Regulatory landscape and legal basis
On April 2, 2025, the Presidential Executive Order “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits” (“EO”) introduced a new 10% ad valorem tariff across the board (applicable to all goods with a few exceptions) originating from almost all countries of the world and effective April 5, 2025. The same EO added a reciprocal tariff of an additional 10% ad valorem tariff for goods imported in the US and originating from the European Union, effective April 9, 2025. The EO grounded such new tariffs on the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.) (NEA), Section 604 of the Trade Act of 1974 (19 U.S.C. 2483), and Section 301 of Title 3 of the U.S.C. From a legal perspective, an EO is not a federal statute but a directive (pursuant to Article II of the U.S. Constitution) that manages operations of the federal government and directs the Office of the U.S. Trade Representative and the U.S. Department of Commerce. Even if the EO has the force of law similar to regulations issued by federal agencies, it cannot contradict existing federal statutes, it is subject to judicial review if unconstitutional (e.g., overturned by the U.S. Court of International Trade and/or by any U.S. Court of Appeals for the Federal Circuit), and it cannot provide federal funding. An EO can be revoked at any moment by another EO and overturned by Congress.
Which branch of the U.S. Government can regulate tariffs?
Article I, Section 8 of the U.S. Constitution explicitly grants Congress the power “to lay and collect taxes, duties, imposts and excises” and “to regulate commerce with foreign nations.” Only Congress has the constitutional authority to regulate tariffs, unless delegated to the Executive. In the last 50 years or so, Congress has delegated some of this constitutional authority to the U.S. President in case of emergencies. It did so with: (a) The Trade Expansion Act of 1962 (Section 232) to adjust imports if they threaten national security; (b) The Trade Act of 1974 (Section 301) to take action against unfair trade practices; and (c) The International Emergency Economic Powers Act (IEEPA), to regulate commerce during national emergencies.
Procedure to declare a U.S. national emergency
Each of the federal statutes mentioned above has a procedure that can result in a declaration of national emergency. The Trade Expansion Act of 1962 (Section 232) established an emergency procedure initiated by the Secretary of Commerce, by another agency, by industry stakeholders, or by Congress. Such investigations to determine if imports threaten national security can last up to 270 days. If there is a threat, a report is sent to the President with recommendations, and the President has 90 days to decide whether to adjust imports through tariffs or quotas; negotiate agreements with other countries; take other actions deemed necessary; or take no action. Pursuant to the Trade Act of 1974 (Section 301), the U.S. Trade Representative (USTR) can initiate an investigation sua sponte or based on a petition from an industry or from the President. The USTR has 12/18 months to determine if a foreign country's practices are violating trade agreements or if they are unjustifiable, unreasonable, or discriminatory. If a practice is found unfair, the USTR must determine appropriate action within 30 days, including suspending trade concessions, imposing tariffs or other import restrictions, or entering into binding agreements to eliminate the unfair practice. The IEEPA gives the U.S. President the power to declare a national emergency under the National Emergencies Act but must specify the unusual and extraordinary threat. It must declare that the threat originates wholly or substantially outside the U.S. In that case, the President must immediately transmit the declaration to Congress and publish it in the Federal Register. The President can then investigate, regulate, or prohibit foreign exchange transactions; block transfers or transactions involving property of foreign countries/nationals; freeze assets; and/or prohibit imports or exports. The President must consult with Congress “in every possible instance” before exercising such powers. As of today, we have little to no evidence that the U.S. Presidency set in motion the statutory procedures to declare a national economic emergency.
Was the U.S. economy economically and unusually threatened?
Examples of unusual and extraordinary threats that originate wholly or substantially outside the U.S. (under the IEEPA) are (a) foreign terrorism activities; (b) state-sponsored threats; (c) transnational criminal organizations; (d) cyber threats; (e) weapons proliferation; (f) regional destabilization; (g) global health emergencies; and (h) economic threats (e.g., manipulation of critical resources by foreign governments or foreign government policies that undermine international financial stability). As of today, experts agree that current international economic challenges do not appear to be “unusually and exceptionally” threatening the U.S. economy especially if compared by historical standards (e.g., with reference to the 1973 OPEC oil embargo; the 1997-1998 Asian financial crisis; and the 2008 global financial crisis).
