Recently, President Donald Trump declared a broad 10 percent global baseline tariff on nearly all imports to the United States, stating that this decision represents the “Liberation Day” for the US economy. The policy is, however, if sustained, the tariffs will be profoundly harmful to the US economy, the American consumer, and the country’s global position.
The 10 percent tariff is notably the baseline; Trump’s attempts to free the US economy involve several significantly higher tariffs. One example is his 25 percent tariff on all automotive imports that was implemented on his “Liberation Day.”
Trump asserts that his policy is focused on revitalizing the US manufacturing sector, but there is no time to rebuild this capacity at an incredibly fast pace. Trump, naturally, pays little attention to such concerns. An identical 25 percent tariff on automotive parts is postponed only for a month and will take effect in May. Automotive prices will surge, and supply chains will become clogged.
Due to the country’s dependence on the automobile, the move will directly impact a larger proportion of voters than in any other Western country. Trump’s March tariffs on Canada and Mexico – the two nations with whom most US automotive manufacturing is integrated – have already caused disruptions. There is widespread expectation that prices will increase.
However, this trend will unfold across numerous other supply chains as well. Many of the US’s closest allies will encounter higher tariffs – goods from the European Union will face a 20 percent blanket tariff. Japanese exports to the US will be taxed at 24 percent. Those from Taiwan, whose supply of chips is crucial to the US technology industry, will be taxed at 32 percent. India and Vietnam, two of the countries to which US supply chains have been most redirected since Trump’s first administration began with a much stronger emphasis on the US-Chinese trade imbalance, will face a 26 percent and 46 percent tariff, respectively.
The US is poorly equipped for an inflationary shock. It is still grappling with the last inflation surge caused by the bullwhip impact from the disruption of global supply chains during the COVID-19 pandemic, and the international economic repercussions of Russia’s 2022 full-scale invasion of Ukraine. The inflationary impact of Trump’s tariffs will be felt sooner rather than later, even as some members of his team are rushing to assert that there will be negotiations to reduce some of the tariffs. This is because importers and distributors will need to reassess the profitability of the goods they are currently ordering. Supply chains may well face further disruption from countermeasures implemented by the affected countries.
Trump’s tariffs rest on relatively fragile grounds. Specifically, he asserts that they are being implemented for “national security reasons.” Formally, he justifies them under the 1977 International Emergency Economic Powers Act (IEEPA). The half-century-old Act is one of the most influential pieces of US legislation in history, as it enables a significant expansion of executive branch power. It lies at the heart of the authority to impose sanctions as well as to restrict the export of US technology, along with many of Trump’s previous tariff measures.
For the president to exert these powers, however, he must announce an underlying national emergency and provide justification for it. Although it has never been invoked, Congress does have the authority to terminate a national emergency declared under IEEPA through the National Emergencies Act of 1985.
A vote on the revocation has already taken place in the US Senate. Hours after Trump announced his tariff offensive, four Republicans – Susan Collins of Maine, Lisa Murkowski of Alaska, and both Kentucky senators, the former majority leader Mitch McConnell and Rand Paul – joined all Democrats in voting for a resolution to reverse the “national emergency” on fentanyl that Trump issued to justify his blanket tariffs on Canada, passing it 51-48. However, this action targeted only the Canadian order, not the similar order supporting Trump’s tariffs on Mexico. This highlights how difficult the political future is for a quick reversal of Trump’s newest, much costlier tariffs, which were put in place under another “national emergency” dealing with trade deficits.
Any such solution to overturn Trump’s national emergencies and rescind his tariffs can only occur if it holds up against his veto, requiring a two-thirds majority in the Senate and House of Representatives. The House’s Republican leadership is not anticipated to permit a vote even on the Senate’s Canada resolution, much less a future resolution that would impact tariffs.
