As the White House scrambles to rebuild its protectionist wall after Friday’s Supreme Court ruling against most of its tariffs, the world and the markets are weighing in. It’s a complicated response – ranging from optimism to rising concern about a potential trade war.
Increasing criticism from the European Union has sparked concerns that a trade war with the United States could break out.
“It’s in their interest to grumble about this thing,” says Warren Maruyama, a White House staffer under President George H.W. Bush and general counsel for the Office of the U.S. Trade Representative under President George W. Bush. “Whether they would take it as far as a trade war, I think, is an open question.”
Why We Wrote This
President Donald Trump quickly imposed new tariffs to neutralize a Supreme Court ruling. But the White House’s economic calculus is in flux as global leaders say this violates trade deals he cut with them.
Two big questions remain:
- How much of his tariff wall will President Donald Trump be able to resurrect – and how will any new tariffs affect trade deals already negotiated?
- How will the world react?
Early international reaction has been mixed.
Some countries saddled with unusually high – and now illegal – tariffs applauded the court ruling. Brazilian Vice President Geraldo Alckmin said the decision would make the U.S. market more competitive for Brazilian companies, which send up to $5 billion in crude petroleum to the United States each year. With Mexico’s exports to the U.S. partially shielded by a North American free-trade pact, that nation’s economy secretary, Marcelo Ebrard, called for calm.
China, which also emerged as an early winner from the Supreme Court’s decision, condemned the Trump administration’s move to impose a 15% replacement duty on all foreign goods. Its commerce ministry urged President Trump to lift all unilateral tariffs and vowed to “firmly safeguard” China’s interests. Hong Kong stocks surged on Monday on the news.
Pushing back
But it was the European Union, which had bargained hard to get a lower tariff than its competitors, that delivered some of the harshest words of all.
“The biggest poison for the economies of Europe and the U.S. is this constant uncertainty about tariffs,” said German Chancellor Friedrich Merz on Saturday, speaking to German broadcasters. “This uncertainty must end.”
On Sunday, the European Commission said the United States must stick to a trade deal it reached with the EU last summer. “A deal is a deal,” the commission said in a statement.
Then, on Monday, EU lawmakers postponed a vote to implement the trade deal with the U.S., saying that the commission needs “full clarity” on President Trump’s next steps before proceeding.
Other countries, such as India, are taking a wait-and-see approach. Trade negotiators from New Delhi, due to visit Washington this week, have reportedly delayed that visit to reassess the rapid-fire chain of events.
When the trouble started
On Friday, the Supreme Court struck down Mr. Trump’s broad use of the 1977 International Emergency Economic Powers Act, or IEEPA. Hours later, the president announced he would use another law – Section 122 of the Trade Act of 1974 – to impose a 10% global tariff. He later boosted that level to 15%, the legal limit.
Amid the flux, European and U.S. stock indexes slumped on Monday. The Dow Jones Industrial Average fell more than 800 points, or nearly 1.7%. Uncertainty slows investment.
“For firms, duration matters because sourcing and investment decisions are forward-looking,” Kari Heerman, director of trade and economic statecraft at the Brookings Institution, writes in an email. “Planning is difficult when tariff rates and their longevity remain uncertain.”
The use of Section 122 gives the president broad authority, but it lasts for only 150 days unless Congress extends it. Congress has not been particularly supportive of Mr. Trump’s tariffs. So, trade specialists expect him to recreate his trade wall by unilaterally using other legal means.
President “Trump can use Section 122 to buy time,” says Mr. Maruyama. The Trump administration has already signaled that it will turn to yet another provision of the 1974 Trade Act – Section 301 – which allows the U.S. trade representative to impose retaliatory tariffs against unfair foreign trade practices.
The one complication is that, unlike the now-disallowed IEEPA tariffs, Section 301 is covered by a provision called the Administrator Procedures Act. That requires the USTR’s office to request public comments, hold a hearing, and draft a report subject to judicial review. Those provisions mean the administration would have to be more careful in justifying tariffs than it was under the IEEPA.
Slowing the speed of new tariffs
At a minimum, the provisions would slow the administration.
“The [Supreme Court] ruling weakens the president’s hand in one important respect,” writes Ms. Heerman of Brookings. “It removes the ability to impose sweeping, open-ended tariffs overnight under IEEPA, reducing the immediacy and shock value of tariff threats. [But] it does not eliminate the executive’s ability to impose tariffs through other statutory authorities.”
Trade experts disagree on how much the Trump administration’s efforts to rebuild a trade wall will be hampered.
“It is like playing a round of golf with half the clubs missing,” Alan Wm. Wolff, a senior fellow at the Peterson Institute for International Economics and former deputy director-general of the World Trade Organization, writes in a recent policy brief. While the administration has used Section 301 successfully to punish China for alleged violations of U.S. intellectual property and technology rights, courts would be far more skeptical if it were used against a broad swath of nations, Mr. Wolff adds.
Mr. Maruyama is more optimistic that the administration can push its agenda through. “If they do it right, I think it would probably be pretty tough for a court to try and second-guess their findings,” he says. “In three to five months, he could be back in a position where there is a very similar tariff regime.”
Laurent Belsie and Audrey Thibert reported from Boston, Ann Scott Tyson from Seattle, and Whitney Eulich from Mexico City.
