Analyst Wolfe analyzes key issues in Trump's new tariff plan

Investing.com - U.S. President Donald Trump announced a 15% global tariff over the weekend, in response to the Supreme Court ruling that his use of emergency powers to impose comprehensive tariffs on several major trading partners was illegal.

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The White House initially stated that tariffs would be set at 10% starting Tuesday, but Trump later increased this figure.

Following these developments, uncertainty has grown about the impact of the Supreme Court ruling and how Trump’s new tariff policies will operate.

In a research report, Wolfe Research analysts listed some of the most frequently asked questions they received regarding the future direction of U.S. trade policy.

To what extent does the new 15% tariff under Section 122 reduce the overall tariff scope?

According to Wolfe analysts Tobin Marcus and Chutong Zhu, “the reduction is not significant.”

Trump invoked Section 122 of the Trade Act of 1974 to set a 15% ad valorem tariff rate. These tariffs still cover 78% of the tariffs rejected by the Supreme Court last Friday.

Wolfe analysts said that, combined with other tariffs still in effect, shifting from Trump’s “reciprocal” tariffs to tariffs under Section 122 reduces the effective tariff rate from 15.76% to 14.23%.

They added that this amounts to only about a 10% reduction in total tariff impact.

The analysts continued: “While the overall rate is similar, there are winners and losers at the national level.” Brazil and China will be “clear winners,” as U.S. import tariffs decrease, while Peru and the UK will be temporary losers.

Does the new 15% rate apply to countries that have reached “agreements” with the U.S. and agreed to different rates?

Yes, Wolfe analysts said.

Because the tailored tariff rates set by the White House with various trade partners are implemented through the emergency powers deemed illegal by the Supreme Court, “they are no longer applicable,” the analysts said.

They explained: “Regardless of whether another country ‘agrees’ to a certain tariff rate, the U.S. government still needs a valid legal authority to impose these tariffs. Of course, these tariffs are legally paid by U.S. importers, not the ‘agreement’ counterparties.”

“Currently, the only such authorization is Section 122, with a cap of 15%, and it must be uniformly applied across countries.”

Will countries withdraw from their “agreements”?

Almost certainly not, Wolfe analysts said, believing Trump’s threat to impose tariffs for non-compliance is “only slightly less credible.”

They wrote: “Whatever considerations lead countries to accept these agreements rather than face reciprocal tariffs, those factors still apply. We expect they will continue to see these agreements as preferable to alternatives.”

According to Bloomberg on Monday, the EU will freeze the approval process for a trade agreement signed with the U.S. last year, as Brussels officials seek clearer details on Washington’s tariff plans.

Bloomberg reported that the main political groups in the European Parliament said legislative work to approve the agreement would be suspended on Monday.

However, Wolfe analysts predict that the EU will withdraw from the agreement and “risk escalating tariffs.”

Can tariffs under Section 122 be extended?

Crucially, tariffs imposed under Section 122 are only effective for 150 days, and observers note there is a lack of clarity about what happens after this period.

The constitutional authority of Congress over trade powers is central to the Supreme Court’s rejection of Trump’s emergency tariffs argument. Congress can extend tariffs after their legal expiration.

Some analysts also suggest that, in theory, the president could allow the tariffs to expire, declare a new emergency, and restart the 150-day clock.

Wolfe Research analysts wrote in a report that this issue has been actively discussed since at least 2024, though they believe this strategy is “too clever and unlikely to withstand legislative scrutiny.”

Wolfe analysts said: “The White House seems to agree, as an executive order invoking Section 122 explicitly states that the 150-day limit can only be extended by Congress: ‘Section 122 authorizes the President to impose tariffs for up to 150 days unless extended by Congress.’”

They continued: “This strongly suggests they do not intend to take measures to extend tariffs under Section 122. The investigation under Section 301 mentioned by Trump on Friday also indicates (not surprisingly) that they plan to transition from Section 122 to a more permanent authority.”

What are Section 301 tariffs, and how do they work?

Analysts say that when the 150-day limit expires, Trump may need to transition to some form of permanent authority to support his tariffs.

One option Trump mentioned is the so-called Section 301 tariffs, a long-standing rule allowing the Trump administration to impose import tariffs aimed at countering unfair trade practices, especially involving intellectual property theft and forced technology transfer.

Section 301 tariffs are typically used against specific countries, such as China, a major U.S. economic competitor.

Wolfe analysts believe that Section 301 allows for a range of “specific actions, such as tariffs, import restrictions, or negotiated agreements, to address unfair trade practices.”

They said: “Therefore, Section 301 can support a variety of flexible tariff actions,” similar to the measures Trump attempted under the 1977 International Emergency Economic Powers Act (IEEPA). The Supreme Court ruled Trump’s use of IEEPA illegal.

Meanwhile, regulations under Section 301 require investigations before tariffs are imposed. Given Trump’s current 150-day tariffs, this could mean limited time for the White House to conduct these investigations, and many may not be completed, Wolfe analysts said.

They noted there are examples of rapid Section 301 investigations. However, they added that while many investigations into countries like China, Vietnam, and the EU have been completed, other major U.S. trading partners would need to start investigations from scratch.