US President Donald Trump holds a cabinet meeting on Wednesday 27 May 2026 (Daniel Torok/Official White House Photo)

The problems with US tariffs – for the US

The courts keep pushing back on Trump’s tariff grabs, and each workaround creates a new mess for US businesses and consumers.

Jenny Gordon

4 June 20264 min read

Since the US Supreme Court (Opens in new window) overturned Donald Trump’s use of the International Emergency Economic Powers Act (IEEPA) in February this year, his administration has been searching for new ways to impose tariffs on friend and foe alike. Then the 10% blanket tariff under the Balance of Payments (BOP) section 122 of the 1974 Trade Act was found to be invalid by the US Court of International Trade (Opens in new window) on 7 May. While the Trump administration is appealing this finding, this tariff provision is temporary, requiring Congress to act to make it permanent.

With the court ruling and time soon to expire, the Trump administration has now turned to a little used clause in section 301 of the Trade Act that allows the Executive to impose tariffs on countries that fail to sufficiently assure that their imports have not been produced with slave labour. The Office of the United States Trade Representative (USTR) this week released the findings (Opens in new window) of its investigations that found that 60 countries failed to take sufficient action – including Australia.

This allows the Executive to impose a blanket 12.5% tariff (Opens in new window)on imports from these countries (10% on the European Union, Canada and Mexico), potentially adding to existing tariffs. The USTR is also investigating 16 countries (Opens in new window) – not including Australia – for unfair practices.

Trump sees tariffs as negotiating coin – but they are more likely to advantage special interests at the cost to US consumers.

One of the problems for the Trump administration is that the Constitution gives Congress the powers to impose tariffs, limiting Executive power to temporary measures in response to emergencies. The value of giving the Executive this power is that it can move swiftly to counter harmful actions by trading partners, such as dumping products that would harm US producers (safeguards section 201), or that threaten national security (section 232).

The latest tariff salvo is the third attempt by the Executive to wrest the power to impose tariffs from Congress. Why? Because Trump sees tariffs as negotiating coin. Without the threat of tariffs, it is much harder to extract concessions that Trump thinks will advantage the United States, but are more likely to advantage special interests at the cost to US consumers and less favoured businesses.

There is a more subtle problem that the Trump administration faces arising from the rejection of IEEPA and BOP justifications for imposing tariffs. These findings undermine the agreements that the US has forced upon other countries trying to negotiate down the so-called “Liberation Day” tariffs set out in April 2025. For these agreements to be legal, the US has to have found that the target country was guilty of a wrongdoing (Opens in new window). The recent report on failure to take action on slave labour restores this justification.

The Trump administration also has a problem with some MAGA constituents. Pushback on the rising cost of imported food, notably bananas, coffee, and beef, forced a back down on tariffs (Opens in new window) on these products in November 2025. Australia’s beef producers benefited from this shift. More recently farmers received a win when on 1 June 2026 the Trump administration reduced the tariffs justified under section 232 on derivative products made from aluminium, steel and copper from 25% to 15%, notably farm machinery. This followed previous adjustments in response to demands from specific industries.

The latest tariff salvo is the third attempt by the Executive to wrest the power to impose tariffs from Congress (Andy Feliciotti/Unsplash)

Reading the latest aluminium, steel and copper proclamation (Opens in new window) makes the head spin. The USTR must be working overtime to work out what measure is in which tariff category (50%, 25%, or 15%), with businesses no doubt seeking to define what they want to import in the lowest tariff category. The rules of origin that aim to avoid penalising US producers of aluminium and steel whose products are shipped to other countries for use in products that are then exported back to the US must also be complex to apply.

It is hard to feel sorry for the Trump administration as it struggles to find a way to retain the tariff power so it can bludgeon other countries into accepting unfair deals. But you can feel very sorry for the US consumers, (Opens in new window) who have faced high prices, and for businesses that are unable to cut the special deals that some can get.

Add in the US taxpayer, who now has to fund the return of the $166 billion in tariff revenue collected under IEEPA, and the businesses that the Trump administration wants to prevent from getting refunds (Opens in new window).

While there are no doubt some businesses that have benefited from less competition from imports more than they have faced higher costs of production, the sheer uncertainty about the level of protection and how long it will last would chill investment. Add in the regulatory burden of understanding and complying with the rules to access a tariff discount, the productivity-sapping investment now required in lobbying, and the costs of managing the whole mess, and the Trump administration’s love of tariffs has been a costly affair for the American people.

About the author

Jenny Gordon

Dr Jenny Gordon is a Nonresident Fellow at the Lowy Institute and also a Honorary Professor at the Centre for Social Research and Methods at the Australian National University.

Topics

Trade & investment United States Economy Australia