President Trump suggested the idea of assessing a 20 percent tax on imports from Mexico. The purpose of this tax was to pay for the construction of a wall that the President promised to build on our shared southern border with Mexico.
The terms tariff and tax have been used interchangeably since this proposal. However, the meaning of each is very different.
An import tariff imposes duties on specific imported goods. A tariff is a schedule of duties imposed by the government on imported goods. The United States’ tariff schedule is the Harmonized Tariff Schedule of the United States.
The Constitution vests authority over the imposition of tariffs and international commerce exclusively in Congress. Over time, however, Congress has delegated some authority to the President to modify tariffs by proclamation in various provisions of federal law, including the North American Free Trade Agreement (NAFTA). Thus, the President may unilaterally impose a tariff without congressional approval in certain circumstances.
This delegation of authority is limited to, for example, a declared national emergency, and a country’s violation of a trade agreement or denial of the United States’ rights under an agreement pursuant to the Trade Act of 1974. These provisions, however, require that certain prerequisites be met before the President imposes tariffs, or limit the tariffs that may be imposed (i.e., section 122 of the Trade Act of 1974 only permits “a temporary import surcharge, not to exceed 15 percent”). With regard to a tariff on goods from Canada or Mexico, Section 201(b) of NAFTA appears to give the President some authority to modify tariffs under NAFTA: “the President may proclaim—(A) such modifications or continuation of any duty, (B) such modifications as the United States may agree to with Mexico or Canada regarding the staging of any duty treatment …, (C) such continuation of duty-free or excise treatment, or (D) such additional duties, as the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Canada or Mexico …”
While this provision does not define the phrase “general level of reciprocal and mutually advantageous concessions,” it does not appear to envision a blanket tariff on all goods coming from a particular country within the context of an agreement that specifies low tariffs on or duty-free treatment of imported goods from that country.
The announcement of a 20 percent tax on imports from Mexico was previously characterized as part of a broader domestic tax reform policy by House Speaker Paul Ryan. Speaker Ryan issued a tax reform blueprint last summer that included proposals for a border adjustment tax. This idea would impose a tax on imports, while exempting exports from the tax. As a matter of domestic tax law, the imposition of a border adjustment tax would require Congressional action because the Constitution vests the taxing power exclusively in Congress.
Although the same constitutional provision gives Congress the power to tax and to impose tariffs, Congress has not delegated its taxing authority to the President as it has done, to some extent, with tariffs. Accordingly, it appears the President could not unilaterally impose a 20 percent tax on imports from Mexico.