RB: This is DC Dynamics, a podcast about what to expect in Washington, with a look to the past as our guide. I’m Ray Beeman and I’ve helped lead our terrific Washington Council EY group for the last 10 years, and in those 10 years there has been a major evolution in how lawmakers approach trade policy.
Trade has been back in the news in a big way this year after a relatively quiet time during the prior administration. President Trump has announced sector-specific tariffs, with more expected, as well as country-specific tariffs (sometimes referred to as “Liberation Day” tariffs or “reciprocal” tariffs), which have led to discussions and agreements with some countries; the national emergency under which the tariffs were imposed has been challenged in the courts; and the public process for the first six-year review of the United States-Mexico-Canada Agreement (USMCA) that is required under the terms of the deal has kicked off.
Joining me today is the newest member of the Washington Council Trade Team, Blake Harden, who was previously a trade counsel at the Ways and Means Committee and before that was an attorney at Customs and Border Protection. She is joined by Evan Giesemann, who worked for Democratic members of the Senate Finance and Ways and Means Committees and, prior to joining Washington Council, served as the staff director for the Senate Finance Trade Subcommittee. Thank you both for coming on today.
So, at a high level, Blake, this is a pretty dramatic difference between the recent presidential administrations on the trade issue, right?
BH: That’s right, Ray. So, Going back to what seems like ancient history of almost 10 years ago, President Obama’s administration pretty much stuck to the traditional presidential trade negotiating agenda of trying to move free trade agreements, successfully or not — and not in the case of the Trans-Pacific Partnership (TPP), which became a lightning rod in the 2016 election — ultimately leading to President Trump’s withdrawal of the US from the agreement when he took office in 2017. During President Trump’s first term, his administration levied new tariffs on steel and aluminum, as well as on products from China under authorities that had been little used in previous years, and then renegotiated the North American Free Trade Agreement (NAFTA), culminating in the U.S.-Mexico-Canada Agreement or USMCA. And I think it’s worth noting that the USMCA was approved by a bipartisan majority of Congress — something we had not seen in Congress in a long time, so those of us in the trade space thought perhaps we’d see the new playbook to achieve bipartisan support for trade deals. (Spoiler alert, that didn’t turn out to be the case!) While it didn’t seem like there was much trade activity during the Biden years, to the chagrin of, really, members on both sides of the aisle in Congress, I do think it’s important to note that the Biden administration kept in place tariffs imposed by the first Trump administration, and used — pretty aggressively — the new rapid response labor mechanism that was negotiated in the USMCA. But certainly, it wasn’t the headline-grabbing, flurry of activity we had seen during Trump 1.0.
And then the second Trump term has really focused on this idea of “reciprocity,” or matching US tariffs on foreign products with those imposed on US goods. It’s something the President and his advisors talked about a lot in the first term and that the President spoke about frequently on the campaign trail last year. And this second term is where we’re seeing attempts to operationalize it through trade policy. The administration really wants to encourage businesses to relocate manufacturing to the US, to grow domestic manufacturing jobs and to make sure US goods have a level playing field in foreign markets, and it’s using trade tools aggressively to do that. And the threat of higher tariffs has brought some nations to the negotiating table, consistent with the President’s dealmaking style.
RB: So, I guess you would call that the art of the deal, I suppose.
EG: I guess so. And I’d note there is also the use of the threat of tariffs to convince other nations to take action on issues that aren’t necessarily directly related to trade, issues like immigration and illicit drug flows. We saw this with the 25% tariffs on Canada, Mexico and China that were announced in February, as well as more recently the imposition of another 25% tariffs on products from India that are related to India’s purchase of Russian oil.
RB: Thanks, Evan. In April, President Trump announced what he called “Liberation Day” tariffs — a combination of a 10% universal tariff on imported products from all countries and an additional country-specific tariff rate on the countries with which the United States has large trade deficits. Those higher country-specific rates were suspended until August, when the US struck deals with some nations, but the legality of those tariffs is now being called into question.
BH: Yes. That’s right! So, the tariffs imposed on Canada, Mexico and China related to immigration and drug trafficking concerns, as well as the reciprocal tariffs, or country-specific tariffs, that were imposed under the International Emergency Economic Powers Act (IEEPA), which grants the president authority to impose economic sanctions and control foreign assets to address a declared national emergency. IEEPA has typically been used for sanctions and embargoes against other nations, rather than imposing tariffs. Several lower courts have ruled that the administration’s approach to tariffs is not authorized by IEEPA. The courts have allowed the tariffs to remain in place as the cases wind their way through. And on September 10, the Supreme Court agreed to hear two of the cases and set an expedited briefing and hearing schedule, with oral arguments scheduled for November 5.
