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Washington’s latest tariff reprise is an echo of the ‘Liberation Day’ import duties struck down by the Supreme Court earlier this year, albeit with an alternative rationale.

Legal hurdles for new trade measures

February’s Supreme Court ruling ended Trump’s universal tariffs enforced under the International Emergency Economic Powers Act (IEEPA) because powers to impose tariffs are invested in Congress. The new tariffs will likely fall at the same hurdle. Following the failure of the Liberation Day tariffs, a temporary 10% tariff was imposed under Section 122 of the Trade Act of 1974, purportedly to meet a balance of trade problem. These tariffs expired on 24 July and pre-empting that termination the Trump administration has announced 10-12.5% tariffs on 60 countries, including China, Japan, the EU 27, the UK and others, under the guise of pressing trading partners to increase their efforts in challenging enforced labour regulations.

The US-based Peterson Institute for International Economics (PIIE) asked: “The planned tariffs to combat forced labour, which could start taking effect this week, again raise the question of whether the President has the legal authority to determine and implement US tariff policy—an authority that the Constitution vests in Congress.” PIIE is emphatic in answering its own question: “The answer is no: Congress did not delegate authority of such breadth to the president.”

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If PIIE is emphatic in its initial conclusion, trading nations would likely find its subsequent revelation comedic if it were not so costly. “The International Labor Organization’s (ILO) Forced Labor Convention, agreed to in 1930, requires the 181 ratifying states to suppress its use in all forms. The ILO Protocol of 1934 to the Forced Labor Convention updates the 1930 convention by requiring member states to take effective measures to prevent forced labor, protect victims, and provide access to remedies and compensation. Some 61 countries have ratified it. The United States, however, has not ratified either of these two conventions.”

PIIE suggests that the reason the US has not ratified ILO conventions is because the government subcontracts the running of its prisons to private companies that, “May profit from the use of forced labour”.

Uniform rates and revenue concerns

Further questions are being asked by PIIE as the latest tariffs are split into two categories, those imposed on countries with enforced labour laws and those without these regulations. But PIIE points out that the tariffs are uniform for all nations within the 10-12.5% bracket. That suggests, said PIIE, that the import duties are about raising revenue rather than fighting enforced labour.

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“If the goal were genuinely to induce stronger action against forced labor, one would expect the measures to reflect meaningful differences in countries’ conduct and performance on that issue,” said PIIE. Neither has Washington raised the issue of forced labour at the World Trade Organization (WTO). Although the administration does not consider the WTO “a serious forum” for managing world trade although it could be a forum for negotiating on such issues.

Although PIIE points out that a negotiated deal on forced labour is not much use if your “primary goal is restoring global tariffs”. Even so, Congress has not delegated its tariff powers to the President and as such, PIIE claims, “The Supreme Court is not likely to allow this expansion of the President’s retaliatory authority under Section 301 to substitute for the Congress’ role in setting tariffs generally.”

After ruling that tariffs implementation was not granted by Congress to meet a national emergency, nor for a balance of payments crisis. And to use Section 301, countries must be a burden on US commerce.

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“That requirement is not clearly satisfied for the 60 targeted countries, which account for nearly all US imports and 90% of world trade,” according to PIIE.

In addition to lacking a legal basis for its new tariff regime, PIIE noted the view of the Federal Reserve Bank of New York, which noted: “The chief economic downside of imposing a full tariff is that Americans, whether businesses or end consumers, bear 90% of its cost.”

Forbes reported on 24 July that the Trump administration must repay $166 billion in Section 122 tariffs, withUS government’s customs duty receipts turning negative in June to the tune of $25.6 billion. The Tax Foundation estimates this is equates to an annual tax of $700 for every household. Proving that some insanity is far costlier than others.