With IEEPA tariffs a thing of the past, the U.S. government is mobilizing various mechanisms to reinstate the variable tariffs that existed before the Supreme Court ruling. While there are several options, most will take time as the administration works through the necessary due diligence, particularly if the White House is looking to avoid another high-profile judicial loss. In the meantime, Trump is leaning into Section 122 of the Trade Act of 1974 to assess 10% tariffs for imports to the U.S.
But Section 122 can only be in place for 150 days without Congressional action. With that in mind, it is another round of wait and see for apparel brands, suppliers and importers, all of whom work on lead times that surpass this window.
Peter E. Harrell, visiting scholar at Georgetown’s Institute of International Economic Law, and a former senior director for International Economics in the White House under President Biden, joined the American Apparel & Footwear Association’s Executive Summit last week to provide clarity. For each potential tariff mechanism, he provided insights into the differences between them, the probability each could come to pass and how vulnerable each is to legal challenges.
Section 122
On what this law is: “122, which is what is in place right now, is a law that Congress passed back in 1974 to give the President the authority to impose up to a 15% tariff, for up to 150 days in response to a balance of payments crisis.”
On how firm Trump’s legal footing is on this: “Although I don’t think the U.S. has a balance of payments crisis of the sort that Congress was envisioning back in 1974, [and] I’ve seen Wall Street Journal articles saying these tariffs are illegal too, I think, practically speaking, the courts are very likely to uphold the 122 tariffs for 150 days.
The court is not actually going to start asking, ‘does the U.S. have a balance and payments crisis?’ The court is going to start its analysis by asking, ‘should I, the court, defer to the President’s finding that there’s a balance of payments crisis?’ I think the courts are going to be pretty deferential to the President having found this, even if most economists think the statute doesn’t apply as Congress intended. I think [the 122s] will be challenged. Some of the small business litigants that brought the case in the IEEPA tariffs are thinking about a challenge here. I suspect it will be upheld.”
On the possibility of a step up to 15%: “The President has said he’s going to move this 10% tariff to 15%. Secretary Scott Bessent of the Treasury Department recently said that that’s coming soon. I think the reason they have not raised it to 15% yet is twofold. First, I actually think if they do raise it to 15% it is going to invite a little bit more judicial scrutiny, because even though the courts will be deferential, the courts are also going to say, ‘hey, what happened in two weeks that you needed to move things by 5%?’ [USTR] Jamieson Greer thinks it’s a little legally risky to raise it.
And then the other thing is, they have complicated issues with some of the trade deals they have struck, if they move 122 to a 15% rate. That is creating a policy challenge for them.”
On the likelihood of an extension: “122 can only go through late July. I’ve heard this theory that maybe he could do another 122. That will be laughed out of court very, very quickly. The statute says a period of up to 150 days, unless such period is extended by Congress. No court is going to think you can just do it over the next day. It’s not to say he wouldn’t try, but [if] he gets the 122 through late July, then he’s got to pivot to other things.”
301
On what this law is: “301 is a statute that lets USTR engage in fact finding into if a foreign country engaged in an unfair economic pattern of practice that discriminates or burdens U.S. commerce. The USTR can impose tariffs after finding that there’s been some unfair trade practice by a trade partner.”
On how firm Trump’s legal footing is on this: “Historically, the courts have been pretty deferential to USTR on 301. On the other hand, no previous president has tried to say, ‘301 will apply on a global basis at a bunch of pre-cooked rates that we decided a year ago before we ever did our 301 investigations.’ The 301s are going to be challenged. And I think courts are going to move slowly, but the 301s might actually, over time, be a little bit more vulnerable than the 122.”
On the due diligence required for 301s: “Very practically speaking, the goal of the administration—you see them saying this publicly and also what you hear privately—seems to be to have 301s that would let them impose the tariff rates that they were imposing under IEEPA on something north of 50 of our largest trading partners. You do have to do individual fact finding under 301. Now they can cluster some of the 301s. They can do a 301 on labor practices that might cover 15 or 20 countries, but they still have to do some individual fact finding. So, I’m not sure I see how they could do 301s that will cover all 171 trading partners, or whatever we have, by the end of July. Their goal seems to be to cover most of the big trading partners by late July. [They seem to say] if we get challenged in court that’s sort of how it goes. Unfortunately for you guys, the biggest winners of Trump trade policy so far were the trade lawyers, and I fear that that’s going to continue.”
232
On what this law is: “232 lets the President deal with the national security threat when the Commerce Department finds that import of some product is impairing U.S. national security. 232 was a provision that was enacted in the law in 1962. Between Trump’s two terms, Trump has now done well over half of all 232s since 1962, so it’s a statute he’s been using very aggressively, by historical standards.”
On the due diligence required for 232s: “There’s a lot of expectation that they may do some additional 232s, for example, on plastics and things like that. I actually think if [the administration’s] goal is to maintain their trade deals, if their goal is to have leverage, 232 is a complicated statute for them, because you do have to go product by product, which isn’t what they want to do. Mostly what they want to do is country by country.
We also saw that they found the 232s they have done more complicated than they were expecting. Trump said several times last year he was going to actually impose tariffs on semiconductors under 232, which was not actually done because I think they started realizing, when you get into these kinds of specific products, it’s just complicated.”
338
On what this law is: “One thing that has come up, which the administration has not been talking about as much lately, has been something called Section 338 of the Trade Act of 1930, which is better known as the Smoot Hawley Tariff Act. This is a provision of law that, in theory, would let the President impose tariffs of up to 50% if [he could show that] country X treats the U.S. less favorably than country Y.”
On how firm Trump’s legal footing is on this: “The reason I don’t think we’ve seen the administration talk about 338 that much is that it would be quite vulnerable to legal challenge. There are questions about whether it is still good law, or whether it has been overridden by later statutes. And questions about how the fact finding would work. Questions about the fact that it has not been used since 1939. What has happened here is that the administration has decided, ‘Hey, we’ve just lost a signature case. Do we really want to rely on another statute that might just be struck down in its entirety?’
The one piece of good news about 338, from an importer’s perspective, is they have to give 30-days’ notice before they actually start collecting any tariffs.”
Congressional action
On the likelihood of congressional action: “I assume the reason Trump is not going down that road is that he understands, or at least his political and legislative aides understand, that Congress is unlikely in the current environment to enact new tariffs, and so he doesn’t want to try and lose. And so, I assume we will not see congressional legislation on this. But again, down the line, if their other authorities face more legal challenges, we can’t rule out Trump maybe going to Congress here.”
