The Impact of President-Elect Trump's Proposed Tariffs on U.S. Businesses

On November 25, 2024, President-elect Trump announced that he would impose an additional 10% tariff on China, and 25% tariffs on Mexico and Canada, garnering considerable attention both for their potential to reshape the U.S. economy and their implications for businesses across various sectors. These tariffs are part of his broader “America First” economic strategy seeking to reduce the U.S. trade deficit, bring manufacturing jobs back to the U.S., protect domestic industries, and cajole national policy changes on drug trafficking and immigration. However, the potential impact of these proposed tariffs on U.S. businesses, both large and small, are complex and multifaceted. This client alert explores the possible economic and legal effects of the proposed tariffs, including their legal basis, mechanisms for implementation, and the ways in which businesses might challenge them.

The Legal Basis for Increasing Tariffs

Both domestic and international trade law form the basis for the imposition of tariffs by the United States. The U.S. Constitution grants Congress the power to regulate commerce with foreign nations (Article I, Section 8). Over the years, however, this power has been delegated to the President, who can impose tariffs under specific conditions. Several key laws, most notably the Trade Act of 1974 and the Tariff Act of 1930 (commonly known as the Smoot-Hawley Tariff Act), grant the President authority to impose tariffs.

Under Section 301 of the Trade Act of 1974, the President has the authority to impose tariffs on foreign countries that engage in unfair trade practices, such as intellectual property theft, discriminatory policies, or other harmful trade practices. President-elect Trump has specifically cited China’s trade practices, including forced technology transfers and intellectual property violations, as justifications for his proposed tariffs. In 2018, Trump invoked this provision to initiate tariffs on $50 billion worth of Chinese goods.

The Smoot-Hawley Tariff Act (Tariff Act of 1930) is a key piece of legislation that gives the President broad powers to impose tariffs in the interest of national security or economic health. This includes using emergency tariffs to protect critical industries, such as steel and aluminum, which was one of the arguments behind Trump’s steel and aluminum tariffs in 2018. This law allows the President to impose tariffs without the need for Congressional approval, though Congress retains the power to override such measures through legislation or by controlling future trade agreements.

Section 232 of the Trade Expansion Act of 1962 allows the President to impose tariffs on national security grounds. Under this provision, the Trump administration imposed tariffs on steel and aluminum imports from various countries, including allies like Canada and the European Union. The administration’s argument was that dependency on foreign steel and aluminum undermined U.S. manufacturing capabilities in industries critical to national defense. Although this provision has been used sparingly in the past, Trump’s administration made extensive use of it to justify tariffs on these goods.

While U.S. law provides mechanisms for imposing tariffs, these actions must also comply with international agreements, notably the World Trade Organization (WTO). The WTO is an international body that oversees global trade rules and works to resolve disputes between member nations. The U.S. is bound by WTO agreements, which regulate the conditions under which tariffs can be imposed. If tariffs violate these agreements, affected countries can challenge them through WTO dispute resolution processes. Depending on the scope and implementation of any tariffs against Mexico and/or Canada, such tariffs might also violate provisions of the US-Mexico-Canada Agreement (“USMCA”).

Mechanisms for Implementing Tariffs

Once the legal basis for imposing tariffs is established, the next step is implementation. The U.S. has a well-established procedure for levying tariffs, which typically involves several stages.

1. Presidential Proclamation and Public Notices

In most cases, the President issues a proclamation that formally announces the imposition of tariffs. This includes specifying the goods affected, the tariff rate, and the date on which the tariff will take effect. The U.S. Trade Representative (USTR) often publishes a notice in the Federal Register outlining the reasons for the tariffs, including the specific trade practices being targeted.

2. The Role of the U.S. Trade Representative (USTR)

The USTR is responsible for conducting trade negotiations, investigating trade barriers, and overseeing the enforcement of trade laws. The office is integral to the implementation of tariffs. In cases of tariffs imposed under Section 301, for example, the USTR may initiate investigations into unfair trade practices, gather evidence, and recommend tariff actions to the president.

Significantly, President-elect Trump has nominated Howard Lutnick, a current CEO of an investment banking firm, as Secretary of Commerce and Jamieson Green as USTR, who previously was involved in the negotiation of the USMCA (which comes under review in 2026). Lutnick has been a strong advocate of tariffs as a trade tool, and President-elect Trump stated that Lutnick would lead his tariff agenda, having direct responsibility over the USTR. Such statements represent a substantial shift in previous policy, as the USTR and Secretary of Commerce traditionally are separate roles. 

