By David Lawder
WASHINGTON, Nov 3 (Reuters) – U.S. factory equipment maker OTC Industrial Technologies has long used low-cost countries – first China and then India – to source parts, but President Donald Trump’s tariffs on multiple trading partners have thrown CEO Bill Canady’s supply chain calculations into disarray.
“We’ve moved stuff out of China and into some of these other countries, and now the tariffs in those countries are just as bad or worse,” Canaday told Reuters. he said. “We just need to hang on and find our way through this so we don’t all go bankrupt in the short term.”
It’s a dilemma that has confounded companies, foreign commerce departments, trade lawyers and economists as the U.S. Supreme Court considers the legality of Trump’s global tariffs with arguments set for Wednesday. According to one legal authority or another, Trump’s tariffs are expected to remain in place for the long term.
DECISION FROM THE LOWER COURTS TO TRUMP
The court, whose 6-3 conservative majority has backed Trump in a series of landmark decisions this year, is hearing an appeal from the Trump administration after lower courts ruled that the Republican president overstepped his authority to impose sweeping tariffs under an emergency federal law.
A decision that rejects Trump’s use of the 1977 International Emergency Economic Powers Act (IEEPA) to quickly impose broad global tariffs would also eliminate his favorite stick for punishing countries that draw his ire on non-trade political issues. These range from Brazil’s investigation of former president Jair Bolsonaro to India’s purchase of Russian oil that helped finance Russia’s war in Ukraine.
“For decades, our country has been plundered, plundered, raped and plundered by countries both friend and foe, near and far,” Trump said in April when announcing sweeping reciprocal tariffs under this law. he said.
“Reciprocity means what they do to us, we do to them,” Trump said.
Trump became the first president to use the law, which is often used to impose punitive economic sanctions on rivals, to impose tariffs. The law provides the president with broad authority to regulate various economic transactions when a national emergency is declared. In this case, Trump deemed the $1.2 trillion U.S. goods trade deficit in 2024 a national emergency, despite the fact that the United States has run a trade deficit every year since 1975, and also addressed overdoses of the frequently abused painkiller fentanyl.
U.S. Treasury Secretary Scott Bessent said he expects the Supreme Court to support IEEPA-based tariffs. But Bessent said in an interview that if he lowers tariffs, the administration would move on to other tariff authorities, including Section 122 of the 1974 Trade Act, which allows blanket tariffs of 15% for 150 days to calm trade imbalances.
Bessent said Trump could also invoke Section 338 of the Tariff Act of 1930, which allows tariffs of up to 50 percent to be imposed on countries that discriminate against U.S. trade.
“You have to assume they are here to stay,” Bessent said of Trump’s tariffs.
For countries negotiating tariff-lowering trade deals with Trump, “you have to respect your agreement,” Bessent added. “Those who have a good agreement should stick to it.”
Trump already uses other powers over certain tariffs. He is busy piling up tariffs under Section 232 of the Trade Expansion Act of 1962, which includes national security concerns to protect strategic industries like autos, copper, semiconductors, pharmaceuticals, robotics, and aircraft, as well as tariffs under Section 301 of the Trade Act of 1974, which involves investigations of unfair trade practices.
“This administration is committed to tariffs as a cornerstone of economic policy, and companies and industries should plan accordingly,” said Tim Brightbill, co-chair of the Wiley Rein law firm’s trade law practice in Washington.
NEGOTIATION POWER
Trump administration officials have argued that his tariffs have forced major trading partners such as Japan and the European Union to negotiate major concessions that would help reduce the U.S. trade deficit, and that those concessions would survive any Supreme Court decision.
U.S. trading partners are not waiting for the Supreme Court’s decision to decide how to proceed. The U.S. Trade Representative’s office announced final framework trade agreements with Vietnam, Malaysia, Thailand and Cambodia, pegging tariffs at 19% to 20%. South Korea has agreed to terms of a $350 billion investment plan that eliminates 15% tariffs on its cars and other goods.
Negotiations with China have proven more difficult because of its willingness to retaliate against the United States and cut off supplies of rare earth minerals and magnets needed for U.S. high-tech manufacturing, from automobiles to semiconductors.
Rather than making major concessions, the Trump administration had to settle for an extension of a fragile truce in which American and Chinese tariffs were reduced to keep rare earths flowing.
Last Thursday in South Korea, Trump agreed in talks with Chinese President Xi Jinping that the United States would halve tariffs on fentanyl-related Chinese goods to 10% and delay tighter technology export controls by a year in exchange for China’s one-year pause on tough licensing requirements for global rare earth exports.
Xi agreed to resume purchases of American soybeans that China had halted for months, while Trump paused new U.S. port fees for China-bound ships for a year.
INCOME, INVESTMENT CONCERNS
Some investors have said that if the Supreme Court strikes down the IEEPA tariffs, financial markets accustomed to Trump’s tariff status quo could be thrown into turmoil.
A major cause for concern, particularly in the Treasury debt market, is the risk of having to refund more than $100 billion in IEEPA tariff collections, foregoing hundreds of billions of dollars in annual revenue.
IEEPA tariffs collected so far this year make up the largest portion of the $118 billion increase in net customs revenues in fiscal 2025, which ends Sept. 30. This helped offset increased healthcare, Social Security, interest, and military spending, narrowing the U.S. deficit slightly to $1.715 trillion.
“It’s a significant political economy risk that we become dependent on tariff revenues,” said Ernie Tedeschi, a senior fellow at Yale University’s Budget Lab, adding that this makes it difficult for any future presidential administration to cut taxes.
Angela Lewis, head of global customs at freight forwarder and customs broker Flexport, said it would also be difficult for U.S. Customs and Border Protection to get the money back because the tariff change was “unprecedented on this scale.”
Lewis said individual importers may have the responsibility of applying for “post-summary corrections” with the agency, a complex process that can take years and may not be worth the effort for some smaller firms. For those receiving refunds, US taxpayers will also fall victim to the 6% annual interest cost compounded daily.
INFLATION TIMING
The biggest dilemma is managing costs. According to academic studies and executives’ comments, importers mostly ate the tariffs, reducing profit margins but limiting high consumer prices and maintaining market share.
While this has reduced the inflationary impact so far, cost pass-throughs through the prices of clothing and other goods are widening, according to Oxford Economics. Tariffs are estimated to add 0.4 percentage points to the 3.0% annual rate of the September Consumer Price Index, keeping inflation well above the Federal Reserve target, according to Oxford Economics.
Corporate earnings took the biggest hit; Global companies have recorded more than $35 billion in tariff-related costs so far as we head into third-quarter earnings season.
Ohio-based OTC designs and builds factory production lines and automation systems. Soon, CEO Canady said, companies like his will need to “place their bets” on where to shift production for a more sustainable cost base. This may mean turning to U.S. shores for high-quality items or Mexico for lower-value pieces.
“I think the new normal will be 15%,” Canady said of Trump’s tariffs, regardless of the legal authority he invokes. “They’ll call it whatever they need to call it so it’s not open to debate.”
(Reporting by David Lawder; Additional reporting by David Gaffen and Joseph Axe; Editing by Dan Burns and Will Dunham)
