Speculation on Tariffs Rampant; Lawyer Suggests 'Trump Majeure' Clause

In less than three months, President Donald Trump will be back in the White House, after a campaign during which he floated 10% or 20% tariffs on all countries except China, which would be hit with an additional 60 percentage points on top of current tariffs.

Customs brokers, former trade negotiators, trade lawyers and former members of Congress are all wondering what will happen -- will free-trade agreement partners be spared? Will the tariffs be imposed by the White House, or, as Politico reported, could Congress pass a tariff bill, so it could claim that revenue as an offset for Trump tax cut extensions or expansions?

Ted Murphy, a trade lawyer from Sidley Austin, wrote in a client note that he and his colleagues expect that Trump will use a law that gives the executive the ability to raise tariffs without a study ahead of time, and Trump will hike tariffs "shortly after taking office."

He added: "By how much? On which countries? On everything or on specific products? We do not know (and no one really knows at this point)."

Speakers at the Automotive Industry Action Group conference in Michigan this week demonstrated that uncertainty; Pete Mento, commercial director for U.S. customs and compliance at DSV, said in a talk on geopolitics that the 10% or 20% tariff won't apply to free-trade partners, but that tariffs on Chinese goods of at least an additional 60 percentage points, and maybe 100 percentage points, will happen. "This is going to be ugly," he said.

Wendy Cutler, a former career trade negotiator at the Office of the U.S. Trade Representative, and vice president of the Asia Society Policy Institute, said in a phone interview that it isn't known if FTA partners will be spared the "ring around the economy" tariff Trump talked about, though she thinks there will be advisers to Trump that will tell him countries like Canada, Mexico and South Korea should be treated differently.

She thinks they might be given more time to negotiate a deal that would satisfy Trump.

"I don’t expect a blanket exception for all FTA partners," she added. "A number of them do have large and growing trade deficits with the United States. Trump and his close adviser [former U.S. Trade Representative Bob] Lighthizer aren't going to tolerate large and growing trade deficits."

On Lighthizer, she said, "I fully expect him to play a prominent role. Whether he does that from a Cabinet agency or the White House remains to be seen. I don’t think he’ll return to USTR."

Jill Hurley, senior director, global trade consulting at Livingston International, said in a session about the impact of the election a few hours earlier at the conference that she expected a truly global tariff, as Trump promised, though she added, "It seems highly unlikely Congress would keep quiet about it."

Former House Ways and Means Committee member Rep. Ron Kind, a Democrat who represented a rural Wisconsin district, was the leader in the House of Representatives of an effort to push back on executive branch tariffs in the last Trump administration, with bills that would have let Congress stop both Section 301 and Section 232 actions. The two Republican senators who tried to constrain Section 232 both have retired from Congress.

He said in a telephone interview that he doesn't think there's anyone left to stop Trump on Capitol Hill. "I just don't see many Republicans standing up to him on trade policy now, especially on the tariff front," he said. And, he said, "obviously there wasn’t a whole lot of grumbling [in either party] when Biden continued the [Section] 301 tariffs and expanded them."

Kind said one of his biggest questions is whether there would be exclusions offered for either the higher China tariffs or global tariffs. If there are, he fears they will go where executives that are seen as friendly to the Trump administration or Trump himself are favored. "We’re looking at a very transactional administration here," he said.

If Congress does decide to build a tariff bill, so that its revenue can be an offset for tax rate cuts, Kind said he doesn't think the revenue will come close to the cost of extending the current tax code, which was set to expire in 2025, eight years after it passed. Those costs are more than $4 trillion over 10 years; annual Customs revenue in the fiscal year that just ended was $77 billion.

"I think roughly 90% of the [Section] 301 tariffs that were collected went back in terms of farm subsidies," Kind added, as farm exports suffered in the face of retaliatory tariffs on their products. "There’s going to be that type of domestic pressure too. There’s going to be winners and losers. One of the first to be losers in all this -- farmers."

Kind said he expects individual members will advocate for higher tariffs to protect companies with operations in their districts. And, he said, "Once you impose tariffs, it’s very, very hard to reverse course."

Punchbowl News, a publication that covers Congress, published a story that said Republican leaders were planning to introduce a bill to end Permanent Normal Trade Relations with China. A House Republican staffer with knowledge of the matter told International Trade Today: "It's too early to tell whether or not this has any chance of moving forward."

Murphy, at the end of his note, said importers should try to mitigate the uncertainty of higher tariffs. He wrote: "For example, have you considered a 'Trump Majeure' clause for your supply contracts? What happens if an additional tariff of 10%, 20%, 60% or more is imposed after the contract is signed, but before the articles are delivered?"