President Donald Trump will probably resort to a commercial law of 1930, largely forgotten for decades, to support his new reciprocal tariffs in the US, which will match the largest taxes on imports from other countries, according to experts in commerce and law.
Trump has said that the new US tariff rates would be in force “almost immediately”, and section 338 of the 1930 Commerce Law would provide a quick path to impose them.
The law appears only sporadically in government records. It allows the President to impose rights of up to 50% on imports from countries that are considered to discriminate American trade.
This authority could be activated when the president determines that a country has imposed a “charge, demand, regulation or irrazonable limitation” that does not apply equally to all countries.
It can also be activated by discrimination in customs rights or other rates, regulations or other restrictions that “harm” US trade.
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Trump has been complained for a long time that EU charges tariff rates lower than most other countries. The 10% tariff of the European Union on cars, which is four times the rate of 2.5% EU for passenger cars, is a particularly delicate point for the president.
“I think that is exactly the way they will follow,” said Dan Cannistra, partner of the Crowell & Moring law firm, about section 338.
“They will tell the EU: ‘They are giving Korea 0% in cars, but they are charging us 10%. They are discriminating against. ”
Fast action
The commercial tools that Trump used in his first mandate would take more time to impose tariffs, including section 232, on national safety for steel and aluminum, and section 301, on unfair commercial practices for Chinese imports. These measures require public investigations and comments, which can take months.
Until now, in his new mandate, Trump has favored tools that allow immediate actions on tariffs. They included the unprecedented use of the International Emergency Emergency Powers Law to impose tariffs: 10% on Chinese products and a deadline in March for 25% tariffs on goods in Mexico and Canada for fentanil and border security.
On Monday, Trump simply modified his prior proclamation of section 232 on metals to rap March.
Section 338 is in that same category of rapid action remedies, allowing the president to act unilaterally and impose tariffs in 30 days, said Nazak Nikakhtar, former senior official of the Department of Commerce during Trump’s first mandate.
Nikakhtar, now a partner of the Wiley Rein law firm, said the Trump’s first mandate commercial team investigated scenarios to use section 338, but opted for more family tools.
“The conclusion was that it was a valid law. The congress could have repealed it, but did not, ”said Nikakhtar. “His benefit is more immediate.”
A White House spokesman did not respond to Reuters’s request on the possible use of section 338.
Protectionist policy
The Commerce Law of 1930, which includes section 338, is better known for the massive increases of tariffs in the US and the subsequent reprisal that, according to economic historians, aggravated the great depression of the 30s.
After World War II, countries sought to standardize global tariff rates to avoid the return of protectionist economic policies prior to war, marked by competitive commercial restrictions and monetary devaluations.
The most favored nation rates (MFN), mutually agreed, formed the basis of the General Agreement on Customs and Commerce Tariffs (GATT) of 1947 and its successor in 1995, the World Trade Organization (WTO).
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John Veroneau, whose research in 2016 helped renew interest in section 338, said a unilateral Trump movement to impose such tariffs would effectively dismantle the MFN system.
“It would be an earthquake in Geneva to announce that EU intends to get away from the Unconditional MFN and negotiate its tariff programs bilaterally,” said Veroneau, an former Commercial Representative of the US during the administration of George W. Bush and partner of the Covington & Burling law firm.
He said the administration of Franklin Roosevelt threatened to impose tariffs of section 338 in the 30s against France, Germany, Spain and Japan, but never did.
When the communist forces consolidated China’s control in 1949, a telegram of the then Secretary of State Dean Acheson mentioned section 338 as a possible appeal against the “communist commercial policy”, which discriminated against US trade. Acheson said the president could completely exclude Chinese imports.
The telegram is the last known official reference of the US government to the law, according to Veroneau.
Difference in rates
It is not clear if Trump’s action will be wide or addressed only to some sectors or countries. But the core of its tariff action will be aimed at aligning US rates with, often, higher rates from other countries.
The Economic Advisor of the White House, Kevin Hassett, said on Monday that the high rates of India block imports.
The average weighted nation tariff rate of the US is approximately 2.2%, according to WTO data, compared to 12% of India, 6.7% of Brazil, 5.1% of Vietnam and 2.7% of the countries of the European Union.
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Although tariff rates have been agreed by US administrations over time, Cannistra said that the use of section 338 by Trump would resist legal challenge because the evolution of the tariff system is “full of inconsistencies” that have been negotiated by countries to protect their economic interests.
“There is no other conclusion than that discrimination exists, and you could probably find it in 30 seconds looking at competitors’ tariff programs,” said Cannistra.
In addition to the different tariffs, Nikakhtar said that Trump could include regulatory practices from countries that exclude US products such as a form of discrimination against US trade, such as import restrictions on genetically modified crops or security standards and emissions of emissions vehicles in the European Union and Japan.
With Reuters information
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