RB: So, what happens if the Court actually rules against the President?
BH: Even if the Court rules that IEEPA does not give the President authority to impose broad tariffs, then the administration still could impose tariffs through other authorities. For example, section 122 of the 1974 Trade Act provides authority to impose tariffs to address balance of payments concerns, though such tariffs would be restricted to 15% and 150 days unless extended by Congress. The administration has also demonstrated a willingness to use other tariff authorities to impose tariffs, and it could turn to those as well.
RB: And so, what would happen to tariffs that have already been paid?
BH: It’s a great question and Treasury Secretary Scott Bessent has talked about this a little bit, estimating that the government would be required to refund about half the tariffs it has collected.
RB: So, Evan, let’s talk about the deals that were reached before the IEEPA ruling, and which could potentially be unwound depending on how the Supreme Court rules.
EG: The President has previously announced agreements to levy 15% tariffs on goods from major trading partners including Japan, Korea and the European Union (EU), but the agreements are presented more as frameworks rather than the detailed trade deals that we’ve seen in the past, which typically reduced tariffs rather than increase them as the current frameworks would do. They include high-level parameters around trade cooperation to prevent even higher tariff rates, but most of these frameworks require additional negotiation to fill in some of the details. There are several countries that did not reach an agreement with the United States over the summer and that are now subject to new rates enumerated in the July 31 executive order that imposed sweeping tariffs on nearly all of our trading partners across the globe.
RB: And isn’t it the case that there are some side agreements for investment in the US?
EG: Yes, that’s exactly right. In another departure from trade deals of the past, there is a more explicit drive by the US to also require other nations to invest in the US and purchase more American exports as part of these trade frameworks.
- For example, under the US-EU agreement, the EU intends to purchase $750 billion of US energy exports, including liquified natural gas, oil and nuclear energy products. The EU also intends to purchase at least $40 billion worth of US-manufactured chips for its computing centers.
- And the trade agreement between the US and Japan includes a pledge for a $550 billion fund for investment in the US.
I should note that the structure and the details of some of these more novel provisions of these trade frameworks do remain under negotiation.
BH: That’s right, Evan. I think it’s also worth pointing out that the administration has raised concerns about an adverse ruling from the Supreme Court and what that would do for these bilateral deals that have been negotiated — including the commitments to reduce barriers to US goods and to invest in the US. There’s no doubt that the IEEPA tariffs are the foundation for these agreements, and I can’t help but wonder whether our trading partners would decide to stick with the commitments they’ve made — particularly if the administration decides it is going to impose tariffs through other means.
RB: Right, so we will have to see what happens with the Supreme Court. Now let’s talk about a more traditional trade deal, the USMCA. That agreement, which entered into force on July 1, 2020, included a mandatory review mechanism requiring member countries to jointly review the operation and performance of the agreement every six years. And that process has now kicked off.
BH: That’s right. USTR has put out its request for public comments and notice of a public hearing. That notice came out on September 16 and input from stakeholders, which can be submitted any time between now and November 3, will inform the U.S. government’s approach to the upcoming formal review with Canada and Mexico, which is slated for July 1 of next year. And in announcing its public process, USTR specifically asked for comments on issues including:
- Operation or implementation of USMCA
- Compliance with the agreement
- Recommendations for specific actions that USTR should propose
- Factors affecting the investment climate in North America
- Ways to strengthen the North American economic security and competitiveness
- Cooperation on nonmarket policies and practices of other countries
And we will, of course, be closely following this and the public hearing, which will take place on November 17.
RB: Definitely. What does this actually mean for companies?
BH: I would just say to companies and organizations that depend on North American supply chains, cross-border data flows or regulatory alignment, that this process should be viewed as a chance to proactively shape the agreement’s future. And at the same time, failure to participate could result in missed opportunities or the advancement of policies that may not reflect the realities or needs of specific sectors.
RB: So, as we often say, Blake, in the tax world, if you’re not at the table, then you’re on the menu. Well, much more to come on the USMCA and certainly trade generally. I’d like to thank Blake and Evan for being on and for being such a great resource for anyone who wants to engage on these issues. If that’s you, please do reach out to Blake or Evan. That’s all for now, I’m Ray Beeman and this has been DC Dynamics.