Political landscape: What are the goals behind the April 2, 205 EO?
The EO grounded the new tariffs on the intent to strengthen U.S. national sovereignty because allegedly the U.S. trade deficit is a threat to U.S. sovereignty, justifying the declaration of a “national emergency” under the International Emergency Economic Powers Act (IEEPA). The new tariffs reflect an intent to redefine global trade rules in favor of U.S. interests, challenging the free trade agreements and alliances, and suspending contributions to international organizations like the World Trade Organization (WTO). Practically, the EO is a symbolic assertion of strength against foreign nations and a negotiation tool to force foreign nations to accept harsher conditions.
Is the U.S. trade deficit an economic issue for the U.S. economy?
Before 2025, the U.S. showed clear signs of strength with steady GDP growth and moderate unemployment. The U.S. economy grew by 2.8% in 2024, a slight decrease from the 2.9% growth in 2023. The majority of economists agree that a trade deficit can coexist with a strong economy. The U.S. has maintained trade deficits for decades while experiencing significant economic growth, low unemployment, and technological leadership. The U.S. economy is consumption-driven (roughly 70% of GDP), with Americans having strong purchasing power for global goods.
How to reduce the U.S. trade deficit?
The majority of the economists agree that to reduce a trade deficit, a multi-pronged and long-term approach is needed, among which are increasing export competitiveness (to improve productivity while providing export assistance and supporting research and development and devaluing currency), improving trade policy, developing import substitutes, and adjusting macroeconomic policies (reducing borrowing from overseas). Policies that could trigger retaliatory measures or disrupt global supply chains should be avoided.
Are new tariffs alone a tool to reduce the U.S. trade deficit?
Economists agree that a hike in tariffs alone is generally not considered the most effective or appropriate tool for reducing the U.S. trade deficit. While reducing specific imports in the short term, tariffs cause retaliatory measures from trading partners (potentially reducing U.S. exports and nullifying deficit reduction). Tariffs act as a tax on U.S. consumers and businesses (slowing economic growth) and don't address the fundamental macroeconomic factors driving the trade deficit.
What is the next move for the EU?
While the U.S. economy felt the impact caused by the new EO internally, showing signs of deceleration and inflation (Wall Street lost $6.5 trillion between April 5 and 6, 2025), such an initiative triggered a risk of a global trade war. The EU is planning to reinstate the Suspended Duties policy (effective April 1, 2025) on U.S. goods and plans new tariffs on additional U.S. goods, among which are agricultural (meat, grains), consumer items (dental floss, toilet paper), and luxury products (diamonds).
What is the outcome of a trade war in a 6-month period?
Based on the current data, in the short term the EU may suffer the impact of such a trade war. However, according to the experts, in the long run, the U.S. may suffer the most from isolation, disruption of the global supply chain, and inflation.
6-month projections losses
Economy: GDP Impact
EU: -0.8%
U.S.: -0.5%
Inflation Spike
EU: +1.5%
U.S.: +2.0%
Job Losses
EU: 500K
U.S.: 300K
What is the next move for U.S. and EU businesses? In order to weather this new uncertain economic time and risk of a trade war, U.S. and EU companies may adopt a number of measures, among which
(a) restructuring the supply chain, e.g., nearshoring/reshoring to tariff-exempt countries;
(b) not relying on China;
(c) introducing customs tactics (e.g., first-sale; HTS reclassification);
(d) anti-coercion measures;
(e) cost-sharing;
(f) commencing litigation before a federal court; and
(g) commencing a serious business plan and implementing a serious acquisition strategy in the U.S.
