What Happens to the U.S.-Korea Trade Deal With IEEPA Off the Table?

On February 20, the Supreme Court struck down President Donald Trump’s ability to institute tariffs under the International Emergency Economic Powers Act (IEEPA). The official ruling indicated a lack of “clear congressional authorization to exercise” tariffs. IEEPA was the legal authority under which the Trump administration imposed 15 percent tariffs on South Korean imports as part of the July 30 bilateral tariff deal. With the Trump administration’s tariff agenda now in flux, companies, investors, and policymakers are left wondering what will become of their major investments and agreements under the “Trump Round” trade deal and the subsequent USD 350 billion investment memorandum of understanding (MOU).

It is unlikely that the administration will revise existing deals. At his press conference shortly after the announcement of the ruling, President Trump stated, “There are methods, practices, statutes, and authorities…that are even stronger than the IEEPA tariffs available to [him] as president of the United States.”

Section 232 of the Trade Expansion Act of 1962, Sections 122, 201, and 301 of the Trade Act of 1974, and Section 338 of the Tariff Act of 1930 remain available tools for the president to revive his tariff agenda. Accordingly, as an immediate result of the court decision, Section 122 of the Trade Act of 1974 will now be used to impose a 10 percent baseline tariff on all countries, including Korea, in addition to existing Section 232 tariffs on industries, such as steel and automobiles. The tariff authority under Section 122 could allow the president to set the tariff as high as 15 percent, effectively keeping the U.S.-Korea tariff deal in place as is. It remains unclear, however, to what extent the president may extend the authority to its full measure. The president also indicated he would initiate additional Section 301 investigations “to protect [the United States] from unfair trading practices of other countries and companies.”

Using IEEPA itself, only a few options remain. President Trump has the ability to impose a country-level embargo under IEEPA—an extreme option—but such a move would have far more significant consequences than tariffs and remains highly unlikely due to the profound effects it would have on international trade and supply chains. A more likely option could be Congress reinstating tariff authority under IEEPA through a reconciliation bill, given the Republican majority. However, the upcoming midterm elections in November could put significant time pressure on efforts to do this. Public satisfaction with tariffs is negative across party lines, and politicians may be wary of risking their reelection campaigns by promoting the reinstatement of IEEPA tariffs as an economic policy platform.

Responding to comments on whether existing bilateral trade deals would remain in place, the president cited Section 122’s 10 percent tariffs as the main auspices for doing so. Although it does not guarantee that foreign countries will not attempt to renegotiate, the White House is likely to uphold these deals as the status quo.

With this in mind, the Trump administration’s ability to use other tools to impose tariffs will likely persuade South Korea to keep its investment commitments under the tariff deal in place, especially as Trump maintains his threat of 25 percent tariffs against the country due to the National Assembly’s delay in ratifying the investment portion of the deal. Anything less could increase the likelihood that the president will impose further retaliation, especially if the administration seeks to make an example of countries that want to back out of negotiated deals.

On top of this are questions about what happens to the already submitted tariff payments. The U.S. government has collected a significant amount of money from U.S. importers for IEEPA tariff payments, leaving roughly USD 175 billion potentially refundable. While Korean exporters may have endured natural price increases or negotiated U.S. import prices due to the tariff levies, any potential rebates will ultimately benefit U.S.-based importers, who would alone be eligible for legal recourse. With no clear outline in the court decision on how this will be handled, these companies will likely have to individually petition the lower courts for rebates—a process that could take months or even years.

For now, the Supreme Court’s ruling is poised to raise more questions than answers. There is bound to be considerable hesitation and uncertainty surrounding the underlying structure of the numerous “Trump Round” deals, but this is by no means going to be an end to the president’s “America First” trade agenda. If anything, the decision could serve as an impetus for the administration to increase its resolve on using tariffs to negotiate and enforce existing and future trade agreements. The full scope of the president’s trade agenda may have only just begun.

Tom Ramage is Economic Policy Analyst at the Korea Economic Institute of America (KEI). The views expressed are the authors’ alone.

Feature image from Pexels.

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