Trading on U.S. Executive Power

11 MINS READJan 27, 2017 | 21:50 GMT
Trading on U.S. Executive Power
Some of the changes to tariffs that the Trump administration has proposed could violate U.S. commitments to the World Trade Organization and to other trade pacts.
(ALEX WONG/Getty Images)

U.S. President Donald Trump's first week in office has been a whirlwind of executive action on a number of different policy fronts. Countries around the globe are keeping a particularly close eye on the new leader's positions on trade after Trump threatened to impose tariffs against several states. For instance, the White House recently raised the possibility of slapping a 20 percent tariff on goods imported from Mexico to fund the construction of a wall along the United States' southern border — a cornerstone of Trump's agenda on the campaign trail.

One way Trump could put new tariffs into place is with the help of his Republican allies in Congress. As of now, some of the policy options the president may be considering, including an overhaul of the United States' existing tariff laws, could violate Washington's commitments to the World Trade Organization (WTO) and other trade pacts, leaving them open to challenges through the agreements' established dispute mechanisms.

Of course, Trump hasn't fully endorsed his party's plans to proceed through the legislature, and he has hinted that he may use his executive authority to take action against imports. According to the trade policy his team outlined ahead of his inauguration, Trump has vowed to increase the number of antidumping and countervailing duties investigations, as well as circumvention investigations on both counts. (Circumvention is the practice of shipping goods to another country, ostensibly for a minimal amount of processing, before they reach their final destination elsewhere in an attempt to avoid paying extra antidumping duties.)

Though these investigations are fairly common and straightforward, Trump's advisers are also considering a third approach: Wielding existing laws to their advantage. There are eight statutes the president's team could explore as avenues for using executive action to regulate trade, though Trump's trade policy highlighted only three of them. Each has its own limitations, triggers, areas of ambiguity and options for a president hoping to reshape the country's trade policies without the approval of Congress. We have provided a brief overview of the laws below.

Statutes Named in Trump's Trade Policy

The Trade Act of 1974, Section 201

  • Intent: Section 201 of the Trade Act of 1974 permits the United States to apply temporary safeguard measures in the event that increased imports in domestic industries cause "serious injury," or threaten serious injury, to those industries.
  • Trigger: The president, U.S. Trade Representative, House Ways and Means Committee or Senate Finance Committee can petition the U.S. International Trade Commission (USITC) to initiate an investigation into safeguards.
  • Investigation: Once an investigation is initiated, the USITC has 120 days to complete it and make a recommendation to the president.
  • Outcome: The president can accept or reject the USITC's recommendation and impose safeguards for up to four years, which can then be extended to eight years. Such safeguards, however, cannot be applied bilaterally and must treat all imports of a particular product or sector equally, regardless of their origin. Safeguards can include tariffs and quotas.
  • Constraints: The WTO has its own safeguard agreements, and it has ruled against every U.S. safeguard that has been implemented since its inception in 1994.
  • Last Use: 2002
  • Comments: The USITC also investigates safeguard measures included in the United States' free trade agreements, which can allow for more safeguard measures specific to a country or region, though they can still be challenged.

The Trade Act of 1974, Section 301

  • Intent: Section 301 of the Trade Act of 1974 allows for the U.S. Trade Representative to investigate foreign governments' policies or practices and take punitive action if they violate international agreements or unreasonably, unjustifiably or discriminatorily restrict or burden U.S. commerce.
  • Trigger: In theory, any unfair trade practice can be targeted using this statute. An industry petition or the U.S. Trade Representative can also trigger an investigation.
  • Investigation: In the past, the WTO has ruled that taking punitive action without first gaining approval through the WTO's dispute settlement mechanism is a violation of the organization's rules. The United States has codified this process into law by prohibiting the U.S. Trade Representative from taking punitive action until completing the WTO process and receiving authorization, when the practice in question is covered by the WTO's rules.
  • Outcome: This statute allows the U.S. Trade Representative to suspend concessions under trade agreements; impose duties, trade restrictions and fees; and enter into agreements with the country involved to eliminate the practice in question and/or exact compensatory benefits for the United States.
  • Constraints: In addition to the WTO process, the U.S. Trade Representative must also request formal dispute consultations with the foreign government accused, and any action must be equivalent in value to the burden imposed by the country restricting commerce. Section 301 is designed primarily to deal with discriminatory policies restricting U.S. exports and trade abroad, weakening its utility with regard to wide-ranging tariffs such as the proposed tariff on Mexican imports.
  • Last Use: 2006
  • Comments: Reviving Section 301 as a tool for U.S. trade enforcement would certainly be controversial. But Trump's nominee for U.S. Trade Representative, Robert Lighthizer, has advocated its more aggressive use. Lighthizer has argued that the dispute mechanism the WTO designed to replace the United States' application of Section 301 simply doesn't work in dealings with China's political system and policies. The Trump administration could use Section 301 in areas that it believes do not fall under the WTO's rules.

