Unilateral tariffs are a cornerstone of President Trump’s economic agenda. President Trump has promised to announce imposition of reciprocal tariffs against a wide swath of trading partners on April 2, a date the President calls “liberation day” for the US economy. While the White House is still deliberating on exactly how it will implement President Trump’s April 2 tariff plans, they could be highly disruptive with wide ranging effects on the US and global economy. The answers to five key questions will help in understanding what is happening on April 2 and its impact.
What Legal Authority Is Used?
The administration asserts that a more reciprocal trade policy will help reduce the trade deficit, strengthen the US economy and enhance national security by addressing long-standing imbalances. However, the unilateral approach presents significant challenges, both legally and practically. Historically, reciprocal tariff negotiations have been conducted multilaterally under frameworks like the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO), which the US played a key role in shaping.
This will be the first time that any recent president imposes unilateral tariffs on a reciprocal basis. What legal authority the president uses will be telling. To date, the president has relied upon several key statutes: the International Economic Powers Act (IEEPA); Section 232 the Trade Expansion Act of 1962; and Section 301 of the Trade Act of 1974. All of these tariff authorities have been delegated to the president over time for different purposes.
IEEPA is a broad grant of authority that empowers President Trump to declare national emergencies and respond quickly by executive order through economic means, including their import regulation. IEEPA is the authority that President Trump used in February to declare a national emergency related to illicit drugs and impose a 25% tariff (10% on energy products) on Canada (now exclusive of USMCA compliant imports, a 25% tariff on Mexico (also exclusive of USMCA compliant imports) and an additional 10% (now 20%) on China. If President Trump uses IEEPA authority to impose reciprocal tariffs it will signal rapid execution, while providing maximum flexibility to the president. Legal challenge would be likely, as this broad a use of IEEPA authority is unprecedented.
It is unlikely that President Trump will use Section 232 to impose reciprocal tariffs, a statute which authorizes the president to adjust imports if, after an investigation, the Department of Commerce finds that certain products are imported into the US in such quantities or under such circumstances as to threaten to impact us national security. This is the statute President Trump used to impose 25% tariffs on imports of steel and aluminum into the United States. Section 232 investigations are sector specific and thus may lack the flexibility needed to impose reciprocal tariffs on a wide range of countries. However, the president could use Section 232 to impose tariffs on products such as automobiles, pharmaceuticals or semiconductors alongside imposition of reciprocal tariffs under another statute.
Section 301 of the Trade Act of 1974 is strong candidate for reciprocal tariffs. Section 301 authorizes the imposition of a broad range of actions, including tariffs, to respond to unfair trade practices. This is the authority that President Trump used during his first term to impose multiple tranches or tariffs on China, most of which are still in effect. If the president uses Section 301 as the foundation of his reciprocal tariff plan, it most likely will signal that reciprocal tariffs are more likely to be focused on a narrower group of countries, rather than globally, as it would be administratively difficult, if not impossible, to simultaneous engage in 301 investigations against every nation in the world. Use of 301 would also signify a more formal legal process is underway, possibly providing greater legal durability, as well as the ability and time for targeted countries to negotiate.
Two other statutes could be candidates for President Trump’s reciprocal tariff plan: Section 122 of the Tariff Act of 1974 or Section 338 of the Tariff Act of 1930. Section 122 permits the president to impose import measures, including an import surcharge up to 15% ad valorum for up to 150 days, to address balance of payment deficits between the United States and other countries. Section 122 is a strong possibility, as it can be applied globally, but also allows the president to focus on one or more other countries. If the president uses Section 122, it signals more focus on currency than unfair trade practices, though it could potentially address both through country specific negotiations. Section 338 permits the president to implement “new or additional duties” against imports originating from or imported on a vessel of any country that he finds either (1) imposes “any unreasonable charge, exaction, regulation or limitation” on US goods that are not equally applied to articles from other countries, or (2) otherwise discriminates against the commerce of the United States. Section 338 has been rarely used, and its legal standing is untested. Thus, while it could be a good candidate for reciprocal tariffs, its use would likely be challenged in court. Use of Section 338 by President Trump as the foundation for reciprocal tariffs would demonstrate his further commitment to using every available tool to test the limits of congressionally granted authority.
How Are Reciprocal Tariffs Calculated?
Traditionally, the rate of reciprocal tariffs to be imposed would be equivalent to the tariff rate a foreign nation imposed on US exports. For example, if county X imposed a tariff rate on US exports of 10%, our reciprocal tariff rate would traditionally be 10 percent. However, President Trump indicated that reciprocal tariffs on April 2 will not be limited strictly to tariff rates. Instead, reciprocal tariffs will be determined based on a combination of tariff rates, non-tariff barriers, currency practices and other trade-related policies of US trading partners. The Trump administration has directed the Office of the US Trade Representative (USTR) and the Department of Commerce to conduct a comprehensive review of foreign tariffs and trade barriers to establish an equivalent US tariff rate for each country. This process involves examining import duties, value-added taxes (VATs), subsidies, regulatory requirements and exchange rate policies to quantify their impact on US businesses. The goal is to ensure that US tariffs mirror the trade restrictions imposed by foreign nations on American exports. However, implementing such a tariff structure presents major logistical and economic challenges. Unlike the Most-Favored-Nation (MFN) principle, which applies a uniform tariff across all countries, the proposed reciprocal tariff system would require a customized approach for each trading partner. This would demand a complex administrative process to continually update tariff rates in response to changes in tariff policies. Still, what factors the president uses to determine reciprocal tariff rates will tell us a lot about what practices he deems to be unfair, which helps set the stage for potential negotiations to alleviate those practices.
