The next administration's tariff plans could quickly become a focus of lawsuits that are sure to mean more uncertainty for businesses trying to weigh the effects of a second round of Trump trade policies in the coming months.
The legal questions are expected to mount quickly if the president-elect and his team try to move quickly and dramatically on tariffs in the early days of his administration. New signals sent this week suggest that is their intention.
During a news conference Tuesday, Trump reiterated his desire for tariffs — including "substantial" duties on Canada and Mexico, among other countries.
The legal challenges Trump may face if he follows through could be most acute if he tries to use a 1977 law called the International Emergency Economic Powers Act (IEEPA) — perhaps the most muscular and rapid route to new tariffs — to declare an economic emergency and act quickly.
President-elect Donald Trump arrives to speak to members of the media during a press conference at the Mar-a-Lago Club on Jan. 7. (Scott Olson/Getty Images) ·Scott Olson via Getty Images
But it's also the path that could be most vulnerable to legal challenges if it's used for new tariffs, according to experts, as relevant portions of the law haven't been legally tested in decades.
If Trump were to go the IEEPA route, "he would almost certainly be sued by somebody," William Reinsch, a longtime trade policymaker now at the Center for Strategic and International Studies, said in an interview with Yahoo Finance last year.
Business groups from the US Chamber of Commerce and the Business Roundtable could be at the center of any legal pushback, but other sector-specific groups could get involved depending on the details of any such moves by the new administration.
Any lawsuit would likely have to wait until after the tariffs are formally proposed, and opinions differ about how likely any such challenge is to succeed. Any legal fight would likely be an uphill one but would clearly be yet another factor for importers to weigh.
One key early question is likely to be whether a sympathetic judge would be willing to freeze implementation of any tariffs while the case is in the works.
A potential for dramatic duties — and quick implementation
At the center of the likely legal questions to come are long-dormant presidential powers that could allow for both higher duties than those seen in Trump 1.0 — and a quicker implementation.
Henrietta Treyz, Veda Partners director of economic policy research, discussed the IEEPA option in a Yahoo Finance appearance on Monday and laid out one dramatic scenario: steep new tariffs from Trump using the authority that could also be deployed in as little as 12 hours.
"So the Street should be ready for that," she said.
During the campaign, Trump regularly promised historically high duties, including 20% universal tariffs on the world and 60% or higher tariffs on China.
He has reiterated his tariff threats often in recent weeks, even suggesting this week that Denmark could be a tariff target because it currently oversees Greenland. Trump wants to acquire Greenland, but it is currently overseen by the European nation as an autonomous territory.
Donald Trump Jr. traveled to Greenland this week to tout the incoming Trump administration's interest in aquiring the territory.. (EMIL STACH/Ritzau Scanpix/AFP via Getty Images) ·EMIL STACH via Getty Images
A second potential quick strike option that has also been discussed in Trump's circles is Section 338 of the Tariff Act of 1930.
Two lawyers at Covington & Burling LLP highlighted this "long-forgotten" presidential power in 2016, noting that it grants the president "substantial albeit qualified powers" to impose tariffs on countries the White House feels have discriminated against the US.
Three slower — but more legally tested — options
There are other options that Trump could also use. These more familiar presidential authorities are ones that both Trump and President Biden have invoked in recent years.
These options could be safer from legal challenges but with one clear downside for Trump — and his eagerness for quick moves — in that they could take months to play out and have more limits on how high duties can go.
One option is national security tariff authority under Section 232 of the Trade Expansion Act of 1962. There's also Section 301 of the Trade Act of 1974, which gives the president the power to levy tariffs for a wider array of reasons.
Trump's choice for Secretary of Commerce, Cantor Fitzgerald Chairman and CEO Howard Lutnick, is set to be at the center of the incoming Trump administration's trade policy. (Andrew Harnik/Getty Images) ·Andrew Harnik via Getty Images
The specifics of those two options differ, but both require more formal investigations by the Department of Commerce before the duties can go into place.
Even that slower option could be faster than many expect.
"Something that is different in Trump 2.0, versus Trump 1.0, is that some of those investigations have already occurred," Raymond James Washington policy analyst and managing director Edward Mills added in a recent episode of the Capitol Gains podcast, citing certain goods from China that have been in Washington's focus for years.
Trump's previous China tariffs were enacted under Section 301 authority, with an investigation beginning in August 2017 and concluding over a year into his presidency in March 2018.
Biden leaned primarily on Section 301 authority while making his own tariff moves but cited Section 232 authority as well. Biden kept most of Trump's tariffs in place, and even added a few more, over the last four years.
The slowest option — but one that could be most immune to lawsuits — would be for Trump to formally consult Congress.
That is one route he appears less likely to embrace in the short term, though it could be part of negotiations around paying for tax cuts in the years ahead.
"I don't need Congress, but they'll approve it," Trump said of his tariff authorities during the 2024 campaign.
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance's Rachelle Akuffo, Rick Newman, and Ben Werschkul bring you a unique look at how US policy and government affects your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
