The Issues
1. Ruling Gives Washington a Chance to Undo Damage and Build a New System
2. Will East Asian Allies and Partners Maintain Their Trade Deals?
3. The Court’s Ruling Limits Trump’s Leverage in Future Talks
Ruling Gives Washington a Chance to Undo Damage and Build a New System
The Supreme Court’s decision on the International Emergency Economic Powers Act (IEEPA) opens the door for the Trump administration—and for Congress—to fix previous damage to allied cooperation on global trade and to the global economy. The Trump goal to rebalance trade cannot be achieved by the executive branch’s unilateral and often arbitrary actions. There needs to be some expectation of stable rules for market-oriented economies to function well and provide the mutual benefits of that trade. Business investment around the world has been stymied by the uncertainties unleashed by fast-changing tariffs unmoored from a stable and predictable set of rules.
Meeting the challenge of mercantilist China, which honors its commitments to global trade agreements only when it advances Beijing’s goal to undermine the US-centric political and economic leadership, will require the US to work constructively with allies. But the World Trade Organization has shown it cannot meet China’s authoritarian challenge. So the United States needs to build a new system of trade and financial leadership that excludes China.
This ruling gives Washington a renewed opportunity to work with allies and forge durable new structures that promote mutually beneficial agreements. The economic drag the White House created in its early days through trade wars and geoeconomic uncertainty should be blunted and reversed. Congress and the president should start doing so by returning to stable new arrangements between like-minded allies.
Will East Asian Allies and Partners Maintain Their Trade Deals?
The Supreme Court’s ruling is unlikely to have a major effect on the trade and investment deals the Trump team has negotiated with Japan, South Korea, and Taiwan. These countries have approached negotiations in good faith from the start, with the intent of seeing these deals through, regardless of whatever happens in the court.
There are many remaining tariffs that affect the majority of exports from these East Asian countries, primarily on automobiles and semiconductors. Tokyo, Seoul, and Taipei will want to avoid the higher levies they faced before making deals with Trump’s negotiators. The new global tariff rate of 15 percent is on equal terms to the reciprocal tariff rate of 15 percent these nations previously negotiated. But this rate only affects a minority of their exports to the US.
Yet there is a more subtle downside for Japan, South Korea, and Taiwan: they have lost their slight edge over countries like Vietnam, Malaysia, and Indonesia. Where exports from these countries previously faced reciprocal tariffs around 20 percent, they will all be on equal terms under the new 15 percent global tariff.
With the additional announcement that current Section 232 and 301 tariffs will remain, and that the administration will launch new Section 232 and 301 investigations, countries like Japan, South Korea, and Taiwan, which negotiated trade deals that give them preferential treatment on current and future Section 232 tariffs, will want clarity on what this means for their deals going forward.
The Court’s Ruling Limits Trump’s Leverage in Future Talks
In today’s opinion, Chief Justice John Roberts highlighted the “significant procedural limitations in other tariff statutes.” With IEEPA powers now set aside, the administration is forced to rely on alternative trade provisions to impose tariffs, bringing these statutory constraints into sharp focus.
Because the administration frequently uses tariffs not just for domestic protection, but as leverage in trade negotiations and enforcement, these procedural limitations may significantly impact America’s broader trade strategy.
Below are four ways these limitations affect the administration’s negotiating power:
- Tariff caps under Section 122. Trump has previously used the threat of steep, across-the-board tariffs—including 24 percent on Japan and 32 percent on Taiwan ahead of “Liberation Day”—to force countries to the bargaining table. He ultimately settled for 15 percent on goods not covered by Section 232. However, if Trump institutes these tariffs through Section 122 of the Trade Act of 1974 as he announced he would, the tariffs will be capped at 15 percent and limited to 150 days in duration.
- Blunting the “stick” of enforcement. In investment agreements with other nations, the primary penalty for noncompliance or competing with the administration’s priorities has been the threat of higher tariffs. Because Section 122 caps this at 15 percent for 150 days, the administration is already applying maximum pressure, weakening US leverage in further negotiations.
- The Section 232 hurdle. Alternatively, the administration could try to use Section 232 national security tariffs to punish noncompliance. But doing so would require a convoluted legal argument: the administration would have to essentially prove that a foreign country’s failure to invest directly exacerbates the specific national security threats originally targeted by, for example, the steel and aluminum, auto, or semiconductor tariffs.
- The Section 301 option. Section 301 requires the administration to demonstrate an unfair trade practice. It is specifically designed to penalize countries that violate trade agreements or engage in policies that unjustifiably burden US commerce. The administration, however, cannot impose Section 301 tariffs overnight through a sudden announcement. The Office of the US Trade Representative (USTR) must formally initiate an investigation, solicit public comments, hold hearings, and publish its findings. Historically, this process has taken up to 12 months.