Donald Trump is considering declaring a "national economic emergency" to legally justify his plan to impose punishing tariffs on nations the U.S. trades with.
It's not as draconian as it sounds. The declaration is a legal gambit to allow Trump to build a new tariff regime using the International Economic Emergency Powers Act (IEEPA), which enables the president to manage imports during a national emergency.
The IEEPA was enacted in 1977 and allows the president "to prohibit certain financial transactions following a declaration of an 'unusual and extraordinary' economic circumstances."
What intrigues Trump is that the declaration of a national economic emergency allows the president to impose tariffs without strict requirements to prove that the tariffs are necessary.
Trump used the IEEPA in 2019 to impose a 5% tariff on Mexico that would have risen to 25% if Mexico didn't reduce the number of illegals pouring into the United States.
The tariff was never implemented because Mexican officials rushed to Washington to negotiate and ended up agreeing to the "Remain in Mexico" policy that required asylum seekers to remain in a third country while their case was being decided.
“I think the president has broad authority to impose tariffs for a variety of reasons, and there are a number of statutory bases to do so,” said Kelly Ann Shaw, who served as Trump’s deputy assistant for international economic affairs. “IEEPA is certainly one of them.”
They’re also considering revisiting the trade law – known as section 301 – that ushered in Trump’s initial tariffs on China on national security grounds. The Biden administration left the vast majority of Trump’s tariffs in place – and increased tariffs on certain products like electric vehicles – providing a basis for the incoming president to increase or adjust the tariffs as he sees fit. But implementing tariffs under this statute requires a government investigation, and companies affected by the changes often lobby for months to be excluded from the levies.
Nick Iacovella, Senior Vice President, Coalition for a Prosperous America, told CNN, “The Trump team understands we have to rebuild our industrial capacity for reasons of economic and national security, and it will be good for communities and American workers. To accomplish those goals, you absolutely have to have a robust, pro-American trade policy that includes tariffs.”
Trump has indicated that he wants a 10% universal tariff on imports and a 60% tariff on Chinese goods. The IEEPA declaration would allow him to accomplish that goal, at least as far as American law is concerned.
Some economists are concerned that the new tariffs might trigger another round of inflation. It's a real concern, given the huge tariffs Trump wants to impose on China. The total trade between the U.S. and China amounts to $575 billion, and making Chinese goods significantly more expensive will pressure prices on many goods.
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Finding a viable reason for Trump to declare a national economic emergency won't be hard.
An analysis published by the law firm Skadden, Arps, Slate, Meagher & Flom indicates that the IEEPA could be the basis of an increase in tariffs against specific countries, including China, Mexico and Canada, though such a use is untested. "To invoke IEEPA, President-elect Trump would need to declare a national emergency under the National Emergencies Act," the analysts wrote. "In this case, he presumably would declare a national emergency with respect to drug trafficking, particularly involving fentanyl, and with respect to illegal immigration."
As long as the tariffs aren't in place for more than a few months to allow negotiations by Trump to succeed, the risk of inflation should be minimal. That's what Trump did in 2019 with Mexico, and it was successful.
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