The Trade Expansion Act of 1962, Section 232

  • Intent: Section 232 of the Trade Expansion Act of 1962 allows the secretary of commerce to conduct investigations, through the Bureau of Industry and Security, into whether certain imports, or high levels of certain imports, pose a threat to national security.
  • Trigger: An investigation can be requested by the head of any department or agency, by petition from an interested party or industry, and by the secretary of commerce.
  • Investigation: By law, the secretary of commerce has 270 days to present an investigation's findings to the president. Though the definition of national security is not defined, the Bureau of Industry and Security recently listed the conditions for threatening national security as an activity "fostering U.S. dependence on unreliable or unsafe imports; or fundamentally threatening the ability of U.S. domestic industries to satisfy national security needs."
  • Outcome: If the investigation concludes that U.S. national security has been harmed, the president can take steps to restrict imports. (There is no limit on the extent of those restrictions.)
  • Constraints: This statute generally has been used to target specific industries or sectors; it has not been used to single out specific countries. That does not mean Trump could not try to use Section 232 to justify restrictions on Chinese steel imports, or on other heavy industrial goods and raw commodities. It would be much harder, however, for investigators looking into consumer electronics or other products to conclude that such imports are a threat to national security using the criteria above. Moreover, the United States could expect to see WTO cases arise in response to any action it takes based on this statute. Nevertheless, the United States could cite the Article XXI of the General Agreement on Trade and Tariffs (GATT), which essentially allows Washington to suspend some aspects of the WTO and GATT in the name of national security.
  • Last Use: 2001 (The investigation ruled there was no impact to national security.)
  • Comments: Article XXI has never been subject to a dispute in the WTO, and the use of it would undermine the effectiveness of the organization's dispute settlement mechanism. In implementing it, the United States would risk inciting a trade war in which all parties involved would use the clause to justify targeting one another with punitive measures.

Statutes Not Named in Trump's Trade Policy

The Trade Act of 1974, Section 122

  • Intent: Section 122 of the Trade Act of 1974 permits the president to impose temporary import tariffs of up to 15 percent to address a large balance of payments deficit.
  • Trigger: There is no clear definition as to what constitutes a large balance of payments deficit.
  • Investigation: None
  • Outcome: The president imposes temporary tariffs of up to 15 percent (and, in some circumstances, quotas) on specific goods that last only 150 days unless extended by an act of Congress.
  • Constraints: Legally, the act dictates that any tariff introduced "shall be applied consistently with the principle of nondiscriminatory treatment" but, "notwithstanding [to that], if the president determines that the purposes of this section will best be served by action against one or more countries having large or persistent balance-of-payments surpluses, he may exempt all other countries from such action." This could give Trump some legal ground to stand on in slapping tariffs on only some countries.
  • Comments: Most challenges to the tariffs would take place in the WTO, but a ruling would not be issued for at least 18 months. The measures could also be contested in U.S. federal courts.

The Tariff Act of 1930, Section 337

  • Intent: Today, Section 337 of the Tariff Act of 1930 is widely used to investigate unfair trade practices involving intellectual property infringements in imports. It also can be used to investigate other practices, including those that threaten to destroy a domestic industry, prevent the emergence of an industry, and monopolize or restrain trade and commerce in the United States.
  • Trigger: Investigations can be initiated by the USITC or by petition from an industry.
  • Investigation: Cases are more legal in nature than most trade disputes, and they are typically heard by an administrative law judge.
  • Outcome: If a violation is found, then the USITC usually issues an order barring the entry of the products involved in the case to the United States.
  • Constraints: Trump would have almost no control over this process, or any ability to directly influence it.
  • Last Use: 2017
  • Comments: A key case is currently working its way through the system. U.S. Steel has filed a complaint against nearly all Chinese manufacturers of carbon and alloy steel. If the case plays out in U.S. Steel's favor, the United States could ban virtually all imports of Chinese carbon and alloy steel. It would also set an important precedent for the USITC as it moves to open more cybersecurity, countervailing duties and antidumping circumvention investigations.

The Tariff Act of 1930, Section 338

  • Intent: Section 338 of the Tariff Act of 1930 gives the president the ability to impose new tariffs or duties of up to 50 percent on imports from countries that have enacted limitations that unfairly restrict U.S. commerce abroad compared with that of other countries.
  • Investigation: The USITC would lead the investigation.
  • Outcome: If the United States determines that another country is undertaking such practices, the president can place tariffs of up to 50 percent on the offending country. If the nation in violation does not remedy the situation after the president issues the first notice, the White House can move to restrict some or all imports from the offending country from entering the United States.
  • Constraints: This long-standing law remains in force, but it is not included in the House Ways and Means Committee's 1,500-page blue book on U.S. trade statutes. In some ways, other statutes have superseded this law. Moreover, its use would be tough to justify since the WTO has included the concept of "most favored nation" in its architecture.
  • Last Use: 1949 (Was discussed but was not acted upon.) 

Trading With the Enemy Act of 1917, The International Emergency Economic Powers Act of 1977

  • Intent: The Trading With the Enemy Act of 1917 (TWEA) and the International Emergency Economic Powers Act of 1977 (IEEPA) grant the president sweeping powers to regulate commerce while the United States is at war (TWEA) or in the midst of an international emergency (IEEPA).
  • Trigger: The president can implement these acts when the United States is at war (TWEA) or when he invokes the National Emergency Act (IEEPA). Doing so does not require congressional approval.
  • Investigation: None
  • Outcome: Under TWEA and IEEPA, the president can regulate all forms of international commerce and freeze assets, though the statute does not specifically grant the president the power to institute tariffs on imports. (This would require a broader interpretation of the term "regulate.") Of the two laws, IEEPA calls for slightly more congressional oversight than TWEA does.
  • Constraints: The use of IEEPA as a justification for imposing tariffs or making similar threats would be an extremely unusual approach that would likely be challenged in U.S. courts and the WTO. TWEA and IEEPA are more often used to level sanctions against countries through executive order — including those put in place against Iran and Russia.
  • Last Use: 2016 (IEEPA)
  • Comments: TWEA was originally passed in an effort to give the president considerable power in regulating commerce during wartime. In 1933, it was amended to include national emergencies. Franklin D. Roosevelt used the act to gain more direct powers and declare a banking holiday during the Great Depression. IEEPA, for its part, was designed to split the application of TWEA into two laws, one that continued to grant the president power to regulate commerce with enemies during times of war (TWEA) and one that would grant the president power during times of economic emergency, with greater congressional oversight (IEEPA).

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