Court Stops Trump Reciprocal and Fentanyl Tariff
• The Trump administration will likely follow a multi-track response by appealing the judgement but also fast-tracking section 232 product tariffs for pharmaceuticals and semiconductors. The administration could also consider section 301 or 122 tariffs (the latter 15% for 150 days against countries with large surpluses) to keep up pressure for trade deals. Europe could also be asked to pay for U.S. military protection like Japan.
The U.S. court of international trade has issued a final judgement stopping President Donald Trump’s Reciprocal and Fentanyl tariff.
Our initial thoughts include the following
• Appeal to Federal court and Supreme court. The Trump administration has already appealed to the Federal court yesterday, but faces a legal problem that the U.S. court of international trade judgement is final and must be implemented in 10 days. The Trump administration will hope that the Federal court passes an amended judgement, but will likely now change tactics for tariff pressure with other countries. In the meantime the effective tariff rate could fall to around 7%.
• Product and 301 tariffs. The judgement does not impact section 232 tariffs for cars, steel and aluminum. This will likely encourage the Trump administration to announce more product tariffs to keep pressure on other countries to do trade deals. A 25% tariff on pharmaceuticals could be first and now the odds have increased again of a 25% tariff on semiconductors and lumber. The administration could also use 301 tariffs as well, but that would require investigation and would take months. Washington experts also note that section 122 allows tariffs of up to 15% for 150 days for countries that have large or serious balance of payments surpluses with the U.S. This could replace reciprocal tariffs for the top 15 countries e.g. China, EU, Japan, India, Vietnam, Taiwan, S Korea.
• Trade deals delayed. Japan, Vietnam, India, S Korea and Taiwan have been fast-tracked by the Trump administration for trade deals after the UK, but they will all likely delay for a number of weeks to see how the Trump administration policy evolves. However, the Trump administration is likely to raise new 232 product tariffs or use section 122 if its appeal is unsuccessful to pressure for trade deals. However, countries with small surpluses or deficits with the U.S. will feel under less pressure. China and the EU trade deals are also unlikely to progress in the next few months until the administration can put pressure on them again . For the EU, the U.S. could also demand payment for protection of Europe via the U.S. military and this could occur before the June NATO summit. Japan and S Korea already pay the U.S. something, but could now be asked for more.
We will watch how the Trump administration react and review our forecasts in the June Outlook, due to be published on June 25.