higher, Hillman said. She said that importers who were not using trade deals or importing goods that were subject to China Section 301 didn't used to pay too much attention to origin, because MFN duties were the same whether the last substantial transformation happened in Malaysia or in Thailand.