 |
| Hodine Williams |
Let us delve into the intricacies of U.S. tariff laws, tracing their historical evolution and exploring their profound economic and political ramifications. Beyond this, we shall examine the delicate interplay between domestic policy and international law, uncovering the forces that shape global trade dynamics. Only then can we truly grasp why tariffs remain one of the most contentious instruments in the arsenal of economic diplomacy.
The basics: What are tariffs and why do they exist?
Tariffs are essentially taxes imposed on imported goods and services. Historically, they were a primary source of government revenue, especially in the 19th century. Today, their role has shifted from revenue generation to protecting domestic industries, addressing unfair trade practices, and advancing political and national security objectives.
The U.S. Constitution grants Congress the power to impose tariffs, but over time, much of this authority has been delegated to the Executive Branch, particularly the president and agencies like the United States Trade Representative (USTR). This shift has made tariffs not just economic tools but also instruments of foreign policy and geopolitical strategy.
The legal framework: Justifying tariffs in a globalized world
The modern global trade system is built on the foundation of the World Trade Organization (WTO), which emerged from the General Agreement on Tariffs and Trade (GATT) after World War II. The WTO’s primary goal is to reduce trade barriers and prevent the kind of protectionist policies that exacerbated the Great Depression. Its core principles include non-discrimination, binding commitments, transparency and safety valves. These principles are designed to create a level playing field for all member nations, but why would this work perfectly right? Invariably, they also leave room for exceptions and disputes.
Take, for example, the Most-Favoured Nation (MFN) rule, which requires that any trade concession granted to one member must be extended to all WTO members. On the surface, this seems fair and equitable. But oh, the nuances; just dig a little deeper, and you’ll find a web of exceptions and loopholes. Preferential treatment for developing nations, Free Trade Agreements (FTAs), and retaliatory measures against unfair trade practices all complicate this. The WTO’s rules are meant to foster cooperation, but they also reflect the realities of “power politics.” Wealthier nations like the United States have often been said to polarize the system and are seen to have more leverage in negotiations, while developing countries, for various reasons, often struggle to compete on equal footing.
Countries agree to “bound rates,” which are maximum tariff levels they pledge not to exceed. For developed nations like the United States, bound rates often align with applied rates, while developing countries may set higher ceilings. This system is intended to provide predictability and stability in global trade, but it’s not without its flaws. During the Doha Round of WTO negotiations, for instance, the United States pushed for lower bound rates from emerging economies like China and India, but the talks ultimately collapsed. The failure of the Doha Round highlights the challenges of achieving consensus in a world where economic interests often clash.
Transparency and safety valves round out the WTO’s toolkit. Member nations are required to publish and report their tariff rates, ensuring a degree of openness and accountability. At the same time, the WTO allows countries to impose temporary tariffs to counteract unfair trade practices or sudden import surges that threaten domestic industries. These provisions are meant to strike a balance between free trade and fair trade, but they also leave room for interpretation — and exploitation.
The U.S. tariff regime: A complex web of laws and policies
The United States employs various laws to impose tariffs, each with its own rationale and methodology. Key pieces of legislation include the Smoot-Hawley Tariff Act of 1930, s. 232 of the Trade Expansion Act of 1962, ss. 201 and 301 of the Trade Act of 1974, and the Harmonized Tariff Schedule (HTSUS).
The Smoot-Hawley Tariff Act, enacted during the Great Depression, is often cited as a cautionary tale. It raised duties on hundreds of imports to protect American businesses but in its early days the resultant effects of its use were heavily criticized as having unwanted effects. In essence, its use triggered retaliatory tariffs, exacerbating the global economic downturn.
Section 232 of the Trade Expansion Act allows the president to impose tariffs on imports. Can you guess the usual rationale? Of course, ‘if it threatens national security.’ The Trump administration invoked this section to justify tariffs on steel and aluminium in 2018, sparking controversy over the use of national security as a justification for tariffs.
Sections 201 and 301 of the Trade Act of 1974 provide additional tools for “addressing trade imbalances.” The infant industry argument is touted here. Section 201 allows for the temporary imposition of tariffs to protect domestic industries from import shocks, while s. 301 authorizes retaliatory tariffs against countries engaging in unfair trade practices such as intellectual property infringement. While proponents argued these tariffs safeguarded critical industries, critics pointed to higher costs for manufacturers and strained relations with allies. The use of national security as a justification for tariffs is particularly controversial, as it blurs the line between economic policy and geopolitical strategy.
Next, the Harmonized Tariff Schedule (HTSUS) serves as the rulebook for U.S. tariffs, classifying every imaginable product and assigning tariff rates based on factors like material, usage and country of origin. Albeit complex, proponents argue that despite its intricacies, the HTSUS reflects the United States’ commitment to a rules-based trade system.
This is the first part of a two-part series.
Hodine Williams has over 20 years of experience in law, corporate governance and regulatory compliance across the legal, financial, hospitality and engineering sectors. A former prosecutor and expert in digital forensics, financial crimes and cyber law, he has advised corporations in Jamaica, Canada and the United Kingdom. Holding a master of laws in international business law from Osgoode Hall Law School, along with degrees in management and economics and law, Williams is also an educator, philanthropist and advocate for youth development and racialized communities. You can reach him at hodine.williams@gmail.com.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
Interested in writing for us? To learn more about how you can add your voice to Law360 Canada, contact Analysis Editor Peter Carter at peter.carter@lexisnexis.ca or call 647-776-6740.