A new style of applying tariffs to imports is emerging as a form of coercion to correct deviations from free trade . Despite being paid by the importer, the United States government maintains that they will impact foreign exporters to induce them to migrate their businesses to that country. If the result is favorable, the importer will be compensated with a reduction in taxes.
The coercive application of these tariffs began generically for all products from a country, to extend to a specific sector but to all countries indiscriminately. Their legal nature is dissociated from the exceptional and transitory nature of trade safeguards. Without an expiration date, the tariffs are dictated by executive orders of the president and are based for the first time in history on the powers granted by the International Emergency Economic Powers Act (IEEPA). Those dictated in 2017, on the other hand, had a different and legally more fragile legal basis, such as the Trade Act of 1974 and the Trade Expansion Act of 1962, among other laws. The invocation of the IEEPA grants greater discretion to the government, allowing it to unilaterally sanction other countries. They operate to dismantle an alleged abusive practice of a current trade agreement and to correct an unusual or extraordinary threat generated outside the US. If the tax-raising power of these tariffs is successful, the US tax system could migrate to a tariff regime on external income, progressively reducing taxes on internal income.
Frustrated resources
An IEEPA sanction is reviewable by two instances in the US jurisdiction. It consists of a claim of unconstitutionality by the US businessmen who must pay them, which implies that those who are encouraged to migrate their companies from abroad will have no recourse, unless they are companies linked to or that show their presence in the US. There is also no legitimation by country. Following the Tornado Cash precedent of the Supreme Court, the IEEPA contemplates multiple sanctions with political and economic significance, but, however, the norm does not refer expressly to tariffs.
On the other hand, traditional customs tariffs can be disputed before the World Trade Organization (WTO) or, in the case of Canada and Mexico, through arbitration in the USMCA inherited from NAFTA.
The application of these punitive tariffs seeks to break down the global integration of value chains, which, as in the Chinese case, substantially compromises the customs concept of the origin of industrial and technological products, distorting the legal principles of the WTO.
Multilateral trade liberalization is not a legal right that can be protected, but rather a formula for economic growth. Today, trade liberalization agreements function as drivers of global development as well as tools of geopolitical conquest and domination. According to President Trump, tariffs correct social emergencies and balance inequalities in multilateral trade that generate an abusive trade deficit.
How did they come about?
In his 2017 report to Congress, the US representative acknowledged to the WTO the mistake of supporting China's entry in 2001. By subjecting China to WTO rules, they failed to insert the expansion of their value chains into free market rules.
Negotiated during the Clinton administration, China's accession protocol to the WTO requires it to follow "normal market" behavior to gain the benefits of the most-favored-nation rule. The U.S. representative at the time, Mickey Cantor, enthusiastically stated that free trade would strengthen China's political pluralism.
The congress supported the protocol by a majority of 83 to 15 and established a program for bilateral trade, imposing as a condition the opening of the Chinese market to US products. For its part, the WTO also demanded that China eliminate its self-tariffs, reduce its tariffs to 9.4%, eliminate them for high technology, keeping agriculture at 17.5%, guarantee rights and autonomy of distribution and import to foreign companies, reviewable every three years, free access to financial and technological services, and respect intellectual property.
A history of defaults and unresolved disputes
Twenty-four years later, all of these commitments have not been fulfilled. As early as 2002, the US commission monitoring bilateral trade reported its deep differences with China's predatory handling of international trade. In 2015, with President Xi Jinping's visit to the US, the commission listed the causes by sectors affected, including the manipulation of the exchange rate, forced transfers of technology, theft of intellectual property and excessive state aid. But in 2016, under the Obama administration, another similar report recognized the positive results despite the complex situation of trade.
