the Beatty Blog

Without Trade Promotion Authority the President Can Only Raise Tariffs

Hiding in plain sight in the fuss and furor over President Trump’s plan to announce “reciprocal” tariffs on April 2 is the fact that, in the absence of Trade Promotion Authority (TPA), the administration has no authority to negotiate any lowering of tariffs. Trade authority actually rests with Congress and in the absence of granting TPA to the President, Congress retains the right to amend any treaty that the administration might negotiate.

This is significantly different from the last round of trade talks between the US and its North American neighbours. During the USMCA negotiations the first Trump administration was operating under TPA authority which had been granted in 2015 and subsequently lapsed in 2021. TPA requires Congress to give any treaty a simple thumbs up/thumbs down ratification vote. In the absence of TPA, the complex web of local interests that exists in the United States would grind any comprehensive trade treaty into dust through multiple amendments.

While the executive branch can’t unilaterally lower tariffs, Congress has provided the President with standing delegation of authority to raise tariffs subject to later Congressional review. Under sections 201, 232 and 301 of the US Trade Act, the President can raise tariffs to respond to import surges, unfair trade or national security matters. In addition, the President has special powers under the International Emergency Economic Powers Act (IEEPA) to respond to an emergency. It was pursuant to that authority that he imposed tariffs on Canada and Mexico following the declaration of a Fentanyl emergency at the northern and southern borders. It seems clear that these tariff raising powers are what he proposes to use to back up his reciprocal tariff initiative.

But if you can’t lower tariffs, only raise them, how will this negotiation unfold? The answer is that the White House will threaten to raise tariffs unless other countries make concessions. While it is true that the US has some of the lowest average tariffs in the world, there are other countries like Japan who have even lower average tariffs. That is not to suggest that average tariffs don’t conceal some egregious exceptions (e.g. while the tariffs on cars and SUVs entering the US is only 2.5%, pickup trucks are subject to a tariff that is 10 times higher at 25%). However, since USMCA compliant goods can move duty free between Canada and Mexico and the US, those tariff disparities don’t matter. Free is free.

If the administration cannot offer to lower tariffs, its only possible negotiating position is to demand that its trading partners offer concessions just to preserve the status quo. Otherwise, US tariffs will rise. And the President will place further tariffs on anyone who has the temerity to respond in kind.

In light of the USMCA, there really isn’t much for Canada to give in the conventional territory of tariffs. As a result, the President’s recent musings about wanting further concessions on agriculture and automotive need to be seen as a shakedown exercise. In that regard, President Trump has expressed dissatisfaction with Canadian measures such as the Digital Services Tax, the GST, banking laws and a host of other regulatory and commercial practices.

If the US negotiates continued tariff access in return for the lowering or elimination of taxes or regulatory standards it would effectively be “tariffying” a broad cross-section of the non-goods economy by calculating them into its reciprocal tariff policy. And its starting and ending position would be that the administration’s hands are tied and cannot offer any tariff concessions of its own — only make the status quo “fair” to the United States.

This is a silly but incredibly consequential position. American negotiators were not fleeced by Canada and Mexico during the USMCA talks. If the outcome of the talks was unfair, the administration and Congress had the right to just say no. Remember, the USMCA was negotiated by the first Trump administration. It is hard to imagine how Canada not only out negotiated Mr. “Art of the Deal” but somehow also got both the administration and Congress to buy into this lopsided arrangement. The simple explanation is always the correct one — both countries felt it was a fair deal. One country has now changed its mind and is seeking more.

The issue of Trade Promotion Authority is central to any US negotiating strategy. It is always difficult to obtain Congressional approval for a TPA bill but Trump’s current majority in the House and Senate offers him as free a hand to gain that authority of any administration in recent history. His failure to signal an intention to seek TPA should be read as someone who has no intention to engage in meaningful negotiations. The choice that will be presented to countries like Canada is to make concessions or face higher tariffs.

Canadians at large and whoever wins the April federal election will have to decide whether we are prepared to make those concessions or hold out for a different kind of deal. There is a pathway through this but we won’t find it if we have our eyes closed to the reality of the US position.