Leibowitz: In Trump's brave new world of tariffs, what will stick and what will courts challenge?

On Feb. 10, the president announced that, effective March 12, 2025, the United States would impose 25% tariffs on steel and aluminum from all countries. That includes Canada, Mexico, Brazil, Japan, the European Union, Argentina, and Australia. All those countries had been excused from tariffs at various points during the first Trump and Biden administrations.

Perhaps topping that major change, the president also declared that the product exclusion program for steel and aluminum not “reasonably available” from domestic producers would be cancelled. For steel and aluminum, therefore, there would no longer be any exceptions or exemptions.

Then, last Thursday, the president instructed the Commerce Department, headed by newly confirmed Secretary Howard Lutnick, to conduct an analysis of “reciprocal” tariffs. The could lead to the US imposing tariffs on each country equal (or at least equivalent) to the tariffs each country imposes on imports from the United States.

The study will also include import levies based on taxes other than tariffs. That singles out value added taxes (or VATs) on imports from the United States. Because many countries impose VATs in excess of 20% on imports, the possibility of tariffs on imports from the European Union of 40% or more are possible. The analysis is supposed to be finished by May.

What are the goals of the president’s announcements?

There are a few that Trump has mentioned:

• (1) Balancing trade in the face of massive and chronic US trade deficits over the last 50 years
• (2) Bringing manufacturing back to the US
• (3) Countering China’s trade expansion, which has increased dramatically in the last two years
• (4) Raising revenue for the federal government

The likelihood that tariffs alone will substantially reduce the US trade deficit is very small. The US trade deficit began with the Arab oil embargo in 1973, in the wake of the Yom Kippur War. Skyrocketing oil prices and the inability of the US to rapidly curtail US imports of oil ignited the trade deficit. Chronic deficit spending by the federal government aggravated it.

Tariffs and trade deficits

In the end, the trade deficit is caused by a gap between how much Americans save (very little) and how much foreigners invest in the United States. Tariffs, whether low or high, have little to do with the trade deficit. If we want to reduce it, Americans will have to save more (reducing the necessity for foreign investment in the US) or invest less (slowing economic activity and growth).

In 2018, the imposition of steel and aluminum tariffs raised revenue by a small amount. But the trade deficit continued to increase thereafter because of the continued chasm between national savings and national investment. Retaliatory tariffs reduced US exports to a small degree. But the growth of the US economy, especially after 2020 –  which was the envy of the world – was a much greater factor. Increased imports, whether tariffed or not, were fueled by the US recovery. That is likely to continue.

With a chronic trade deficit, the administration will continue to cite more tariffs as necessary. This is in error, as noted above. Yet the base of President Trump’s support does not see it that way. More tariffs are possible. But the only way to reduce the US trade deficit substantially is to close the gap between savings and investment in the United States.

Section 232 grants the president kinglike powers

Whether more tariffs will come, and when, is largely based on the law. The expanded steel and aluminum tariffs announced last week were based on the 2017-18 investigations of the impact of steel and aluminum imports on national security. Because President Trump acted on those investigations and imposed Section 232 remedies (which were modified by both President Trump and his successor), he is entitled to modify them again and again, according to several court decisions.

Full disclosure: I participated in some of the cases that led to the unfortunate expansion of presidential authority to endlessly modify Section 232 remedies. In essence, the president has the power, based on these decisions, to modify trade restrictions on steel and aluminum products basically without limit. This could include expansion of the list of “derivative” steel and aluminum products, as presaged in the president’s Feb. 10 executive order.

What about Section 301 and IEEPA?

Tariffs on other imports are based on more dubious legal authority. Section 301 authority to respond to violations of trade agreements and foreign “burdens” on US trade could be imposed (as they were on China). But these proceedings take time.

Only IEEPA (the International Emergency Economic Powers Act) provides the president with authority to increase tariffs immediately. But that requires the declaration of a national emergency. Any event short of war would provide a flimsy pretext for declaring an emergency that requires tariffs on everything. It is possible that the president would try. But the courts could well reject the effort. We’ll see.

The curious case of reciprocal tariffs

The reciprocal tariff strategy mentioned earlier provides one way to hit trading partners without requiring an investigation. The inclusion of VATs in the inquiry announced last Thursday is intriguing.

The United States is the only major nation in the world that does not impose VATs. When a country imposes them, it generally refunds taxes on exports. The EU, as is the case with most countries, refunds VATs to European exporters. The importing country, if it is not the US, taxes those products by applying its own VATs to imported products – equalizing the tax burden between imports and domestically produced goods. The US does not have a VAT, so it does not impose VATs on imports, nor does it rebate taxes on exports.

President Trump does not like this result. He has ordered an investigation to see whether VATs impose a burden on US commerce. The answer is probably “no.” But there is no guarantee that the Commerce-led investigation will reach that conclusion.

The World Trade Organization (WTO), if it still functioned, would probably rule against the United States on the VAT issue. But the WTO does not function effectively anymore. If the US includes VATs in its calculation of “reciprocity,” tariffs on most imports will increase dramatically – and, as I see it, to the detriment of the US economy.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.