The problems at the WTO began in 2008. Criticism and disputes over China's failure to comply with the accession protocol validated the application of trade safeguard measures by 130 countries over a 12-year period. The online dossier of WTO disputes shows 142 cases involving China - 9 cases per year - complainant in only 12 and defendant in 130. On February 5, China filed a complaint against the United States over its executive order imposing additional tariffs of 10% on all its products, denouncing the inconsistency with the most-favored-nation rule under Articles I:1 and II:1(a) of the GATT 1994.
Tensions and headlessness
Since 2005, the frustration of the United States with the globalization of Chinese value chains has given rise to the idea of leaving the WTO. Section 125 of the Uruguay Round Agreement Act (the US ratification law) authorizes Congress to vote every five years on whether to continue or leave the WTO. Congress voted to stay in 2000 and 2005, did not vote in 2010 and 2015, in 2020 it almost voted to leave, and this year in 2025 it could vote if tariffs do not work.
Curiously, China is the one that needs the WTO most today to ensure the stability of its trade relations. Its growing globalisation of value chains and its investments abroad weaken its independence from multilateralism.
To ease these tensions, in April 2017, the presidents of China and the United States agreed at Mar-a-Lago to begin a bilateral dialogue on economic issues (CED), cybersecurity and social issues. This dialogue failed months later, when at the November meeting in Beijing, President Trump deemed Chinese state control over the economy and its dirigisme over its companies unacceptable, declaring them incompatible with WTO principles.
Dissatisfied with the outcome of WTO disputes, the Obama administration has already blocked the re-establishment of the appeals court. Without its enforcement power, the WTO has been reduced to the consensus of the old GATT. Without US leadership, China lacks approval, so the European Union (EU) has taken on the task of rebuilding dispute settlement by creating the Multi-Party Interim Measures (MPIA). However, after the impact of Brexit, China has been left alone to defend the WTO rules, ensuring the freedoms of multilateralism and the validity of the MPIA, but failing to replace US leadership.
Worrying Chinese mobility in the USMCA
Although a joint review of the USMCA is planned for 2026, the presence of Chinese investments in the region in recent years has generated restrictions from the US. The circumvention of USMCA rules by Chinese and joint ventures in Mexico and Canada is a concern for the US, which demands effective collaboration to control critical sectors such as semiconductors and technology, energy, electric cars, medical equipment and pharmaceuticals such as fentanyl. For example, since the origin of steel categorizes that of automobiles regardless of their components, combustion or connectivity, on July 10, 2024, the US imposed rules of origin on Mexican and Canadian steel requiring local smelting and dumping to avoid the tariffs authorized by section 232 of the USMCA.
The interconnectedness of trading partners' value chains is essential to the functioning of the USMCA. Therefore, the participation of Chinese investments will cause new punitive tariffs and retaliation, leading the bloc towards a joint negotiation of the three countries with China, together with the downgrading of recourse to the WTO. In May 2024, the USMCA countries met with the Chinese ambassador to discuss the impacts of the non-market economy, forced labor in the Xinjiang Uyghur Autonomous Region, and subsidy abuses affecting USMCA workers and investors.
In the USMCA, the US president is applying his sanctioning tariffs to force his partners to react, by hitting us with a 25% tariff on steel and aluminium, 90% of which is exported by Canada to the US. Curiously, since October 2024, after the US elections, Canada has imposed the same 25% tariff on steel and aluminium and 100% on Chinese electric vehicles precisely to avoid distortions of origin. Did Canada see the US tariffs coming?
Rebuilding globalized value chains is a national matter, and at most a regional one. In Canada, for example, it involves eliminating an enormous regulatory cost that represents 20% of GDP, which is supported by interprovincial trade, distorting internal prices and even generating shortages. Many Canadian products do not circulate internally due to these regulatory barriers and, remarkably, their necessary deregulation has just been discovered by the application of US tariffs.
This reconstruction of value chains is what will guarantee the survival of the customs concept of origin and protect the multilateral exchange of goods. Was it the multilateral ambition of the WTO to expand into new areas of international trade law, such as intellectual property, among others, that allowed the globalization of value chains? The survival of multilateralism depends on separating them.
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