3. Customs and Border Protection (CBP)

Once tariffs are enacted, Customs and Border Protection (CBP) enforces them at U.S. borders. CBP is responsible for collecting tariffs on imported goods and ensuring compliance with trade regulations. Businesses importing goods affected by new tariffs must pay the required duties, and CBP works with other agencies to monitor and enforce these payments.

4. Public Comment and Exemptions

For certain tariff actions, there is a public comment period where businesses and other stakeholders can express their concerns about the tariffs’ potential impact. The U.S. government may consider granting exemptions or reducing tariffs for specific products or industries. This process allows for a more targeted approach, avoiding unintended consequences for industries that might be disproportionately affected.

Impact of Tariffs on U.S. Businesses

The impact of President-Elect Trump's proposed tariffs on U.S. businesses would likely be both direct and indirect, varying by sector and market. Many U.S. businesses rely on imports of raw materials, intermediate goods, and finished products. Tariffs on these goods will increase the cost of doing business, which could lead to higher prices for consumers. For instance, industries like electronics, automotive, and manufacturing, which depend on low-cost foreign components, would face higher production costs, potentially making their products less competitive in both domestic and international markets. Companies would need to either absorb the costs or pass them on to consumers. Another significant concern is the possibility of retaliatory tariffs imposed by other countries. Countries like China, the European Union, and Canada could retaliate by imposing their own tariffs on U.S. exports. This could have a particularly adverse effect on U.S. agricultural producers, who rely heavily on exports. For instance, U.S. soybean farmers saw a significant drop in demand when China imposed tariffs on American agricultural goods in response to steel tariffs. The uncertainty surrounding tariffs creates an unstable environment for businesses. Companies may delay investment decisions or reconsider their international supply chains due to concerns about trade disruptions. Long-term planning becomes more difficult, particularly for businesses involved in international trade.

On the other hand, some U.S. businesses may benefit from tariffs if they lead to a shift in production to the U.S. As foreign-made products become more expensive due to tariffs, domestic manufacturers may find it more profitable to produce goods locally. This could potentially lead to job creation and economic growth in some sectors.

How Tariffs Can Be Challenged

While the President has broad authority to impose tariffs, they can be challenged through both domestic and international channels.

1. Public Comment Period

For companies and industries negatively impacted by broad, significant tariff rates, they may consider retaining government relations firms to lobby and formulate strong policy statements regarding the tariffs for submission during the public comment period. While removing tariffs in their entirety is unlikely, advocacy may result in either reduced tariffs or exemption categories beneficial to companies or specific industries.

2. Legal Challenges in U.S. Courts

Businesses affected by tariffs may challenge them in U.S. courts. The Court of International Trade (CIT) handles disputes related to international trade, including the legality of tariffs. Businesses may argue that tariffs violate existing trade agreements, including the USMCA, exceed the President's authority, or harm their economic interests without justification.

3. World Trade Organization (WTO) Disputes

On the international level, businesses or countries harmed by U.S. tariffs can bring cases before the WTO. If a country believes that U.S. tariffs violate international trade agreements, it can initiate a dispute settlement process. The WTO has ruled against the U.S. in several trade disputes, and if the tariffs are found to be unlawful, the U.S. may be required to remove or reduce them.

4. Congressional Action

Congress can also challenge Presidential tariff decisions by passing legislation to overturn them. While the President has significant authority under trade law, Congress retains the power to regulate trade and could theoretically pass laws to prevent certain tariff actions from being implemented or continued. Democrats in Congress already have proposed the Prevent Tariff Abuse Act, designed to prevent the President from bypassing Congress when imposing broad tariffs. Again, companies and their related industry-advocacy bodies can be active in drafting language of proposed legislation and obtaining passage.

Conclusion

The impact of President-elect Trump's proposed tariffs on U.S. businesses is multifaceted and could lead to both opportunities and challenges. The legal framework for implementing tariffs, rooted in U.S. law and international trade agreements, allows for a broad range of actions but also provides avenues for challenge. While some industries may benefit from reshoring production, others will face higher costs, reduced competitiveness, and potential retaliatory tariffs. The uncertainty surrounding these policies presents additional risks, and businesses must carefully navigate the legal and economic landscape to minimize negative impacts.

If you or your organization has questions or would like to further discuss potential impacts of the new law, please contact your Quarles attorney or Andre Fiebig at 312-715-5126 or andre.fiebig@quarles.com.