September 16, 2025 • 26 mins
An evolving US trade policy is pushing companies to find ways to navigate a shifting landscape. Reid Whitten, partner at Sheppard Mullin and expert in international trade regulations and investigations, joins Bloomberg Intelligence litigation analyst Holly Froum to talk about President Donald Trump’s reciprocal and fentanyl tariffs, the US Supreme Court’s upcoming review of lawsuits challenging the tariffs, regulatory and enforcement action risks faced by companies, as well as how quickly Trump may recreate the tariffs if the Supreme Court finds them unlawful.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:15):
Welcome to the Votes and Verdicts podcast hosted by Bloomberg Intelligence,
the investment research arm of Bloomberg LP. In this podcast series,
we talk about the intersection of business policy and law.
My name is Holly Frome. I'm an analyst with Bloomberg
Intelligence covering consumer and industrials litigation. Today's podcast we'll focus
on the dynamic area of tarras. I'm delighted to be
(00:37):
joined today by Reid Witten, partner at the global law
firm Shepherd Mullen. Read practices law focusing on international trade,
regulations and investigations. He's counseled numerous companies involved in global transactions,
advising clients on international trade, trade policy, and customs compliance issues.
Thank you for joining us read Read. Can you just
(01:00):
your background, how you ended up at Sheppard Mullen and
what types of issues you've helped your clients navigate.
Speaker 2 (01:06):
Sure, and thank you for having me on. I really
appreciate the opportunity to talk with you today. So for
my background, that's international relations. I grew up studying all
of the while majoring internation relations is studying geopolitics. Then
I spent a few years messing around in the South
of France working as a bartender, which I cannot recommend enough.
Speaker 3 (01:27):
As a career path.
Speaker 2 (01:28):
But then I came back to find a way to
make my interest in things international into a career, and
I found a practice of law that lets me really
nerd out on the.
Speaker 3 (01:39):
Geopolitical issues that I've always loved.
Speaker 2 (01:41):
So fast forwarding a bit, I'm now the managing partner
of Shepherdmullen's London office, but I practice US law outside
the United States because I practiced in those elements of
the US law that sort of sneak outside the boundaries
of the United States to impact international businesses. So that's
sanctions and export controls, that's anti ivory, that's scipia's foreign
direct investment, and of course with relevants, today's topic that's tariffs.
Speaker 1 (02:07):
So next time we'll have to do a podcast on
your experience as a bartender in this spective France. But
today's topic is tariffs. Trump has imposed a slew of tariffs,
and as some of our listeners may know, the President
has used an emergency statute called the International Emergency Economic
Powers Act or AEPA to impose reciprocal terraffs and fentonel
(02:31):
trafficking tariffs on Canada, China, and Mexico. You said in
an article that you published there doesn't appear to be
a formal process for requesting a waiver for these terriffs.
Is that atypical and if so, can you explain what
the typical exemption process is when a president imposes terrifs
via other sections of the law.
Speaker 2 (02:52):
I'd be glad to so to start with, though, I
think we have to start with the whole idea of
imposing tariffs under AEPA, because that is what is really
a typical here. So if you'll excuse me, going back
to first principles, we'll start with the point that the
tariffs are attacks, right, there's not a counterpoint to that.
At tariff is attacks on important goods that's imposed as
(03:13):
of the date of the entry of those goods, and
so that powered attax is a clear Article iepower in
the Constitution. It's given to Congress has the power to attacks,
and it doesn't lie with the president.
Speaker 3 (03:24):
But Congress can.
Speaker 2 (03:26):
Delegate certain powers to the executive and in this case
they have in the form of the International Emergency Economic
Powers Actors. You mentioned IIPA and so AIPA usually is
the basis for certain regulations. It's the basis of most
of our economic sanctions than an area that I work
in in some of our export controls. But to before
these reciprocal and fentanal tariffs, it had never been used
(03:49):
for imposing attacks. And there are reasons behind that, which
we can get to when we talk about the Supreme
Court case. But just to give you this idea as
a background, this is very atypical. So the imposition of
these tariffs under AIPA is different from the tariffs we
saw in the first Trump administration when in twenty eighteen
or so, the Trump administration put about twenty five percent
(04:12):
tariffs on almost every import from China. And you know,
as we talk about these AIPHA tariffs, it's important to
rep that they are on top of those tariffs that
still exist. Those tariffs that were imposed in twenty eighteen
were under Section three ZHO one of the Trade Act,
and pursuing to the requirements of that Act, there was
(04:33):
a notice and comment period for industry to give its
opinion on the tariffs, and there were applications that companies
and industries could make in order to obtain exemptions or
waivers to the imposition of those tariffs. But here we
have this blanket imposition of the IIPA tariffs across the
countries you mentioned, plus maybe every other country in the world,
(04:54):
depending on whether or not they make a trade deal,
and there's no recourse or at least not a published one,
or companies or industries to apply for an exception.
Speaker 3 (05:02):
Got it.
Speaker 1 (05:03):
I wonder what those exemptions to the three oh one
terraffs were.
Speaker 3 (05:07):
So they were small, very narrowly drawn, and they were
hard fought.
Speaker 2 (05:11):
You would go to the US Trade representative and make
an application there were They allowed for oral presentations where
they had hearings for industry members to come in, and
I've represented a few clients at those hearings, and they
were set for I think a few days at the beginning,
but then they had to extend them because so many
companies wanted to come in and say, hey, not us,
(05:32):
please not us. Because they would allow for imports that
could not be acquired otherwise than from China. So, for instance,
I remember a fella who was from the food industry,
not my client, but he was there in the hearings
and he just stood up and said, Mandarin oranges.
Speaker 3 (05:47):
It's right there in the name. What are we gonna do?
So I thought that was a pretty good take, but
that was typical of what was being presented, was that, Hey, look, yes,
there's maybe the threats that you're addressing with three oh
one or real, but our industry is unique for X,
y or z reasons.
