By David Lawder
WASHINGTON, Nov 3 (Reuters) – U.S. industrial equipment maker OTC Industrial Technologies has long used low-cost countries to supply components – first China and then India – but President Donald Trump’s barrage of tariffs on numerous trading partners has altered the supply chain math for Chief Executive Bill Canady.
“We took things out of China and went to some of those other countries, and now the tariffs on those are just as bad or worse,” Canady told Reuters. “We just have to tough it out and navigate through this so we don’t all go bankrupt anytime soon.”
It’s a dilemma businesses, trade ministries, trade lawyers and economists are grappling with as the U.S. Supreme Court considers the legality of Trump’s global tariffs, with arguments set for Wednesday. Under one legal authority or another, Trump’s tariffs are expected to remain in place for the long term.
LOWER COURTS TEST AGAINST TRUMP
The court, whose 6-3 conservative majority has backed Trump in a series of major decisions this year, is hearing his administration’s appeal after lower courts ruled that the Republican president overstepped his authority by imposing sweeping tariffs under a federal emergency law.
A ruling overturning Trump’s use of the International Emergency Economic Powers Act of 1977, or IEEPA, to quickly impose sweeping global tariffs would also eliminate a favorite cudgel for punishing countries that incur his ire on non-trade political issues. These range from Brazil’s prosecution of former President Jair Bolsonaro to India’s purchases of Russian oil that help finance Russia’s war in Ukraine.
“For decades, our country has been plundered, raped and plundered by nations near and far, both friend and foe,” Trump said when announcing broad reciprocal tariffs in April under this law.
“Reciprocal: that means they do it to us and we do it to them,” Trump added.
Trump is the first president to invoke this statute – which has often been used to apply punitive economic sanctions to adversaries – to impose tariffs. The law gives the president broad authority to regulate a variety of economic transactions when a national emergency is declared. In this case, Trump called a $1.2 trillion U.S. goods trade deficit in 2024 a national emergency — even though the U.S. has had trade deficits every year since 1975 — and also cited overdoses of the often-abused painkiller fentanyl.
US Treasury Secretary Scott Bessent said he hopes the Supreme Court will uphold IEEPA-based tariffs. But if it eliminates tariffs, Bessent said in an interview, the administration will simply shift to other tariff authorities, including Section 122 of the Trade Act of 1974, which allows broad tariffs of 15% for 150 days to calm trade imbalances.
Bessent said Trump can also invoke Section 338 of the Tariff Act of 1930, a statute that allows tariffs of up to 50% on countries that discriminate against American trade.
“You have to assume they are here to stay,” Bessent said of Trump’s tariffs.
Countries that have negotiated trade agreements to reduce tariffs with Trump “must respect their agreement,” Bessent added. “Those of you who got a good deal should keep it.”
Trump is already using other authorities for certain tariffs. It is busy racking up tariffs under Section 232 of the Trade Expansion Act of 1962, which involves national security concerns to protect strategic sectors, including automobiles, copper, semiconductors, pharmaceuticals, robotics and aircraft, as well as tariffs under Section 301 of the Trade Act of 1974 that involves investigations of unfair trade practices.
“This administration is committed to tariffs as a cornerstone of economic policy, and businesses and industries should plan accordingly,” said Tim Brightbill, co-chair of the trade law practice at law firm Wiley Rein in Washington.
NEGOTIATION POWER
Trump administration officials have touted their tariffs as an encouragement for major trading partners, such as Japan and the European Union, to negotiate major concessions that will help reduce the U.S. trade deficit, arguing that those concessions will survive any Supreme Court ruling.
America’s trading partners are not waiting for a Supreme Court ruling to decide how to proceed. The U.S. Trade Representative’s office has announced the completion of framework trade agreements with Vietnam, Malaysia, Thailand and Cambodia, setting tariff rates of 19% to 20%. South Korea agreed to terms of a $350 billion investment plan, unlocking a 15% tariff 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 its supplies of rare earth minerals and magnets essential to high-tech American manufacturing, from cars to semiconductors.
Instead of major concessions, the Trump administration has had to settle for extensions of a delicate truce under which U.S. and Chinese tariffs were reduced to keep rare earths flowing.
Last Thursday in South Korea, Trump agreed in talks with Chinese President Xi Jinping to halve the U.S. tariff rate on Chinese fentanyl-related products to 10% and delay stricter technology export controls for a year in exchange for a one-year pause by China on its strict licensing requirements for global rare earth exports.
Xi agreed to resume purchases of U.S. soybeans that China had suspended for months, while Trump suspended new U.S. port tariffs on China-linked ships for a year.
INCOME, INVESTMENT CONCERNS
Some investors have said that financial markets, which have become accustomed to the status quo of Trump’s tariffs, could be thrown into turmoil if the Supreme Court strikes down the IEEPA tariffs.
A major cause for concern, particularly in the Treasury debt market, is the risk of having to repay more than $100 billion in IEEPA fee collections and forgo hundreds of billions of dollars of annual revenue.
IEEPA tariffs collected so far this year account for most of a $118 billion increase in net customs revenue in fiscal 2025 that ended Sept. 30. That helped offset increased outlays on health care, Social Security, interest and the military, helping to narrow the U.S. deficit slightly to $1.715 trillion.
“It’s a major political economy risk that we become addicted to tariff revenue,” said Ernie Tedeschi, a senior fellow at Yale University’s Budget Lab, adding that makes it more difficult for any future presidential administration to reduce tariffs.
Getting the money back would also be difficult, as a tariff reversal is “unprecedented on this scale” for U.S. Customs and Border Protection, said Angela Lewis, global head of customs at freight forwarder and customs broker Flexport.
The burden of requesting “post-summary corrections” from the agency could fall to individual importers, a complicated process that could take years and not be worth it for some smaller companies, Lewis said. For those receiving refunds, American taxpayers would also be forced to pay 6% annual interest compounded daily.
TIME OF INFLATION
The biggest dilemma is cost management. Importers have largely eaten up the tariffs, according to academic studies and executive comments, reducing profit margins but capping higher consumer prices and protecting market share.
While this has cushioned the inflationary impact so far, the pass-through of costs is widening through prices of clothing and other goods, according to Oxford Economics, which estimated that the tariffs added 0.4 percentage points to the September Consumer Price Index’s annual rate of 3.0%, keeping inflation well above the Federal Reserve’s target.
Corporate profits have been hit the hardest, with global companies so far reporting more than $35 billion in tariff-related costs heading into the third-quarter earnings season.
Ohio-based OTC designs and builds industrial production lines and automation systems. Soon, CEO Canady said, companies like his will have to “place their bets” on where to move production to achieve a more sustainable cost base. That may mean returning to American shores for high-end products and to Mexico for lower-value pieces.
“I think the new normal is going to be 15%,” Canady said of Trump’s tariffs, regardless of what legal authority he invokes. “They’ll call it whatever they want so it’s not questionable.”
(Reporting by David Lawder; Additional reporting by David Gaffen and Joseph Ax; Editing by Dan Burns and Will Dunham)
