By March 4, we will have reached the point that President Donald Trump has implied he will revisit the plan of placing 25% tariffs on all imports out of Canada and Mexico. However, there are varying opinions regarding the legality of his authority to impose such sanctions on prominent trade allies. If he is to put these tariffs back on the table in March, expect legal challenges to follow.
- On February 1, Trump announced that he would be levying the tariffs on the United States’ neighbors to the north and south immediately, citing illegal immigration and drug trafficking.
- Just two days later, he put a 30-day pause on the tariffs after meetings with Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau. He made no indication of what needed to happen over the course of the following 30 days.
Trump has already managed to implement foreign tariffs through executive orders over the past month, including 25% tariffs on steel and aluminum imports, 10% tariff increases on Chinese imports and a vow to enact global reciprocal tariffs. But whether such actions are technically under his legal authority is not clear cut.
- Issuing the Canadian and Mexican tariffs would require enacting the International Emergency Economic Powers Act (IEEPA), a law created in 1977, which gives the president economic authority to act in the country’s best interest during “time of war or national emergency.”
The law was created with the implication that trade would be fully blocked with a certain country. Instead, Trump plans to use it to continue trade with Mexico and Canada while imposing taxes as a form of punishment or negotiation.
If Trump relies on the IEEPA to advance his plans, he may lose any legal challenges, as it’s “far from clear” that Congress gave the president power to issue tariffs under the statute, said Julian Ku, faculty director of international programs at Hofstra University School of Law.
“That’s why it doesn’t fit in an obvious way with what IEEPA has typically been used for,” Ku said.
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The major questions doctrine, which states that Congress must clearly delegate power on issues of major economic or political significance, may also come into play.
When courts review a statute, they’re trying to determine not only if the executive branch has ever asserted this power before, but also whether a decades-old law is being relied upon for a new exercise of power, according to Thomas Berry, director of the Cato Institute’s Robert A. Levy Center for Constitutional Studies.
The courts will be examining whether the president is trying to “find a statute to shoehorn that policy goal into,” Berry told E&E News. “I think there’s a lot of evidence that that is what happened here.”
A lawsuit against such tariffs would have the potential to reach the Supreme Court, likely meaning a long legal battle. Bill Reinsch, a former Commerce Department official, who works for the Center for Strategic and International Studies, says that precedent suggests ruling against a sitting president on these matters is a longshot. But with considerable business interests at stake, many companies may band together to take on such a longshot.
“While the courts certainly could play a role in the implementation of President Trump’s tariffs on Canada and Mexico related to the IEEPA standard, I don’t expect this to stop the Administration from moving forward through other channels,” says Chris Lamond, founding partner at Thorn Run Partners, PPAI’s D.C.-based lobbying firm. “Nobody has sued the administration yet on the use of IEEPA, but they are if sued and he does back down, Section 338 is the most logical next step for the administration, especially for reciprocal tariffs.”
Section 338 of the Tariff Act of 1930 allows the president to impose duties of up to 50% on imports from foreign countries if the country is discriminating against the U.S. commerce.
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PPAI, with assistance from Thorn Run Partners, sent a letter to top congressional leaders on Feb. 6 urging them to work toward a balanced trade policy that protects American interests while ensuring that American businesses, such as those in the promotional products industry, are not disproportionately burdened.
- The Association is sharing the text of its letter so members can download and customize it to send to their own representatives and senators.
- PPAI Media has also written a breakdown of early strategies for promo firms navigating tariffs.
How Significant Would These Tariffs Be For Promo?
The promotional products industry in North America, which relies heavily on imported goods, is poised to feel the immediate effects of these tariffs, if they are to actually go into effect at any point in the near future. Items sourced into the U.S. from China, Mexico and Canada will likely experience price increases, with some of the additional costs expected to be assumed by suppliers and distributors, and more being passed along to end buyers.
Exporters from Canada and Mexico, where several American suppliers diverted manufacturing in the nearshoring movement of recent years, also express worry about the impacts on business.
“Our members share many of the same concerns as those companies in the United States,” said Jonathan Strauss, president and CEO of Promotional Products Professionals of Canada, in response to Trump’s initial tariff announcement.
Jonathan Strauss
President & CEO, PPPC
“The issue is that many products come into Canada from the U.S. that are manufactured overseas. Presumably, any tariffs on those products will be passed along. The other concern is Made-in-Canada products that are exported to the U.S. could see a substantial price. Our supplier members who manufacture in Canada would certainly be impacted if a tariff was added to their products entering the U.S.”
Aaron Moscoe, CEO of Toronto-based distributor TPS Promotions & Incentives, says his biggest concern is for the Canadian economy and Canadian manufacturing in general, particularly what that means for clients.
“If you think about the impact on the [Canadian] automotive industry, it’d be massive if there isn’t an exemption,” Moscoe told PPAI Media earlier this month. “Most automotive manufacturing in Canada would be expected to shut down within two weeks. You’re talking about potentially massive layoffs and then potentially inventory problems as well. If you are in the automotive industry or another severely affected industry, are you going to put your spend on hold?”
Aaron Moscoe
CEO, TPS Promotions & Incentives
“But for Canadian manufacturers who primarily supply goods in Canada to distributors in Canada,” Moscoe adds, “this could be a boon for them.”
Jen Beldam, founder and president of Ontario-based distributor Northern Branding Studio, plans to take this month-long pause to educate clients and examining her firm’s supply chain.
“As a small firm, we’re rarely working on projects large enough to be offshored, so we need to look at what suppliers are funneling products through their warehouses in the U.S. versus who actually have warehouses in Canada,” Beldam said. “Whether the tariffs end up being canceled or not, these discussions are alerting everyone across the continent to the fact that our previously strong relationship with our neighbors could change on a daily basis. Nothing is secure.”
Jen Beldam
Founder & President, Northern Branding Studio
Beldam added that her team is also hyper conscious about having clients on both sides of the border, so they’re looking at ways to essentially limit border crossing for merchandise so that their American clients aren’t deterred from working with a Canadian firm.
“We’re just going to try and minimize friction on the international fulfillment side,” Beldam said. “It’s definitely hard to plan for the future when substantial tariffs are being threatened, and then imposed, and then walked back and then delayed. It’s a bit exhausting to be honest.”
Canadian suppliers with clients in the U.S. are in a similar position.
“Running a business without certainty isn’t reassuring for suppliers and customers with the back and forth on tariffs,” said Asif Bandeali, co-CEO of Fairdeal Import & Export in Ontario.
Asif Bandeali
Co-CEO, Fairdeal Import & Export
Bandeali says the initial plan before the pause was to not increase pricing and see how things play out in the coming weeks and months. “In our case, we’d hope to increase sales to help offset the additional cost of tariffs,” he says. “We’d consider implementing that plan if the tariffs return.”
For questions or suggestions on regulatory or government affairs issues, please contact Rachel Zoch at RachelZ@ppai.org.
