Law Firms: Tariff Hikes Likely Early; Tax Bill May Codify 301, 232, de Minimis Changes

However, Brian Bombassaro, who served Republicans on that committee before returning to Arnold & Porter, said he thinks it's unlikely Trump would have the patience to wait for lengthy deliberations among Republicans about how to shape a large tax bill. Bombassaro, who was responding to a question from International Trade Today on an Arnold & Porter post-election webinar, said the most likely tariffs to be put into such a law would be the ones already being collected on Chinese imports, under Section 301, and on steel and aluminum, under Section 232.

Former House Ways and Means Committee Democratic member Rep. Ron Kind, also at Arnold & Porter, agreed with Bombassaro that passing a law to continue the earlier Trump tax cuts ahead of their 2025-end-of-year expiration will not pass in February or March.

"It’s going to be much longer than people anticipate," he said, between debates on the national debt, on ending a cap on deductions for state and local taxes dear to New Jersey and New York Republicans, and the restrictions of what can be done in reconciliation in the Senate. "This is going to be very difficult, especially with just a few-seat majority," he added. "I think that cold reality is not going to sit well with Trump." Still, he noted that the transition team has been talking to Ways and Means and to the Senate Finance Committee about putting tariffs in that bill.

Bombassaro said he's confident Trump won't wait to hike tariffs until that bill passes Congress.

He said the sections 301 and 232 tariffs effectively have had bipartisan consent, and members' attitude may be: "Look, these are a fait accompli." He said there could be other changes to tariff law that would make it into a reconciliation bill -- he said he thinks a full revocation of normal trading relations with China could be in it. (If Trump has used executive power to impose 60% tariffs on all Chinese imports, that would already effectively end normal trading relations, also known as most-favored nation or MFN).

"I could see congressional Republicans deferring any reforms on de minimis," he said, to get credit for that new revenue "in order to enable other tax cuts."

Kevin O'Neill, a lobbyist at Arnold & Porter and past Republican fundraiser, said he's telling clients to expect "a week of shock and awe that starts January 20th." O'Neill said he expects to see a series of executive orders signed that first week, and expects each week to have a theme for these actions, with immigration, trade, foreign affairs, and defense as early priorities.

He also said he thinks the Trump administration won't make the same mistake that he did in 2016, when he pushed Republicans to resist coming to an agreement on appropriations in the lame duck session. "All that did was jam up his first 100 days' agenda unnecessarily," he said, and he said that House Majority Leader Steve Scalise has been outspoken in saying that this Congress should clear the decks for next year's work on taxes.

Kind said he doesn't know if Trump will impose across-the-board tariffs under executive authority, but if he does, he expects a constitutional challenge in court. He acknowledged that the courts ruled for Trump on Section 232 and Section 301 expansions, but said this action would be much broader than those. He thinks the economic consequences of global tariffs, sharply hiked tariffs on Chinese goods and deportations will be severe. He said when one party controls the House, Senate and White House, there's "a certain amount of hubris," and that often leads to overreach -- and mid-term losses, or even a switch in control of a chamber.

Lynn Fischer Fox, a former Commerce Department official now at Arnold & Porter, told clients watching the webinar that Trump will act on tariffs, as the fact that Congress didn't push back to rein him in last time has emboldened him.

She said if Congress does write tariffs into law "they become much more difficult, then, to remove," but Kind interjected that tariffs are always hard to remove, because domestic constituencies that benefit from them mobilize to keep them.

The Arnold & Porter advisers speculated about whether the global tariff might be used to negotiate market access concessions from trading partners. Bombassaro said, "When President Trump spoke of a universal tariff, he seemed to speak of it as an end unto itself," so he thinks if Trump imposes a 10% or 20% tariff around the globe, it may be up to foreign governments to open negotiations.

Although the advisers gave advice on how to lobby effectively -- including focusing on newer members who don't know about your longtime efforts -- Bombassaro said companies hurt by tariffs in the previous round, whether as exporters subject to retaliation, or as importers, were not coming to Senate Finance staff. He believes they "didn’t want to speak out publicly because they felt their interest in deregulation or tax policy outweighed their interest in tariffs."

He said the business that did talk about the pain of retaliation -- Harley Davidson -- did so through an SEC filing, not an announcement.

"I’ll be curious to see if the same thing repeats itself," he said.

Other firms also are seeking to clarify the tariff policy implications of Trump's victory. Venable put out a client advisory that said: "it is worth noting that while courts have historically deferred to executive agencies in matters of national security -- and for trade policy when mixed with national security concerns -- courts would be increasingly hard-pressed to give this deference under a regime of such expansive trade action, coupled with new restrictions on courts' deference to administrative agencies under Loper Bright."

Venable predicted the Trump administration will repeal funding and tax credits for electric vehicles and green energy, which have caused automakers to shift their EV supply chains to avoid Chinese inputs.

The firm noted that Trump has threatened tariffs of at least 25% on Mexican goods over migration, and that at times he has said his tariffs on China will be more than 60%.

"[H]e has threatened tariffs under a national emergency authority typically used to impose economic sanctions, and that has never been used as a basis for trade tariffs. Average tariffs under the second Trump administration are expected to rise at least to Second World War levels, or possibly to levels not seen since the 1870s. To accomplish this, Trump and his policy [advisers] have also floated the idea of renewing long-unused trade authorities, such as the Section 122 Balance of Payments Authority of the Trade Act of 1974 and Section 338 of the Tariff Act of 1930."

"In general, tariffs on goods from China, tariffs on goods in sectors seen as essential to US national and economic security (such as auto manufacturing, computer parts, extractive industries, and especially critical minerals), tariffs on goods from Mexico, and tariffs on products with which the U.S. has a particularly large trade deficit may be new targets," Venable wrote.