Speaker 1 (06:03):
Wow.
Speaker 3 (06:04):
Interesting.
Speaker 1 (06:06):
So you noted also in an article that the Executive
Order implementing the China the tariffs on China there were
no duty drawbacks, that no duty drawbacks would be available
for duties paid under the order. Can you explain what
that means?
Speaker 2 (06:23):
Sure, Typically a duty drawback is available for duties that
have been paid on imported goods that.
Speaker 3 (06:29):
Get exported later.
Speaker 2 (06:30):
Basically, so, if you have a company that imports a
good and either re exports it unused for sale elsewhere,
or further processes the good in manufacturing, that is, they
bring into the United States to take to their factory,
make some other thing out of it, and they send
it off to be sold elsewhere. There are some logistical
and administrative hurdles to clear, but generally those companies can
(06:52):
import items, produce their goods in the United States and
sell them abroad. So not for consumption in the United States,
and they can get the duties back, right, they can
draw the duties they paid to get the items in
because they're going to send them back out again. And
that's you know, there's a lot more nuance and a
lot of difficult logistical details, but that's more or less
the principle that you can draw back duties you paid
(07:13):
because you're not going to use the item in the
United States. But under the IPA tariffs, the reciprocal tariffs,
and the FENTANL tariffs, those duties drawbacks do not appear
to be available.
Speaker 1 (07:23):
Got it, So, as listeners may know, there were lawsuits
that were filed challenging the tariffs the IEPA teriffs, and
two lower courts have now deemed the tariffs unlawful for
different reasons. An appellate court on August twenty ninth also
found the tariffs unlawful, and the Supreme Court has now
agreed to review the case on an expedited timeline. So
(07:44):
if the Supreme Court finds reciprocal end or funtional trafficking
tariffs are unlawful, will importers who paid those unlawful terriffs
be able to recoup what they paid, and if so,
how do they go about doing that.
Speaker 2 (08:00):
That is going to be a logistical question that the
core is going to have to face, and I think
that that's really going to be It may have an
impact on the substance of their decision.
Speaker 3 (08:09):
So their decision right now is to determine.
Speaker 2 (08:12):
Whether AIPA supports the president imposing attacks, right, and we
talked a little bit about how that's a delegation of
authority from the Congress to the president. AYEPA gives the
president to the power to regulate trade in a national emergency.
So he declares national emergency due to some unusual and
(08:32):
extraordinary threat, and then he can regulate trade.
Speaker 3 (08:35):
And that's sort of the basis that we've had for say, US.
Speaker 2 (08:38):
Economic sanctions, but in this case, the president has imposed
tariffs under that delegation of authority.
Speaker 3 (08:47):
The problem with that.
Speaker 2 (08:48):
Is that it does not appear that the US deficit
in the bilateral trade of goods with nearly every country
in the world constitutes a national emergency, because if if
it's a deficit with every other country in the world
is not unusual, and if it's the state of bilateral
trade that's existed for the past thirty or forty years.
Speaker 3 (09:09):
Then it's not extraordinary.
Speaker 2 (09:10):
It doesn't meet those terms, right, because if those are a.
Speaker 3 (09:14):
National emergency, then anything is a national emergency.
Speaker 2 (09:16):
And the Congress has delegated all of its authority the president,
which can't happen under the non delegation doctrine. Interestingly, the
lower courts didn't get even that far. They said, what
is delegated is the power to regulate international trade, not
the power to tax.
Speaker 3 (09:32):
And those two are distinct, right.
Speaker 2 (09:33):
The sec has the authority to regulate securities issuings, but
they can't They couldn't tax the companies that were issuing
securities in the United States. And if you read the
power to regulate its power to tax, that would be overbroad.
So the Supreme Court is going to have a tough
time finding a way through those kind of basic principles
(10:00):
to say, oh, yeah, the AA does cover this, but
they might have to find some other exit ramp because
the simple lives.
Speaker 3 (10:06):
The sheer logistics of.
Speaker 2 (10:07):
What would be billions of dollars of refunds by the
time that this comes through is enormous.
Speaker 3 (10:15):
I mean, you'd have to have an application system.
Speaker 2 (10:18):
That would just completely overwhelm CBP and it would be
a huge drain on government resources.
Speaker 3 (10:25):
So there may be some.
Speaker 2 (10:26):
Whether or not it's within the Supreme Court's opinion, there
may be some impetus for the Court to find ways
that the tariffs are legitimately collected, just to avoid the
difficult logistics of handing them all back, because that's going
to be a real hasshle. Though I understand that that
(10:47):
importers will be eager to find ways to get those
dais back if the Supreme Court does decide that they
are not properly implemented.
Speaker 1 (10:56):
That's an interesting take. So you think that the Supreme
Court may find and them lawful so as to avoid
having to issue all those so as to avoid the
government having to issue refunds. Is that is that how
I am I understanding here?
Speaker 2 (11:09):
And governmental logistic convenience is not, should not be, and
will not be the basis of the decision. But I
can't help but think it plays on the mind of
the people making the decision, so they may they may
find some way of accommodating the tariffs that have already
been collected. That's just that's speculation, and there are plenty
of other people who know the Supreme Court much better
(11:30):
than I, who were probably speculating on the same things.
Speaker 3 (11:33):
But I think that there is at least that incentive.
Speaker 2 (11:38):
Among the reasons for making a decision one way or another,
that you have an almost not a logistical possibility, but
a very extreme difficulty in returning all of the tariffs
to the folks who have paid them, even though they
were not authorized.
Speaker 1 (11:54):
Yeah. And I think we spoke earlier about the fact
that they you know, you you you had thought that
they they may limit you know, they could find the
tariffs on lawful, but they may limit the relief to
the parties in the case, which would avoid the logistical nightmare,
at least temporarily, because then all these other parties.
