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Trump’s Tariffs

Trump’s Basis for Tariffs

In February 2025, President Trump declared national emergencies and invoked the International Emergency Economic Powers Act (IEEPA) to impose tariffs on Canada, Mexico, and China, citing concerns over fentanyl trafficking. In April 2025, he declared a fourth national emergency to implement worldwide “Liberation Day” tariffs of 10 percent globally plus “reciprocal” tariffs of up to 50 percent on selected countries. The administration asserts these actions fall under IEEPA’s broad grant of authority to “regulate…importation” during declared emergencies.

IEEPA was enacted in 1977 to cabin the broad emergency powers previously granted under the Trading With the Enemy Act. While IEEPA gives the President authority to regulate imports during emergencies involving “unusual and extraordinary threats,” the statute does not explicitly mention tariffs.

Multiple lower courts—including the Court of International Trade and the U.S. Court of Appeals for the Federal Circuit—have ruled that IEEPA does not authorize tariff imposition, invalidating the executive orders establishing these tariffs.

The legality of Trump’s tariffs is currently being reviewed by the US Supreme Court.

What is a tariff?

A tariff is a tax imposed by a government on a company’s products that are imported into the U.S. For example, a 10% tariff on Chinese goods imported by Walmart into the US would raise the cost of those goods by 10% to Walmart. Companies that export goods pay tariffs, not governments.

The positive side of tariffs is that they generate revenue for the country that imposes the tariffs. They also encourage companies to establish manufacturing facilities inside the US to avoid additional costs.

The negative side of tariffs is that they are often met with opposing tariffs on goods exported to the other country in retaliation. This is often referred to as a Trade War. For example, a tariff on imported electrical goods from China might be met with a tariff by China on US agricultural products. This reduces demand for imported products and encourages the importation of goods from other countries without tariffs. This can lead to a permanent shift in supply chains.

Another cost is that companies often pass the higher costs of imported goods on to the consumers, so ultimately, the tariffs could end up raising the cost of goods to the consumers.

Many companies assemble products that use parts imported from other countries. As a result, tariffs can raise the cost of domestically produced products as well.

While tariffs can encourage companies to create domestic manufacturing, it can take years to build new plants. This can lead to shortages due to production disruptions.

Here is what Investor’s Business Daily said about tariffs-

In today’s market-leaning global economy, many economists argue that they are bad for the economy and harmful to consumers.

For instance, the Smoot-Hawley Tariff could be perceived as worsening the Great Depression in the 1930s. In an attempt to strengthen the U.S. economy during the Great Depression, Congress passed the Smoot-Hawley Tariff Act, which increased tariffs on farm products and manufactured goods.1 In response, other nations, also suffering from economic malaise, raised tariffs on American goods, bringing global trade to a standstill. Because of the tariffs during that era, economists have estimated that overall world trade declined about 66% from 1929 to 1934.