Donald Trump just scored a major victory in his perpetual trade war. He’s caused tariffs on imported goods to exceed those of the evil Smoot-Hawley era. These tariffs were imposed, counterintuitively, by use of the International Emergency Economic Powers Act. To date, they’ve played a game of chicken with congress and successfully avoided any damaging fallout. Legal challenges now hang over the administration, as a federal court already has ruled that Trump exceeded his authority in imposing these tariffs. An appeals court has paused the ruling’s effect and is set to hear arguments regarding the legality of Trump’s actions.
The political environment surrounding Trump’s trade war is still very unpredictable and confusing. Second, he has made some real progress on addressing our massive trade imbalances, particularly with China. Sticking points have developed over China’s lack of speed in fulfilling its trade commitments. Unfortunately, Trump’s negotiations with Canada have ground to a standstill—even though his first term started off on the right foot.
Legal Challenges and Implications
This ruling is significant because it addresses how far presidential powers reach in trade issues. The court ruled that Trump acted beyond his authority when he raised tariffs using the International Emergency Economic Powers Act. This ruling would seem to have large implications for Trump’s ability to write and enforce his trade policies in the future.
In response to the federal ruling, an appeals court issued a stay, allowing the tariffs to remain in place while it reviews the case. Those legal proceedings will decide whether what Trump did with emergency powers to impose tariffs is within the scope of congressional authority. Legal experts have long warned that Trump is risking the loss of his power to impose tariffs under emergency provisions. The latter would require him to get congressional approval in order to impose the tariffs.
The ambiguity of the tariffs cast a shadow over the U.S. ability to negotiate with trading partners and muddle plans for future economic growth.
Trade Relations with China and Canada
Despite recent cooling rhetoric towards China, Trump’s administration remains concerned about the country’s slow progress in fulfilling its trade commitments. These irritations have led Trump to dream up ways to ratchet up tariffs further even after deals are made. The possibility of reinstating these tariffs again injects uncertainty into an already volatile U.S.-China relationship.
Trump’s NAFTA negotiations with Canada have all but come to a stop. During his first term, he won negotiations on a new trade deal with Canada. After some initial victories, subsequent legal battles have delayed additional progress. The impasse threatens growing economic ties between the two countries and could reorder market forces in North America.
As Trump navigates these complexities, his administration has highlighted some successes in opening overseas markets to U.S. goods. Our trading partners have committed to making more investments within the United States and removing other specified non-trade barriers. The biggest question of all is whether these successes will be enough to mitigate the damage from escalating tariffs.
Economic Outlook Amid Rising Tariffs
Despite what some economists might claim, the reality is that the U.S. economy is starting to show signs of inflation. Retailers are eagerly clearing out their inventories of stockpiled goods impacted by tariffs. This reallocation process should further raise measured inflation in late summer and the fall of 2023. On one hand, key sectors are already exhibiting alarming, unsustainable price increases, raising red flags about longer-term economic effects.
The combination of high tariffs on imports and limited levies on U.S. exports could create an uneven playing field for domestic producers. Economists warn that if inflation continues to rise as a result of Trump’s trade policies, it could undermine consumer spending and overall economic growth.