Speaker 3 (12:15):
Would have to right right exactly to.
Speaker 1 (12:18):
Get the same relief and to get like a declaration
of their rights as.
Speaker 3 (12:22):
Well, exactly. So blogging the courts is another disincentive to
take that road. Yeah, that will be.
Speaker 1 (12:31):
Another logistical nightmare. Been different in kind. So you've said
you expect Customs, Border and Protection to increase enforcement on
circumvention attempts regarding declared country of origin. What do you
mean by circumvention attempts and what would increased enforcement look like.
Speaker 2 (12:50):
That's a good question, and I think that you have
to start with what does CBP enforcement look like?
Speaker 3 (12:55):
So Customs and Border Protection.
Speaker 2 (12:59):
Was a very early adoptor, at least relative to the
rest of the US government, of automated information collection, and
they use what they now call the ACE system, the
Automated Commercial Environment to collect data on every every import
that comes into the United States. So every for every
item important imported, each company or it's customs broker, usually
(13:20):
it's customs broker files an entry and that entry form
has more than one hundred fields for information. Now, not
all of them are critical, and not all of them
get filled for everyone, but you can imagine that for
millions of imports and hundreds of data points on each
you can build a pretty staggeringly large library of data to.
Speaker 3 (13:43):
Review.
Speaker 2 (13:44):
And so through that the review of that data, the
CPP uses algorithms, and the algorithms really can do what
algorithms do best, which is recognize patterns and then recognize
changes in those patterns. So you have a company importing
x million a year from one country and then suddenly
it switches, and if that sudden switches right after a
(14:05):
change to the law that increases tariffs on the country
from which they're importing.
Speaker 3 (14:09):
That's kind of a red flag. And so that sort
of red flag can be automatically.
Speaker 2 (14:12):
Recognized without enormous expenditure and manpower, simply by using a
software program. And so that's what CBP is going to
be looking for. And so when I talk about circumvention,
I'm talking about efforts to change the information in an
import entry that are not actual changes to the.
Speaker 3 (14:38):
Import.
Speaker 2 (14:38):
So let's say you import an item from China and
rather than going and then the tariffs on China go
up twenty or thirty or one hundred percent, all of
which have happened and then been undone in the last
good lord nine months, and so it if that tariff
(15:02):
is imposed on China, you might say, ah, well, look,
why don't we send this over to it for a
stopover in Malaysia? And then our bills are airway bills,
will say this went from Malaysia to Port of Los Angeles,
and we'll say, okay, this or originated from Malaysia, because
that's you know, it at least made a stopover there,
And that's circumvention because you didn't actually produce the item
(15:25):
in Malaysia. What you did was produce it in China,
move it to Malaysia, and then claim that it came
from that third country.
Speaker 3 (15:31):
And that sort of circumvention is something that CBP has
the tools to identify and will certainly try to enforce
against because it has substantial penalties in every possible incentive
to get to get those from importers who are trying
to circumvent these large tariffs.
Speaker 1 (15:48):
Interesting, so what kind of penalties are associated with the
myths classification of items or improper declarations of country of origin.
Speaker 2 (16:01):
If there are misclassifications that are sort of genuine and
with no sort of intent to defraud the government, then
you can have this kind of millistrative penalties.
Speaker 3 (16:15):
That might be a warning letter, they might be a
small penalty.
Speaker 2 (16:17):
But if there are willful efforts to circumvent or to
defraud the US government by making claims on your imports
that you know are false, the penalties can climb to
up to the value of the goods or up four
times the amount of the duties that were that were
non paid, So they can get to some very significant penalties.
Speaker 3 (16:39):
Wow.
Speaker 1 (16:40):
So if if the court ultimately finds that Fentanel and
reciprocal tariffs are unlawful. Can Trump recreate these tariffs using
other statutes? And if so, how quickly could those be implemented.
Speaker 2 (16:53):
This is an interesting one, and one of the ones
that you may have read what we mentioned in the
article is section three third eight.
Speaker 3 (17:01):
This is a an older.
Speaker 2 (17:05):
Piece of law that has not really been used, but
it basically allows the tariffs. Allows the president to implement
tariffs by effectively by proclamation and saying.
Speaker 3 (17:18):
That they are to.
Speaker 2 (17:21):
Counterbalance the unfair trade practice of a foreign country. And
the president can impose up to fifty percent tariffs, which
would be as much as he imposed on most countries
in the Liberation Day tariffs. Some of the China ones
went above that afterwards, but for the most part, that
(17:41):
would cover what he had intended to do with.
Speaker 3 (17:45):
Liberation Day tariff. So section three thirty eight seems like
a fairly straightforward way of recreating the tariffs that have
been put out under a EPA.
Speaker 1 (17:55):
So why do you think he didn't use that section
to begin with?
Speaker 3 (17:58):
Administration seems to be interested in the most efficient means
of achieving its ends, and any logistical or administrative step
that it can skip to get to the end, it
seems to do so, and then it.
Speaker 2 (18:19):
Sort of allows the courts to sort out the constitutionality
of whatever the action is. Interestingly, some of the pieces
of the announcement about unfair trade in the executive orders
that relied on AIPA to impose the tariffs, they said
some of the same terminology that's in three thirty eight.
And so there is one of the briefs to the
(18:41):
Supreme Court says, hey, look, yeah, these were imposed under AYEPA.
But we basically said that things that are in three
thirty eight and most of them could be covered by
three thirty eight. That could give the Supreme Court an
out and they could say, hey, look, three thirty eight
has been met, so why don't we just allow these
tariffs that been in posed under three thirty eight and
we'll go from there and make sure that the administration
(19:03):
meets whatever other administrative burdens it needs to meet.
Speaker 3 (19:06):
And so that's one of those ones.
