After a legal setback, the Trump administration is increasing the legal grounds for maintaining or increasing customs duties, targeting forced labor and overcapacity.
On February 20, the Supreme Court ruled that the reciprocal rights are unconstitutional, imposed without the agreement of Congress. This major setback for the Trump administration forced the White House to review its trade strategy. Initially, the administration used Section 122 of the Trade Act of 1974 to raise the tariff to 15%, but Donald Trump decided to 10%. This measure was based on the pretext of a balance of payments problem and was only temporary: the solution was limited to one hundred and fifty days. If nothing is done before this Friday, July 24, the 10% duties fall de facto.
Passage to section 301: forced labor and overcapacity in the sights
To get around the time limit, the Trump administration launched a new investigation under section 301 of the 1974 law. This procedure targets sixty countries, accused of not fighting sufficiently against the trade in goods manufactured with forced labor. Washington goes so far as to argue that the European law which strengthens the ban on forced labor is not sufficient. The ax fell this Friday, July 24: around sixty economies, including European Union countries, China and the United Kingdom, are targeted by customs duties of 10% or 12.5%.
At the same time, a second investigation under Section 301 targets sixteen trading partners, including China, Korea, Japan, the European Union, Switzerland, Mexico and India, accused of production overcapacity.
This week, the Trump administration used the never before used Section 338 of the Smoot-Hawley Tariff Act of 1930 to threaten Canada with 50% tariffs on certain products, including automobiles, dairy products and alcohol, in the name of practices deemed discriminatory. This offensive comes even though Canada is protected by the North American agreement, Aceum, which Donald Trump wishes to renegotiate to make it more favorable to American interests.
Economically, customs duties have generated several tenths of a point of inflation. The American trade deficit for the month of May reached 70 billion dollars, compared to a deficit excluding tech of 10 billion, which has reduced significantly. Sectoral duties on steel, aluminum and copper penalize American manufacturers.
On a legal level, the multiplication of legal bases gives rise to numerous criticisms. “The legal argument will not withstand appeals, but it will take a lot of time,” analyzes Eric Dor, director of economic studies at the IESEG School of Management. Other specialists believe that “there is no longer really a legal basis”, underlining the fragility of the administration’s strategy, which seeks to avoid passage through Congress, the only competent authority to decide on customs duties.
For some observers, this policy is part of a logic of constant pressure on the allies of the United States. “This is part of Trump’s strategy, to always pose a threat to his allies, for example to get Europe to buy more and more LNG,” comments Bastien Drut, head of strategy and analysis at CPR Asset Management.
