February 1. March 1. It doesn’t matter because it’s all a bluff

If the latest Reuters report is to be believed, Trump’s ‘promise’ yesterday to enact immediate tariffs on Saturday was a bluff. However if the White House is to be believed, the tariffs will be announced on Saturday.

The Reuters report still says Trump will announce tariffs but that they won’t begin until March 1 and there will be a process for exemptions, which perhaps means that both can be true.

In any case, it’s all theatre. There won’t be any universal tariffs.

Why? Quite simply, Trump doesn’t have the power.

The US Constitution couldn’t be more clear:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”

Mexico and Canada have a ratified trade agreement with the US Congress.

Now Trump does have some powers. He used a set of laws called Section 232 to apply tariffs on aluminum and steel imports in his first term. However that law is quite limited, usually to a specific industry and that’s how it was used. It’s also a cumbersome procedural process that took nearly a year to implement by Trump in 2017-2018.

This time, Trumps threatening to use the International Emergency Economic Powers Act (IEEPA), which is a 1977 law what was designed for blocking bank accounts, prohibiting certain transactions, or freezing property of individuals, entities, or countries considered a threat to US national security.

Examples of its use include:

• The Iranian assets freeze in 1979
• Trade restrictions on South Africa during apartheid
• Sanctions against Russia following the Ukraine war
• Restrictions on Chinese tech companies

The law says it must be an “unusual and extraordinary threat”. Stretching that to fentanyl or immigration — especially in the case of Canada — is far fetched, especially when the supposed Presidential remedy is to tariff every good crossing the border.

When Trump was threatening Mexico with broad tariffs in 2019 around immigration, there was considerable talk about this a strong consensus that it wasn’t legal. Somehow that’s been lost in the latest debate.

Now your counter-argument can be ‘laws don’t matter’ and the Supreme Court ‘will let Trump do whatever he wants’ but we’ve already seen executive orders blocked by the courts.

So what now?

The latest report extends the timeline for Trump to impose the tariffs to March 1, whether he announces them on Saturday or not. It’s a pressure tactic. He is squeezing Mexican and Canadian politicians to try and find out what he can get. In some cases he’s finding cracks in national strategy, weakening leaders and exposing faults that can be exploited now or later.

That’s working so he’s keeping the pressure on.

So the question is ‘what does he really want’ because 25% tariffs aren’t going to happen and if he asks too much, someone will call his bluff and the courts will take away the threat of broad IEEPA tariffs for other countries (particularly allies) he wants to negotiate with.

It’s tempting to take some of the threats at face value. Maybe he just wants an end to fentanyl and illegal immigration. Now Mexico and Canada are powerless to stop that completely but there has been some action already from both. Maybe there’s more to come, as one report highlighted earlier. Maybe that’s the end of it.

However he’s also talked extensively about trade deficits and that points back to the USMCA, and it’s why I think that the ultimate ask is to move up the renegotiation of that trade deal to this summer. I believe Mexico and Canada will cave on that demand but time will tell.

This article was written by Adam Button at www.forexlive.com.