When Do The Tariffs Take Effect?
This is key. If tariffs begin immediately on April 2, we can expect rapid retaliation from other countries as they will want to negotiate from a position of strength. Rapid imposition of tariffs would likely prove most disruptive to markets and supply chains demonstrating that the Trump Administration is prepared to weather any political or market fallout, as the price of it believing in the merits of tariff policy. If instead, phased rollout is part of the undertaking, that will signal a willingness to engage in negotiations prior to the imposition of higher tariffs indicating that one of the primary rationales behind tariffs are their use as a negotiating tool to alleviate unfair trading practices. Phased tariffs would also provide time for business to adjust their supply chains in anticipation of higher tariffs, and potentially reshore manufacturing into the United States.
How Will Congress And The Market React?
It is important to remember that the constitution grants the US Congress the authority “To lay and collect Taxes, Duties, Imposts and Excises....” This means that how Congress reacts to the president’s unpresented use of delegated tariff authority will be key. Historically, Congress holds the constitutional power to regulate commerce, but over the years, it has delegated significant trade authority to the executive branch. While some lawmakers have pushed for greater oversight, Congress’ ability to block the tariffs is limited unless there is a strong bipartisan effort to reclaim its trade authority. This seems unlikely.
Thus far, Congress’ reaction to the tariffs and President Trump’s proposal to impose reciprocal tariffs has been muted. While some Republicans and Democrats have raised concerns that higher tariffs will lead to inflation, others support the initiative as a way to protect American industries and reduce the trade deficit. If Members of Congress begin to hear concerns about higher tariffs from business and consumers they represent, this sentiment may shift, and Congress could become more vocal.
The markets have reacted with uncertainty as businesses brace for potential supply chain disruptions and higher costs. Many multinational corporations, especially in sectors like automobiles, consumer electronics and agriculture, fear that the tariffs will lead to retaliation from trading partners, making US exports more expensive and less competitive abroad. Additionally, Wall Street analysts have expressed concerns about how the plan could lead to inflationary pressures, particularly if retaliatory tariffs affect imported raw materials used in US manufacturing. These concerns and the expected fallout from retaliatory actions exerts additional pressure on lawmakers. To date, however, the Trump Administration appears willing to tolerate some negative market reaction in order to implement its strong tariff policy.
How Will Countries React?
Some countries, like Mexico and India, are choosing negotiation over immediate retaliation, hoping to secure exemptions or reduce tariffs through diplomatic channels. Mexico, in particular, has taken a measured approach, delaying its response as officials engage with US trade representatives to avoid broad tariffs on steel, aluminum and other key exports. President Claudia Sheinbaum has emphasized that as long as Mexico maintains tariff-free trade under USMCA, reciprocal tariffs should not be necessary. Similarly, India, which has long been criticized for its high import duties, is leveraging its strategic partnership with the United States to avoid harsh measures. With Prime Minister Narendra Modi’s recent visit to Washington, India is positioning itself as a critical economic and geopolitical ally, seeking to reduce its exposure to new tariffs while addressing long-standing trade imbalances. Other countries, such as Brazil, are also taking a wait-and-see approach, attempting to negotiate alternatives before resorting to countermeasures.
Conversely, Canada, the EU and China have escalated their responses, signaling a trade war in the making. Canada, which has been among the most vocal critics of the reciprocal tariff policy, has already announced 25% counter tariffs on US$21 billion worth of US goods, targeting American steel, aluminum, dairy and industrial products. Canadian officials have condemned Trump’s trade policies as “unjustified, unfair and unreasonable,” emphasizing the potential harm to North American supply chains. The EU has also signaled a strong response, announcing retaliatory tariffs on US$28 billion worth of US goods, including beef, whiskey and motorcycles, while preparing additional measures if negotiations fail. Meanwhile, China has targeted US agriculture, imposing tariffs on soybeans, pork and other farm exports while using non-tariff barriers, such as licensing delays and import suspensions, to further squeeze American businesses.
Beijing has also hinted at more aggressive countermeasures, including antitrust investigations into US tech companies and restrictions on rare earth exports, which could severely impact US industries reliant on Chinese materials. With both sides digging in, the risk of a prolonged and economically disruptive trade war remains high.
Prognosis: Buckle Up and Be Prepared
The path forward following April 2 “liberation day” will be rocky and uncertain. Hopefully, the answers to these five questions will help provide clarity to this murky outlook. One thing is certain: higher tariffs are coming. Businesses and stakeholders must prepare to navigate this increasingly complex and unpredictable trade landscape by proactively developing internal strategies to mitigate potential business impact. Either way, be ready for unexpected outcomes.