Speaker 2 (19:07):
Going back to when we talked about the administrative difficulty
of returning all the tariffs, that might be an exit
ramp that the Supreme Court takes. I mean, legally that's
an excruciating stretch, but it has to be tempting.
Speaker 1 (19:23):
Yeah, I mean that would be interesting because the Federal
Circuit said, you know, one of its bases for saying
that these terrafts aren't allowed under EPA is that the
statutory authority wasn't clear, right, and also it wasn't clear,
you know, it wasn't clear by its own terms, and
it wasn't clear because there were no other powers in
(19:45):
the Tariffing Code in section nineteen that allows him to
impose these tarraffs. And so that would be an interesting
one because it would sort of like adopt what the
lower court said, the Fed Circuit said, but then it
would say, but they were wrong in that there is
a statute that this comports with. So another section that
(20:06):
the International Trade Court mentioned, the President could have used
with section one twenty two of the Trade Act, and
that section allows him to impose terrafs if he finds
there are serious balance of payments issues. But there are
limits on that statute, which is I think it's you
can only impose a fifteen percent rate for one hundred
(20:27):
and fifty days. And you've said tariffs under this section
are also contentious, but you said that they have some
justification under the General Agreement on Tariffs and Trade. Can
you explain what you mean by that?
Speaker 3 (20:40):
Yes, Well, so these tariffs are at least if they've
been used before.
Speaker 2 (20:46):
Some of the others have never been touched. The last
time they were used was by the Nixon administration, so
it is going back a ways to see a one
to twenty two tariff imposed. They are limited to fifteen
ten percent, not fifty and there are some administrative steps
that the President would have to take an alimination on
(21:07):
the time that they can be imposed. But they allow
for a redress of the balance of payments of between
the United States and another country, which under the Global
Agreement the General Sorry the General Agreement on Tariffs and Trade.
Under GAT, members of members of that agreement are allowed
(21:30):
to impose trade restrictions on serious balance of trade problems,
a balance of payments problems, and so the use the
normal use of section one twenty two is consistent with
the normal interpretation of GAT. However, balance of payments is
a term that comprises all economic activity between two countries.
(21:55):
So the problem that is the problem that the White
House has ident that it is addressing under the ipoterraps
is that there is a trade deficit between the United
States and many of the other countries.
Speaker 3 (22:09):
In the world.
Speaker 2 (22:11):
So most well, many of the economists that I have
read say that that balance of that imbalance in the
trade of goods exists because other countries can make those
goods more efficiently and more cheaply and sell them to
the United States, which gets an advantage by buying those
goods and providing services, including financial services, to the countries
(22:34):
around the world. So if you look at the balance
of trade of goods, the US is certainly at a deficit,
which the White House very firmly believes is a problem
that's not consistent with current economic theory in many cases,
but that is certainly the position of many of the
(22:55):
White House, and so to address that, they want to
post tariffs. But the balance of trading goods is not
the balance of payments between two countries, because the balance
of payments between two countries would also include money going
across to a country or services going across to the country,
and those are usually come out more more even than
the balance of trading goods. So I'm not sure that
one twenty two is going to be the right way either,
(23:18):
even though it would be more consistent with sort of
global agreement principles.
Speaker 3 (23:25):
Got it.
Speaker 1 (23:25):
So just this is my final question. What are some
of the biggest regulatory risks companies face with the current
teriff landscaped Well.
Speaker 2 (23:36):
So the companies face business risks and regulatory risks. I mean,
for most of you know, my profession, for all of
my professional career, for most of my lifetime, we have
had an effective rate in the United States, an effective
teriff rate below five percent. I mean, it's been almost
zero for much of my professional career. And so the
(24:00):
companies that are facing these tariffs have really no precedent
to base their planning on. And so there's a huge
business risk. If you have a business that has an
eight percent margin and suddenly you get a fifteen percent
tariffs on your input, there's no place to put that
margin except to charge you know, your charge it through
to your customers, and then the prices for everything will
(24:22):
go up. So there's some real business difficulties. The regulatory
risks are that companies in order to resolve this, and
and you know, with every aim not to have to
pass through those charges to their customers. There are some
tariff mitigation strategies they can consider, right there's central customs
compliance of you know, checking valuations, checking country of origin,
(24:46):
doing making tariff alification part of their contract, or finding
ways to adjust their supply chain. Those are good strategies
and companies are looking at them. We always recommend that
they document every everything they do very carefully because that
is almost certainly going to be subject to some scrutiny
by c VP. But we also hear a lot of
(25:09):
snake oil being sold out there, and and there's it's
because there are many companies that have not had to
face this because we've had such a long time of
zero tariff as as the baseline for this country. That
there's there are a lot of things that that I
think companies would do well to be skeptical about. Right
There are propositions of transshipment, that's the one I mentioned earlier,
(25:32):
where you ship something from say China to a third
country and then and then say that it came from
that third country. There are some that there there are
vendors who are offering to oh, we'll bring your stuff
to the UAE and repackage it and market is origin
ue and that'll that'll help you avoid terrors. But that
(25:53):
again will be something that's noticed, and and there will
be a requirement that you proved to CVP that the
country of origin is Act the UAE. There are temptations
to make false statements, to undervalue goods, really a lot
of things that just sound too good to be true.
And we've been cautioning our clients that you know, if
it sounds too good to be true, there's a real
possibility it is, and so we should really kick the
(26:14):
tires on any such suggestions.
Speaker 3 (26:16):
There are some that can mitigate your terriff.
Speaker 2 (26:18):
Risks, but there's also a lot of false promises being
made because there are many companies that are desperate to
mitigate the drag this has on their businesses.
Speaker 1 (26:27):
All right, well, I could keep you here forever talking
about TERRORIFFTS. Thank you so much read for joining us.
Welcome to the Votes and Verdicts podcast hosted by Bloomberg Intelligence,
the investment research arm of Bloomberg LP. In this podcast series,
we talk about the intersection of business policy and law.
