Trade Forecast Quick Implementation

December 16, 2024

President-elect Trump has reiterated campaign promises to impose sweeping tariffs: 25% on imports from Canada and Mexico and 10% on imports from China, potentially starting on his first day in office. While much discussion has been focused on whether these tariffs are intended as a long-term trade policy or a short-term negotiating tool (please see DCG's Planning for Tariffs), understanding the existing legal authorities and timelines is critical for assessing their feasibility.

International Emergency Economic Powers Act: Very Brief Implementation Timeframe

Starting in 1930s, Congress increasingly expanded presidential authority to negotiate and set tariff rates with other nations culminating with the International Emergency Economic Powers Act ("IEEPA") which President Jimmy Carter signed into law in 1977. IEEPA gives the President broad national emergency powers, including power to declare a national emergency and impose tariffs if a significant threat to U.S. security arises.

IEEPA grants to Presidents the authority to impose tariffs by declaring a national emergency if an "unusual and extraordinary threat" to national security, foreign policy, or the economy is identified. IEEPA does not impose explicit timing restrictions on the declaration of a national emergency or the implementation of economic measures (including tariffs). There are however procedural requirements under the National Emergencies Act ("NEA") to be satisfied in order to declare an emergency (e.g., reporting to Congress, consultation) and potential overlap with other trade laws that may influence the timeline. The President must first declare a national emergency under NEA before invoking IEEPA authorities. The NEA requires the President to promptly report to Congress after declaring a national emergency, detailing the reasons-the unusual and extraordinary threat to the national security, foreign policy, or economy-and proposed actions, and to consult with Congress "whenever possible." However, the required consultation can be informal and lacks a fixed timeline. The declaration must also be published in the Federal Register, and implementation can follow quickly.

Historically, threats like narcotics trafficking, illegal immigration, and national security concerns have been invoked for similar actions. For example, in 2019, President Trump threatened to impose tariffs on Mexico under his IEEPA powers. The proposed tariffs were announced on May 30, 2019, set to take effect on June 10, 2019, starting at 5%, and increasing monthly. This announcement came alongside the declaration of a national emergency due to the immigration crisis at the southern border. In 2021, President Biden invoked IEEPA through Executive Order 14059 to address the international trafficking of illicit drugs like fentanyl, particularly targeting networks from countries such as China and Mexico. The associated report and consultation process under the NEA appears to have been conducted quickly, as the order was implemented, and sanctions authorized on the same day.

United States-Mexico-Canada Agreement: No Escape Clause Implementation Timeframe is Provided.

In 2020, the United States-Mexico-Canada Agreement ("USMCA") replaced NAFTA, modernizing trade relations, promoting fair labor practices, and addressing digital trade and intellectual property. While modifications to USMCA require formal review processes-such as the 2026 interim review mentioned below-the agreement also includes a national security clause (Article 32.2) that allows parties to prioritize national security over trade obligations, enabling deviations if deemed necessary for defense or peace.

Similar escape clauses are contained in other international trade agreements to allow parties to abrogate the obligations under the respective trade agreement in order to maintain national security. Unlike NAFTA and WTO rules, the USMCA escape clause lacks procedural timing limitations or advance notification mandates, making it broadly applicable and allowing significant latitude for each party to act unilaterally. For example, the U.S. has used Section 232 of the Trade Expansion Act of 1962 to impose tariffs under national security justifications, even though such measures have faced objections from Canada and Mexico.

As referenced above, USMCA includes a "sunset" provision, requiring periodic review to assess its relevance and allow modifications before the agreement's term of 16 years expires in 2036 (unless all three nations agree to renew it). If tariffs are not implemented under IEEPA or Article 32.2, an interim joint review of USMCA is scheduled for 2026, and it is possible that contentious issues may arise during negotiations at that time.

Section 301, 232 and 201 Actions: Standard Procedures Sets Investigation Timeframe of many Months, But Foreseeable that these may be Shortened.

Sections 201, 301 and 232 of the Trade Expansion Act of 1962 and the Trade Act of 1974 provide trade remedies for responding to specific trade issues. The duration of a typical Section 232 investigation is 270 days from initiation to completion, as specified by statute. For Section 301 investigations, the investigation timeline is more flexible and may take 12 to 18 months, depending on the complexity of the issues. Certain steps, such as public comment periods, consultations, and hearings, can extend the process. However, existing investigations from Trump's first term could streamline implementation by linking the new Section 232 and 301 tariffs to Commerce Department and U.S. Trade Representative investigations conducted during Trump's first term to place duties on imports from China, as well as on steel and aluminum from trade partners from the European Union to Mexico and Canada.

Permanent Normal Trade Relations: Requires Legislative Action

Congress could leverage legislation, such as repealing China's Permanent Normal Trade Relations ("PNTR")-as was done with Russia after it invaded Ukraine-to expedite tariff measures. Repealing the status would reset tariffs on Chinese goods to pre-WTO levels, potentially raising tariffs on certain Chinese imports to 100%. Legislative efforts to remove China's PNTR are already underway in response to various geopolitical tensions.

What Companies Should Do to Navigate the Complexities of Changing Trade Policies and Political Landscape

DCG encourages importers, exporters and U.S. manufacturers to be proactive and evaluate supply and distribution chain risks, as well as evaluate opportunities internally to minimize risks associated with tariff increases tariff increases, potential enforcement actions and contractual breaches which may be caused by tariffs and other unforeseen changes in trade policy.

DCG strongly recommends the following:

• Closely monitor federal regulatory changes and proposed legislative policy development concerning tariffs, U.S. manufacturing, anti-dumping and countervailing investigations and evasion proceedings, Buy America provisions and all evolving trade policy dynamics;
• Strategize internal strategic decision making with plans to restructure supply chains or contractual agreements, where possible;
• Review internal global sourcing for opportunities to potentially minimize tariffs through legitimate tariff engineering and restructuring of manufacturing to allow for variation in certain subassemblies that may allow for alternative country of origin analysis or tariff implications;
• Closely monitor potential tariff exclusion opportunities that may become available with changing trade legislation;
• Review existing long-term contractual commitments, particularly those addressing delivery times, firm pricing, purchase and sale supply obligations, and country of origin or sourcing provisions. Pay special attention to clauses requiring that any proposed changes to the country of origin or specific manufacturer be formally agreed to before implementation;
• Ensure that any long-term contractual agreements currently under review and negotiation reflect all considerations listed above.

The DCG International Trade Team continues to actively monitor the evolving trade policy developments and is available to discuss planning and opportunities specific to importers, exporters and manufacturers developing needs. Please do not hesitate to reach out to any member of the International Trade Group for updates and assistance.