[THE VIEW]The Tariff War Is Not Over

U.S. Supreme Court Rules IEEPA-Based Reciprocal Tariffs Unlawful
Trump Circumvents via Trade Act Section 122...Korea's Options Still Limited

These days I am spending my sabbatical in Korea. I thought about sending a small gift to a friend in the United States, but ended up giving up. My friend told me not to send anything from Korea to the U.S. these days because high tariffs might be imposed. It is not even an expensive gift, but we now live in a time when the phrase "because tariffs might be imposed" naturally slips into my everyday conversations.

Yet when I look at actual U.S. tariff news, it all feels very abstract. Just a few days ago, the U.S. Supreme Court ruled that part of the Trump administration's tariff policy exceeded the scope allowed by the International Emergency Economic Powers Act (IEEPA). In response, President Trump announced that he would again impose an additional 10-15% tariff on imports from around the world. What does this mean, and what are the implications for the Korean economy?

After President Trump began his second term, the Trump administration declared that the United States was in an "economic emergency," citing a severe trade deficit. Under the banner of resolving this emergency, the U.S. government tightened restrictions on imports and chose tariffs as its main tool. The legal basis for this was precisely the IEEPA. Under this law, when the U.S. president declares a national emergency with an external dimension, he can impose broad sanctions on international financial or trade transactions without congressional approval.

On this basis, the Trump administration created an entirely new "emergency" tariff regime. It imposed a basic 10% tariff on virtually all imports and added a reciprocal tariff by country that matched the average tariff that each counterpart imposed on U.S. products. According to the White House at the time, a reciprocal tariff rate in the mid-20% range was presented to Korea. Added on top of the basic 10%, this made it possible for the total tariff to exceed 30%.

However, this month the U.S. Supreme Court ruled that such "emergency" tariffs do not conform to the intent of the IEEPA. The IEEPA is usually used as the legal basis for freezing terrorist funds or imposing economic sanctions on countries designated as threats, such as Iran or North Korea. The Trump administration, however, used this law to effectively create a new tariff regime without congressional approval. This raised the question: "If the president simply declares a state of emergency, can he arbitrarily add taxes to imports?" After legal battles over this issue, the Supreme Court concluded that he cannot.

The problem is that the Trump administration has so far used this emergency tariff regime as leverage in tariff and investment negotiations with many countries. Korea is one of them. According to media reports, the Korean government agreed to invest about 350 billion dollars in the United States, and in return, the U.S. agreed to lower the reciprocal tariff it applied to Korea from 25% to around 15%. If the Supreme Court has now nullified the effect of the emergency tariffs, what happens to these tariff and investment deals that were struck with Korea? Since they originated from tariffs that lacked solid legal grounds, does Korea no longer have to follow through on large-scale investment commitments that were based on those tariffs?

Not necessarily. Although the legal force of the emergency tariffs has disappeared, the Trump administration is already trying to maintain its bargaining power through other legal means. In fact, less than a few hours after the Supreme Court ruling was issued, President Trump pulled out Section 122 of the Trade Act of 1974 as a new legal basis.

Section 122 of the Trade Act is different in nature from the IEEPA. Even without declaring a national emergency, it allows the president to impose additional tariffs of up to 15% for up to 150 days when there is an economic situation such as a "serious and large-scale trade deficit." On this basis, he first declared a 10% global tariff, and soon after announced a plan to raise it to 15%. Once the justification of a state of emergency disappeared, he instead invoked the economic justification of a serious trade deficit.

In the end, whether the legal basis is the IEEPA or Section 122 of the Trade Act, the power structure does not change much. If it wishes, the United States can still impose separate reciprocal tariffs or security-related tariffs on Korea on top of the 15% global tariff and thereby reassemble an overall tariff level similar to the previous one. If that happens, from Korea's perspective, the bargaining structure in which it has no other choice but to put large-scale investments in the United States on the table to avoid high tariffs is likely to be repeated.

Just looking at the news that the emergency tariffs were ruled illegal might give us a sense of relief. However, the negotiations over tariffs are not over. From now on, the power struggle over under what conditions, and by whom and to what extent the costs will be shared, will continue.

Seo Boyoung, Professor at Indiana State University in the United States