© [2019], Sandler, Travis & Rosenberg, P.A. Originally published in the [06/05/2019] issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission. 

Importers should be prepared for President Trump’s recently announced tariffs on imports from Mexico to go to ten percent and possibly higher, says Nicole Bivens Collinson, president of international trade and government relations for trade and customs law firm Sandler, Travis & Rosenberg. In the meantime potential responses are under consideration, from retaliatory tariffs on U.S. exports to legal and legislative action to curtail the president’s trade powers, as affected parties await more details.

Negotiations

President Trump said last week that in an effort to push Mexico to address a surge in immigration across the U.S.-Mexico border he would impose a five percent tariff on goods from that country effective June 10. If Mexico’s response is not deemed sufficient, tariffs will be increased to 10 percent on July 1, 15 percent on Aug. 1, 20 percent on Sept. 1, and 25 percent on Oct. 1.

Senior Mexican officials are meeting with their U.S. counterparts this week to seek a resolution. Trump said June 3 that he thinks “it’s more likely that the tariffs go on,” but Mexican Foreign Minister Marcelo Ebrard expressed confidence that “we will be able to reach an agreement.” Acting White House Chief of Staff Mick Mulvaney acknowledged June 2 that the White House has not set a “specific target” Mexico has to hit to avoid the tariffs but said “things have to get dramatically better and they have to get better quickly.”

Action in Congress

Both Republican and Democratic members of Congress are discussing possible steps to short-circuit the tariffs. One reason is that, given the extensive trade relationship between the U.S. and Mexico, higher tariffs would raise costs for many U.S. companies and possibly consumers of their products as well. The tariffs would also dim the prospects for congressional approval of the U.S.-Mexico-Canada Agreement, despite Trump administration officials’ assertions that the two issues are unrelated. The White House sent a draft statement of administrative action to implement the USMCA last week, meaning a final text could be submitted in as little as 30 days, but Senate Finance Committee Chairman Chuck Grassley, R-Iowa, has signaled that he will not bring up the agreement for consideration if the Mexico tariffs are imposed.

However, it is unclear how quickly Congress may be able to act. According to Collinson, Senate leaders are making the argument that Trump will need to issue a new emergency declaration to impose the Mexico tariffs and cannot use the border-related declaration issued in February. Both the Senate and the House of Representatives would have to pass a resolution of disapproval to overturn the declaration and thus halt the tariffs. However, with the Senate anticipating that a declaration will not be sent until late June 9, the initial five percent tariff is likely to take effect before the Senate can act. It is also unclear at the moment whether there are sufficient votes in each chamber to override the expected presidential veto of a disapproval resolution.

If Congress fails to act quickly the tariffs could increase to ten percent on July 1 and remain in effect for much of that month. If there is a further delay tariffs could go to 15 and then 20 percent because Congress is scheduled to be out of session Aug. 3 through Sept. 8. Even once Congress returns it will have to deal with debt limit and spending bills, which could result in the tariffs reaching 25 percent on Oct. 1.

Other Possible Actions

In the meantime, business groups are considering litigation to halt the tariffs. One of the arguments in a potential case could be that Trump has erroneously cited the International Emergency Economic Powers Act of 1977, which has previously been utilized to implement economic sanctions and regulate exports, as the statutory authority for the tariffs.

In addition, Mexico is reportedly considering ways it might respond, including by imposing retaliatory tariffs on U.S. goods.

Implementation Questions

Finally, there is continuing uncertainty about how the tariffs will be administered because no official notices from the Office of the U.S. Trade Representative or U.S. Customs and Border Protection have yet been issued. It is thus unclear, for example, whether the tariffs will apply to all imports from Mexico, including those produced in maquiladoras, or be limited to certain categories such as those whose country of origin under NAFTA rules is Mexico.