My name is Holly Frome. I'm an analyst with Bloomberg
Intelligence covering consumer and industrials litigation. Today's podcast we'll focus
on the dynamic area of tarras. I'm delighted to be
(00:37):
joined today by Reid Witten, partner at the global law
firm Shepherd Mullen. Read practices law focusing on international trade,
regulations and investigations. He's counseled numerous companies involved in global transactions,
advising clients on international trade, trade policy, and customs compliance issues.
Thank you for joining us read Read. Can you just
(01:00):
your background, how you ended up at Sheppard Mullen and
what types of issues you've helped your clients navigate.
Speaker 2 (01:06):
Sure, and thank you for having me on. I really
appreciate the opportunity to talk with you today. So for
my background, that's international relations. I grew up studying all
of the while majoring internation relations is studying geopolitics. Then
I spent a few years messing around in the South
of France working as a bartender, which I cannot recommend enough.
Speaker 3 (01:27):
As a career path.
Speaker 2 (01:28):
But then I came back to find a way to
make my interest in things international into a career, and
I found a practice of law that lets me really
nerd out on the.
Speaker 3 (01:39):
Geopolitical issues that I've always loved.
Speaker 2 (01:41):
So fast forwarding a bit, I'm now the managing partner
of Shepherdmullen's London office, but I practice US law outside
the United States because I practiced in those elements of
the US law that sort of sneak outside the boundaries
of the United States to impact international businesses. So that's
sanctions and export controls, that's anti ivory, that's scipia's foreign
direct investment, and of course with relevants, today's topic that's tariffs.
Speaker 1 (02:07):
So next time we'll have to do a podcast on
your experience as a bartender in this spective France. But
today's topic is tariffs. Trump has imposed a slew of tariffs,
and as some of our listeners may know, the President
has used an emergency statute called the International Emergency Economic
Powers Act or AEPA to impose reciprocal terraffs and fentonel
(02:31):
trafficking tariffs on Canada, China, and Mexico. You said in
an article that you published there doesn't appear to be
a formal process for requesting a waiver for these terriffs.
Is that atypical and if so, can you explain what
the typical exemption process is when a president imposes terrifs
via other sections of the law.
Speaker 2 (02:52):
I'd be glad to so to start with, though, I
think we have to start with the whole idea of
imposing tariffs under AEPA, because that is what is really
a typical here. So if you'll excuse me, going back
to first principles, we'll start with the point that the
tariffs are attacks, right, there's not a counterpoint to that.
At tariff is attacks on important goods that's imposed as
(03:13):
of the date of the entry of those goods, and
so that powered attax is a clear Article iepower in
the Constitution. It's given to Congress has the power to attacks,
and it doesn't lie with the president.
Speaker 3 (03:24):
But Congress can.
Speaker 2 (03:26):
Delegate certain powers to the executive and in this case
they have in the form of the International Emergency Economic
Powers Actors. You mentioned IIPA and so AIPA usually is
the basis for certain regulations. It's the basis of most
of our economic sanctions than an area that I work
in in some of our export controls. But to before
these reciprocal and fentanal tariffs, it had never been used
(03:49):
for imposing attacks. And there are reasons behind that, which
we can get to when we talk about the Supreme
Court case. But just to give you this idea as
a background, this is very atypical. So the imposition of
these tariffs under AIPA is different from the tariffs we
saw in the first Trump administration when in twenty eighteen
or so, the Trump administration put about twenty five percent
(04:12):
tariffs on almost every import from China. And you know,
as we talk about these AIPHA tariffs, it's important to
rep that they are on top of those tariffs that
still exist. Those tariffs that were imposed in twenty eighteen
were under Section three ZHO one of the Trade Act,
and pursuing to the requirements of that Act, there was
(04:33):
a notice and comment period for industry to give its
opinion on the tariffs, and there were applications that companies
and industries could make in order to obtain exemptions or
waivers to the imposition of those tariffs. But here we
have this blanket imposition of the IIPA tariffs across the
countries you mentioned, plus maybe every other country in the world,
(04:54):
depending on whether or not they make a trade deal,
and there's no recourse or at least not a published one,
or companies or industries to apply for an exception.
Speaker 3 (05:02):
Got it.
Speaker 1 (05:03):
I wonder what those exemptions to the three oh one
terraffs were.
Speaker 3 (05:07):
So they were small, very narrowly drawn, and they were
hard fought.
Speaker 2 (05:11):
You would go to the US Trade representative and make
an application there were They allowed for oral presentations where
they had hearings for industry members to come in, and
I've represented a few clients at those hearings, and they
were set for I think a few days at the beginning,
but then they had to extend them because so many
companies wanted to come in and say, hey, not us,
(05:32):
please not us. Because they would allow for imports that
could not be acquired otherwise than from China. So, for instance,
I remember a fella who was from the food industry,
not my client, but he was there in the hearings
and he just stood up and said, Mandarin oranges.
Speaker 3 (05:47):
It's right there in the name. What are we gonna do?
So I thought that was a pretty good take, but
that was typical of what was being presented, was that, Hey, look, yes,
there's maybe the threats that you're addressing with three oh
one or real, but our industry is unique for X,
y or z reasons.
Speaker 1 (06:03):
Wow.
Speaker 3 (06:04):
Interesting.
Speaker 1 (06:06):
So you noted also in an article that the Executive
Order implementing the China the tariffs on China there were
no duty drawbacks, that no duty drawbacks would be available
for duties paid under the order. Can you explain what
that means?
Speaker 2 (06:23):
Sure, Typically a duty drawback is available for duties that
have been paid on imported goods that.
Speaker 3 (06:29):
Get exported later.
