Published 21 January 2025
President Donald Trump’s threat to impose 25% tariffs on all Mexican and Canadian imports, along with an additional 10% tariff on all Chinese imports, on Day One of his presidency over their alleged inaction against illegal immigration and drug trafficking raises more questions than answers.
Setting aside the foremost question of whether trade actions are appropriate remedies to address immigration, drug trafficking, fentanyl production, and other concerns, does US law, specifically, the International Emergency Economic Powers Act (IEEPA) – the authority the Trump administration will be most likely to cite – grant the President this power?
Arguably, yes, although Trump’s actions are certainly vulnerable to legal challenge.
Legal authority and challenges
IEEPA grants the US President broad and sweeping powers that could certainly be interpreted to encompass trade actions, although the IEEPA does not mention tariffs, duties, or import restrictions. The IEEPA allows the President, after declaring a national emergency, to deal with any “unusual and extraordinary threat” including by regulating transfers in foreign exchange, and import and export of relevant property. Trump may declare a national emergency relating to drug trafficking and illegal immigration to serve as a justification for these and other actions he intends to take.
On the one hand, courts have shown great deference to a President’s authority during national security emergencies, including when interpreting the IEEPA. Although no President has ever invoked the IEEPA to impose tariffs, President Richard Nixon’s use of the Trading With the Enemy Act (TWEA) to impose a 10% tariff on all US imports arguably provides legal precedent for doing so, as the IEEPA amended and updated the TWEA.
Related Article
On the other hand, the IEEPA does not specifically mention tariffs or other import restrictions, which could be a problem. The US Constitution gives Congress authority to impose tariffs. When Congress delegated this authority to the Executive Branch, it did so with specificity. A good example is Section 232 of the Trade Expansion Act of 1962, which tells the Executive what to do at the nexus between tariffs and national security, and in detail instructs the Executive Branch on the actions it must take to determine whether there is a national security threat with respect to imports. Legal challenges could argue that the IEEPA is silent on tariffs because other legal authorities, like Section 232, explicitly provide the relevant tools.
Although unlikely given its current composition, Congress can also vote to terminate a national emergency declaration if one is declared over matters Congress views as a non-emergency. This occurred in 2019, though Trump subsequently vetoed that termination.
The costs of tariffs on Canada and Mexico
If imposed, these tariffs will place a terrible burden on US importers, which will certainly be passed on to American consumers, as demonstrated by multiple economic studies conducted on the impact of tariffs on China since 2017. Joshua Meltzer of Brookings calculates that the US imports about US$900 billion worth of goods from Mexico and Canada – about one-third of its total imports – which support about 4.5 million US jobs. Some goods, especially autos, are part of complex supply chains that cross the border multiple times and thus would incur tariffs repeatedly, likely forcing complex supply chains to break apart. One analysis found that 25% tariffs on Canada and Mexico could add about US$3,000 to the average cost of every car sold in the US According to another estimate, a 25% tariff on Mexican imports could cost the United States US$125 billion over 10 years, reducing US gross domestic product (GDP) by 0.5% to 0.74% points. The US is the destination for 75% of all Canadian goods and services exports, and according to one calculation, Americans could expect as much as a 0.9% reduction in US GDP in the coming two years. Studies calculate deep and significant negative impacts on the Canadian and Mexican economies as well.
Related Article
US exporters would also suffer, as both Canada and Mexico may retaliate by imposing their own tariffs on US exports. Mexico has already pledged to do so and Canada is reportedly considering retaliation targeting US$105 billion of US imports. Many exporters are already suffering under retaliatory tariffs imposed by China and other countries in response to Section 232 and Section 301 tariffs imposed during the Trump Administration and maintained under the Biden Administration.
Other costs may be harder to measure but no less significant.
Uncertainty in trade relations will inhibit business operations. Businesses require predictability in trade relations in order to plan their operations and build stable, efficient supply chains. If he takes this action, Trump will introduce uncertainty in US business operations involving Canada and Mexico that depend on cross-border supply chains built over decades under the rules of the North American Free Trade Agreement and the US-Mexico-Canada Agreement. It also throws into doubt whether USMCA rules will endure past 2026, when the parties are scheduled to review USMCA’s status. Businesses that might otherwise want to expand operations, invest in research and development, or hire new workers will avoid doing so if they now expect to incur additional costs from tariffs or shifting supply chains. Businesses that might have considered moving operations from China to Mexico to avoid tariffs will look elsewhere, with the knowledge that no location is necessarily safe from Trump’s tariffs. While one goal of the tariffs is to force manufacturers to produce more in the United States, not all companies will be able to absorb the higher costs of operating in the US or find workers in the US labor market and might struggle to stay in business.
Imposing tariffs in this context and under a national emergency declaration will exacerbate the erosion of the rules-based international trade system and undermine the credibility of US commitments under trade agreements currently in force, as this action will likely break both USMCA and WTO rules even if “national security” is cited as a justification. The central role that national security objectives now play in economic policy making, and the increasingly frequent claims of “national security” to justify protectionist economic measures, raise the question of whether there is any clear limit to a government’s ability to impose tariffs, even under international trade rules still in force. This action will worsen this trend.
This action will undermine US credibility in current and future trade negotiations. Taking this action against trading partners like Mexico and Canada, under an authority like the IEEPA, sends dangerous signals about the United States’ credibility in negotiations and as a trading partner. If the United States could do this to its closest allies, neighbors, and largest trading partners at such economic great cost, then why should any nation trust any trade agreement the US makes?
Related Article
Lastly, if actions Trump takes on tariffs are too extreme, Congress could curtail presidential powers to apply tariffs or other import restrictions. Congress could revise legislation to specify that the IEEPA does not grant the authority to impose tariffs, or that any presidential imposition of tariffs be subject to Congressional approval. Any restrictions Congress places on Trump would also apply to future administrations.
There is no telling what the coming weeks and months will bring for the global economy given Trump’s apparent determination to impose tariffs. As some argue, the tariffs may simply be an opening gambit to spur negotiations and concessions from Canada, Mexico, and China. The world can only hope that rational heads prevail, and that a more constructive and less economically damaging approach is taken to address these serious and important challenges.
For an in-depth analysis and history of the IEEPA, see this detailed Congressional Research Service report.
© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).
Author
Holly Smith
Holly Smith is a consultant in Hong Kong advising on trade and investment policy developments. She is a contributing writer to the Hinrich Foundation, responsible for the "What We’re Reading" bimonthly reading list and "How to Use It" guides. She also consults for Asia Society Hong Kong Center, developing their business and policy programs.
Have any feedback on this article?
Related Articles
Trending Topics
BACK TO TOP