Tax Hot Topics
A new law granting the president secondary tariff powers was signed into law by President Donald Trump on Sept. 18, over opposition from the business community. The Lindsey O. Graham Sanctioning Russia and Iran Act (H.R. 5334) passed the House of Representatives by a bipartisan vote of 262-159 on Sept. 16, after passing the Senate by a similarly bipartisan vote of 86-11 on Aug. 7.
While there is near-universal support for the core intent of the bill, directing the president to issue sanctions on Russian officials and entities and expanding existing sanctions on Iran, some — both within and outside Congress — opposed the new tariff authority given to the president. Since Trump returned to the White House last January, he has tested the limits of the presidency’s power in this area. The Supreme Court deemed illegal his use of the International Emergency Economic Powers Act (IEEPA) to implement tariffs and invoked tariff-specific authorities previously unused.
Though directing sanctions against Russian officials and entities, the law allows Trump to waive those sanctions at his own discretion. It also creates unusual new tariff powers allowing the president to impose duties of up to 100% on imports from countries deemed to be the top purchasers of Russian oil or natural gas, or among the countries aiding Russian evasion of sanctions. The law also mandates that tariffs be raised to 500% on nearly all goods imported into the U.S. from Russia.
The White House has not signaled yet how it intends to approach the secondary tariffs that the law empowers the president to impose.
Under the law, countries that are deemed by the administration to be among the top five largest importers by total volume of Russian crude oil or natural gas, or deemed to be among the top five countries facilitating Russian oil sanctions evasion during the last year, shall see an increase in tariffs placed on their products. There are exceptions for countries for which total natural gas imports from Russia were less than 15% of the total annual exports in the last 12-month period, or that are deemed to be taking “significant steps” to reduce Russian natural gas imports.
Grant Thornton insight:
While the secondary tariffs are required under the law, the administration will have a fair amount of discretion in their implementation. The Department of Energy and the Office of the U.S. Trade Representative will determine the countries deemed to qualify, and the president will have the ability to determine which countries are taking “significant steps” to reduce their Russian natural gas imports. In addition, the president will be able to determine the level of the tariffs imposed, up to 100%.
A number of trade organizations representing various U.S. sectors lobbied Congress to remove the tariff authority included in the bill before passage, writing in a letter to House leaders that “the potential of new broad 100% tariffs on imports from secondary countries risks raising costs for American businesses, workers and consumers.” They also argued that the tariffs would create “significant uncertainty for companies that make sourcing, pricing and inventory decisions months in advance.”
Grant Thornton insight:
The secondary tariffs, which the Trump administration reportedly pushed for, could have a broader impact than expected — especially if the administration waives sanctions, as the bill allows. China, India, Turkey, multiple European Union countries, Japan and South Korea are among the largest purchasers of Russian crude oil and/or natural gas, according to data from the Centre for Research on Energy and Clean Air, a Finnish think tank.
While individual EU members do their own purchasing of Russian energy, the trade bloc treats tariffs on an individual country as affecting the economic union as a whole. As a result, U.S. tariffs on products from Germany or Hungary (two of the purchasing countries) could result in a re-escalation of trade tensions between the EU and the U.S.
On Sept. 16, Trump also threatened the EU with “serious tariffs” if the 27-country union allows Canada to join as an “associate member,” as the countries have publicly discussed in recent days.
Similarly, the tariffs could lead to a re-escalation of trade tensions with China, as a détente between Trump and Chinese President Xi Jinping is due to expire on Nov. 10. The two are scheduled to meet on Sept. 24.
“China has consistently carried out normal economic and trade cooperation with countries around the world on the basis of equality and mutual benefit,” Chinese foreign ministry spokesman Guo Jiakun said on Sept. 17, according to the South China Morning Post. “Such cooperation neither targets any third party nor is subject to interference or coercion from any third party.”
Trump further escalates tensions with Canada
A new presidential memorandum issued Sept. 16 prohibits the use and orders the removal of Canadian products in federal procurement, “to the extent appropriate and consistent with law.”
The move is both the latest escalation in a tit-for-tat trade war with Canada dating back to last year’s initial IEEPA tariffs on Canadian products and the latest step in the Trump administration’s bifurcated approach to renegotiating the U.S.-Mexico-Canada free trade agreement.
On Sept. 8, Trump also announced the adjustment of tariff rates on certain Canadian products (generally 50%, on those with increased tariffs) effective Sept. 15 and import bans on Canadian molasses, alcohol, whey and motorcycles, effective Sept. 30.
Contacts:
Content disclaimer
This content provides information and comments on current issues and developments from Grant Thornton Advisors LLC and Grant Thornton LLP. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC and Grant Thornton LLP. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.
For additional information on topics covered in this content, contact a Grant Thornton professional.
Grant Thornton LLP and Grant Thornton Advisors LLC (and their respective subsidiary entities) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Grant Thornton LLP is a licensed independent CPA firm that provides attest services to its clients, and Grant Thornton Advisors LLC and its subsidiary entities provide tax and business consulting services to their clients. Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Tax professional standards statement
This content supports Grant Thornton Advisors LLC’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. If you are interested in the topics presented herein, we encourage you to contact a Grant Thornton Advisors LLC tax professional. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact a Grant Thornton Advisors LLC tax professional prior to taking any action based upon this information.
Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton Advisors LLC assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.
Trending topics
Share with your network
Share