Speaker 2 (06:30):
Basically, so, if you have a company that imports a
good and either re exports it unused for sale elsewhere,
or further processes the good in manufacturing, that is, they
bring into the United States to take to their factory,
make some other thing out of it, and they send
it off to be sold elsewhere. There are some logistical
and administrative hurdles to clear, but generally those companies can
(06:52):
import items, produce their goods in the United States and
sell them abroad. So not for consumption in the United States,
and they can get the duties back, right, they can
draw the duties they paid to get the items in
because they're going to send them back out again. And
that's you know, there's a lot more nuance and a
lot of difficult logistical details, but that's more or less
the principle that you can draw back duties you paid
(07:13):
because you're not going to use the item in the
United States. But under the IPA tariffs, the reciprocal tariffs,
and the FENTANL tariffs, those duties drawbacks do not appear
to be available.
Speaker 1 (07:23):
Got it, So, as listeners may know, there were lawsuits
that were filed challenging the tariffs the IEPA teriffs, and
two lower courts have now deemed the tariffs unlawful for
different reasons. An appellate court on August twenty ninth also
found the tariffs unlawful, and the Supreme Court has now
agreed to review the case on an expedited timeline. So
(07:44):
if the Supreme Court finds reciprocal end or funtional trafficking
tariffs are unlawful, will importers who paid those unlawful terriffs
be able to recoup what they paid, and if so,
how do they go about doing that.
Speaker 2 (08:00):
That is going to be a logistical question that the
core is going to have to face, and I think
that that's really going to be It may have an
impact on the substance of their decision.
Speaker 3 (08:09):
So their decision right now is to determine.
Speaker 2 (08:12):
Whether AIPA supports the president imposing attacks, right, and we
talked a little bit about how that's a delegation of
authority from the Congress to the president. AYEPA gives the
president to the power to regulate trade in a national emergency.
So he declares national emergency due to some unusual and
(08:32):
extraordinary threat, and then he can regulate trade.
Speaker 3 (08:35):
And that's sort of the basis that we've had for say, US.
Speaker 2 (08:38):
Economic sanctions, but in this case, the president has imposed
tariffs under that delegation of authority.
Speaker 3 (08:47):
The problem with that.
Speaker 2 (08:48):
Is that it does not appear that the US deficit
in the bilateral trade of goods with nearly every country
in the world constitutes a national emergency, because if if
it's a deficit with every other country in the world
is not unusual, and if it's the state of bilateral
trade that's existed for the past thirty or forty years.
Speaker 3 (09:09):
Then it's not extraordinary.
Speaker 2 (09:10):
It doesn't meet those terms, right, because if those are a.
Speaker 3 (09:14):
National emergency, then anything is a national emergency.
Speaker 2 (09:16):
And the Congress has delegated all of its authority the president,
which can't happen under the non delegation doctrine. Interestingly, the
lower courts didn't get even that far. They said, what
is delegated is the power to regulate international trade, not
the power to tax.
Speaker 3 (09:32):
And those two are distinct, right.
Speaker 2 (09:33):
The sec has the authority to regulate securities issuings, but
they can't They couldn't tax the companies that were issuing
securities in the United States. And if you read the
power to regulate its power to tax, that would be overbroad.
So the Supreme Court is going to have a tough
time finding a way through those kind of basic principles
(10:00):
to say, oh, yeah, the AA does cover this, but
they might have to find some other exit ramp because
the simple lives.
Speaker 3 (10:06):
The sheer logistics of.
Speaker 2 (10:07):
What would be billions of dollars of refunds by the
time that this comes through is enormous.
Speaker 3 (10:15):
I mean, you'd have to have an application system.
Speaker 2 (10:18):
That would just completely overwhelm CBP and it would be
a huge drain on government resources.
Speaker 3 (10:25):
So there may be some.
Speaker 2 (10:26):
Whether or not it's within the Supreme Court's opinion, there
may be some impetus for the Court to find ways
that the tariffs are legitimately collected, just to avoid the
difficult logistics of handing them all back, because that's going
to be a real hasshle. Though I understand that that
(10:47):
importers will be eager to find ways to get those
dais back if the Supreme Court does decide that they
are not properly implemented.
Speaker 1 (10:56):
That's an interesting take. So you think that the Supreme
Court may find and them lawful so as to avoid
having to issue all those so as to avoid the
government having to issue refunds. Is that is that how
I am I understanding here?
Speaker 2 (11:09):
And governmental logistic convenience is not, should not be, and
will not be the basis of the decision. But I
can't help but think it plays on the mind of
the people making the decision, so they may they may
find some way of accommodating the tariffs that have already
been collected. That's just that's speculation, and there are plenty
of other people who know the Supreme Court much better
(11:30):
than I, who were probably speculating on the same things.
Speaker 3 (11:33):
But I think that there is at least that incentive.
Speaker 2 (11:38):
Among the reasons for making a decision one way or another,
that you have an almost not a logistical possibility, but
a very extreme difficulty in returning all of the tariffs
to the folks who have paid them, even though they
were not authorized.
Speaker 1 (11:54):
Yeah. And I think we spoke earlier about the fact
that they you know, you you you had thought that
they they may limit you know, they could find the
tariffs on lawful, but they may limit the relief to
the parties in the case, which would avoid the logistical nightmare,
at least temporarily, because then all these other parties.
Speaker 3 (12:15):
Would have to right right exactly to.
Speaker 1 (12:18):
Get the same relief and to get like a declaration
of their rights as.
Speaker 3 (12:22):
Well, exactly. So blogging the courts is another disincentive to
take that road. Yeah, that will be.
Speaker 1 (12:31):
Another logistical nightmare. Been different in kind. So you've said
you expect Customs, Border and Protection to increase enforcement on
circumvention attempts regarding declared country of origin. What do you
mean by circumvention attempts and what would increased enforcement look like.
Speaker 2 (12:50):
That's a good question, and I think that you have
to start with what does CBP enforcement look like?
Speaker 3 (12:55):
So Customs and Border Protection.
Speaker 2 (12:59):
Was a very early adoptor, at least relative to the
rest of the US government, of automated information collection, and
they use what they now call the ACE system, the
Automated Commercial Environment to collect data on every every import
that comes into the United States. So every for every
item important imported, each company or it's customs broker, usually
(13:20):
it's customs broker files an entry and that entry form
has more than one hundred fields for information. Now, not
all of them are critical, and not all of them
get filled for everyone, but you can imagine that for
millions of imports and hundreds of data points on each
you can build a pretty staggeringly large library of data to.
Speaker 3 (13:43):
Review.
Speaker 2 (13:44):
And so through that the review of that data, the
CPP uses algorithms, and the algorithms really can do what
algorithms do best, which is recognize patterns and then recognize
changes in those patterns. So you have a company importing
x million a year from one country and then suddenly
it switches, and if that sudden switches right after a
(14:05):
change to the law that increases tariffs on the country
from which they're importing.
Speaker 3 (14:09):
That's kind of a red flag. And so that sort
of red flag can be automatically.
Speaker 2 (14:12):
Recognized without enormous expenditure and manpower, simply by using a
software program. And so that's what CBP is going to
be looking for. And so when I talk about circumvention,
I'm talking about efforts to change the information in an
import entry that are not actual changes to the.
Speaker 3 (14:38):
Import.
Speaker 2 (14:38):
So let's say you import an item from China and
rather than going and then the tariffs on China go
up twenty or thirty or one hundred percent, all of
which have happened and then been undone in the last
good lord nine months, and so it if that tariff
(15:02):
is imposed on China, you might say, ah, well, look,
why don't we send this over to it for a
stopover in Malaysia? And then our bills are airway bills,
will say this went from Malaysia to Port of Los Angeles,
and we'll say, okay, this or originated from Malaysia, because
that's you know, it at least made a stopover there,
And that's circumvention because you didn't actually produce the item
(15:25):
in Malaysia. What you did was produce it in China,
move it to Malaysia, and then claim that it came
from that third country.
Speaker 3 (15:31):
And that sort of circumvention is something that CBP has
the tools to identify and will certainly try to enforce
against because it has substantial penalties in every possible incentive
to get to get those from importers who are trying
to circumvent these large tariffs.
Speaker 1 (15:48):
Interesting, so what kind of penalties are associated with the
myths classification of items or improper declarations of country of origin.
Speaker 2 (16:01):
If there are misclassifications that are sort of genuine and
with no sort of intent to defraud the government, then
you can have this kind of millistrative penalties.
Speaker 3 (16:15):
That might be a warning letter, they might be a
small penalty.
Speaker 2 (16:17):
But if there are willful efforts to circumvent or to
defraud the US government by making claims on your imports
that you know are false, the penalties can climb to
up to the value of the goods or up four
times the amount of the duties that were that were
non paid, So they can get to some very significant penalties.
Speaker 3 (16:39):
Wow.
Speaker 1 (16:40):
So if if the court ultimately finds that Fentanel and
reciprocal tariffs are unlawful. Can Trump recreate these tariffs using
other statutes? And if so, how quickly could those be implemented.
Speaker 2 (16:53):
This is an interesting one, and one of the ones
that you may have read what we mentioned in the
article is section three third eight.
Speaker 3 (17:01):
This is a an older.
Speaker 2 (17:05):
Piece of law that has not really been used, but
it basically allows the tariffs. Allows the president to implement
tariffs by effectively by proclamation and saying.
Speaker 3 (17:18):
That they are to.
Speaker 2 (17:21):
Counterbalance the unfair trade practice of a foreign country. And
the president can impose up to fifty percent tariffs, which
would be as much as he imposed on most countries
in the Liberation Day tariffs. Some of the China ones
went above that afterwards, but for the most part, that
(17:41):
would cover what he had intended to do with.
Speaker 3 (17:45):
Liberation Day tariff. So section three thirty eight seems like
a fairly straightforward way of recreating the tariffs that have
been put out under a EPA.
Speaker 1 (17:55):
So why do you think he didn't use that section
to begin with?
Speaker 3 (17:58):
Administration seems to be interested in the most efficient means
of achieving its ends, and any logistical or administrative step
that it can skip to get to the end, it
seems to do so, and then it.
Speaker 2 (18:19):
Sort of allows the courts to sort out the constitutionality
of whatever the action is. Interestingly, some of the pieces
of the announcement about unfair trade in the executive orders
that relied on AIPA to impose the tariffs, they said
some of the same terminology that's in three thirty eight.
And so there is one of the briefs to the
(18:41):
Supreme Court says, hey, look, yeah, these were imposed under AYEPA.
But we basically said that things that are in three
thirty eight and most of them could be covered by
three thirty eight. That could give the Supreme Court an
out and they could say, hey, look, three thirty eight
has been met, so why don't we just allow these
tariffs that been in posed under three thirty eight and
we'll go from there and make sure that the administration
(19:03):
meets whatever other administrative burdens it needs to meet.
Speaker 3 (19:06):
And so that's one of those ones.
Speaker 2 (19:07):
Going back to when we talked about the administrative difficulty
of returning all the tariffs, that might be an exit
ramp that the Supreme Court takes. I mean, legally that's
an excruciating stretch, but it has to be tempting.
Speaker 1 (19:23):
Yeah, I mean that would be interesting because the Federal
Circuit said, you know, one of its bases for saying
that these terrafts aren't allowed under EPA is that the
statutory authority wasn't clear, right, and also it wasn't clear,
you know, it wasn't clear by its own terms, and
it wasn't clear because there were no other powers in
(19:45):
the Tariffing Code in section nineteen that allows him to
impose these tarraffs. And so that would be an interesting
one because it would sort of like adopt what the
lower court said, the Fed Circuit said, but then it
would say, but they were wrong in that there is
a statute that this comports with. So another section that
(20:06):
the International Trade Court mentioned, the President could have used
with section one twenty two of the Trade Act, and
that section allows him to impose terrafs if he finds
there are serious balance of payments issues. But there are
limits on that statute, which is I think it's you
can only impose a fifteen percent rate for one hundred
(20:27):
and fifty days. And you've said tariffs under this section
are also contentious, but you said that they have some
justification under the General Agreement on Tariffs and Trade. Can
you explain what you mean by that?
Speaker 3 (20:40):
Yes, Well, so these tariffs are at least if they've
been used before.
Speaker 2 (20:46):
Some of the others have never been touched. The last
time they were used was by the Nixon administration, so
it is going back a ways to see a one
to twenty two tariff imposed. They are limited to fifteen
ten percent, not fifty and there are some administrative steps
that the President would have to take an alimination on
(21:07):
the time that they can be imposed. But they allow
for a redress of the balance of payments of between
the United States and another country, which under the Global
Agreement the General Sorry the General Agreement on Tariffs and Trade.
Under GAT, members of members of that agreement are allowed
(21:30):
to impose trade restrictions on serious balance of trade problems,
a balance of payments problems, and so the use the
normal use of section one twenty two is consistent with
the normal interpretation of GAT. However, balance of payments is
a term that comprises all economic activity between two countries.
(21:55):
So the problem that is the problem that the White
House has ident that it is addressing under the ipoterraps
is that there is a trade deficit between the United
States and many of the other countries.
Speaker 3 (22:09):
In the world.
Speaker 2 (22:11):
So most well, many of the economists that I have
read say that that balance of that imbalance in the
trade of goods exists because other countries can make those
goods more efficiently and more cheaply and sell them to
the United States, which gets an advantage by buying those
goods and providing services, including financial services, to the countries
(22:34):
around the world. So if you look at the balance
of trade of goods, the US is certainly at a deficit,
which the White House very firmly believes is a problem
that's not consistent with current economic theory in many cases,
but that is certainly the position of many of the
(22:55):
White House, and so to address that, they want to
post tariffs. But the balance of trading goods is not
the balance of payments between two countries, because the balance
of payments between two countries would also include money going
across to a country or services going across to the country,
and those are usually come out more more even than
the balance of trading goods. So I'm not sure that
one twenty two is going to be the right way either,
(23:18):
even though it would be more consistent with sort of
global agreement principles.
Speaker 3 (23:25):
Got it.
Speaker 1 (23:25):
So just this is my final question. What are some
of the biggest regulatory risks companies face with the current
teriff landscaped Well.
Speaker 2 (23:36):
So the companies face business risks and regulatory risks. I mean,
for most of you know, my profession, for all of
my professional career, for most of my lifetime, we have
had an effective rate in the United States, an effective
teriff rate below five percent. I mean, it's been almost
zero for much of my professional career. And so the
(24:00):
companies that are facing these tariffs have really no precedent
to base their planning on. And so there's a huge
business risk. If you have a business that has an
eight percent margin and suddenly you get a fifteen percent
tariffs on your input, there's no place to put that
margin except to charge you know, your charge it through
to your customers, and then the prices for everything will
(24:22):
go up. So there's some real business difficulties. The regulatory
risks are that companies in order to resolve this, and
and you know, with every aim not to have to
pass through those charges to their customers. There are some
tariff mitigation strategies they can consider, right there's central customs
compliance of you know, checking valuations, checking country of origin,
(24:46):
doing making tariff alification part of their contract, or finding
ways to adjust their supply chain. Those are good strategies
and companies are looking at them. We always recommend that
they document every everything they do very carefully because that
is almost certainly going to be subject to some scrutiny
by c VP. But we also hear a lot of
(25:09):
snake oil being sold out there, and and there's it's
because there are many companies that have not had to
face this because we've had such a long time of
zero tariff as as the baseline for this country. That
there's there are a lot of things that that I
think companies would do well to be skeptical about. Right
There are propositions of transshipment, that's the one I mentioned earlier,
(25:32):
where you ship something from say China to a third
country and then and then say that it came from
that third country. There are some that there there are
vendors who are offering to oh, we'll bring your stuff
to the UAE and repackage it and market is origin
ue and that'll that'll help you avoid terrors. But that
(25:53):
again will be something that's noticed, and and there will
be a requirement that you proved to CVP that the
country of origin is Act the UAE. There are temptations
to make false statements, to undervalue goods, really a lot
of things that just sound too good to be true.
And we've been cautioning our clients that you know, if
it sounds too good to be true, there's a real
possibility it is, and so we should really kick the
(26:14):
tires on any such suggestions.
Speaker 3 (26:16):
There are some that can mitigate your terriff.
Speaker 2 (26:18):
Risks, but there's also a lot of false promises being
made because there are many companies that are desperate to
mitigate the drag this has on their businesses.
Speaker 1 (26:27):
All right, well, I could keep you here forever talking
about TERRORIFFTS. Thank you so much read for joining us.
Host
Elliott Stein
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
Cardiac Cowboys
The heart was always off-limits to surgeons. Cutting into it spelled instant death for the patient. That is, until a ragtag group of doctors scattered across the Midwest and Texas decided to throw out the rule book. Working in makeshift laboratories and home garages, using medical devices made from scavenged machine parts and beer tubes, these men and women invented the field of open heart surgery. Odds are, someone you know is alive because of them. So why has history left them behind? Presented by Chris Pine, CARDIAC COWBOYS tells the gripping true story behind the birth of heart surgery, and the young, Greatest Generation doctors who made it happen. For years, they competed and feuded, racing to be the first, the best, and the most prolific. Some appeared on the cover of Time Magazine, operated on kings and advised presidents. Others ended up disgraced, penniless, and convicted of felonies. Together, they ignited a revolution in medicine, and changed the world.