Trump administration likely to selectively raise temporary tariffs to 15% on trade-surplus countries [Lee Sang-eun’s Washington Now]

Room to use exemptions to preserve bargaining leverage

South Korea, Japan, among potential targets

As the United States began applying a 10% global tariff on imports from around the world starting on the 24th, remarks by officials in Donald Trump’s administration have diverged over whether to raise it to 15%. While President Trump hinted at a blanket increase, working-level officials appear to be leaning toward selective application.

Jamieson Greer, the U.S. Trade Representative (USTR), said in an interview with Fox News on the 25th (local time) that “a 10% (global) tariff is currently in effect, and for some countries it could be raised to 15%, while for other countries it could be raised to a higher level.”

He also told Bloomberg News the same day that “to apply 15%, the president plans to sign an additional proclamation,” adding that it would “raise the rate to 15% where applicable.” He said that “before the Supreme Court invalidated the (reciprocal) tariffs, most of these countries had agreed to accept U.S. tariffs of 18%, 19%, and 20%,” and explained that “at least temporarily, it will be 15% for them, and that is better than what they had agreed to in negotiations.”

Kevin Hassett, director of the U.S. National Economic Council (NEC), responded at the White House when asked when the 15% tariff rate would take effect, saying, “I think that’s still being discussed,” adding, “It depends on the state of the existing negotiations and the state of the existing agreements.” Although President Trump said on social media on the 21st as if the global tariff rate would be raised across the board from 10% to 15%, his comments suggest that internal discussions are under way to apply it selectively to countries involved in trade negotiations.

There is talk that the administration could impose 15% tariffs on South Korea, Japan, the European Union (EU), and Taiwan—countries from which it extracted large-scale investment pledges on the back of reciprocal tariffs—as well as on China, Canada, and Mexico, which faced fentanyl- and border-related tariffs, using the move as leverage in talks.

However, Section 122 of the Trade Act, which the Trump administration is using as the legal basis for these tariffs, in principle calls for non-discriminatory application. The law states that “import restrictions (such as tariffs and quotas) must be applied in a manner consistent with the principle of nondiscriminatory treatment.” It also stipulates that they should not be applied to specific industries or products but should be applied “broadly and uniformly.”

Still, the administration could seek to use an exemption clause. The statute includes a proviso stating that “if action against one country or multiple countries that record large or persistent balance-of-payments surpluses is deemed effective, all other countries may be exempted from such action.” This provides a pathway to single out countries that run trade surpluses with the United States and impose higher tariff rates.

Section 122, introduced in 1974 against the backdrop of a crisis in the gold exchange standard, sets a “balance-of-payments deficit” as the trigger condition. Because the balance of payments is calculated by combining the current account with the financial and capital accounts, some argue it would be difficult to invoke the provision solely on the basis of a trade-deficit situation.

The Trump administration does not agree with that interpretation. In a Bloomberg interview, Greer dismissed it as “a straw-man argument,” contending that the intent of the statute is to address the trade-deficit problem.

On concerns that applying the same rate to all countries would put existing agreement partners such as the EU or the United Kingdom at a disadvantage, Greer said, “There are areas where Brussels (the EU) or the U.K. has not fully implemented the agreement, and we also need to go through domestic procedures for a few months,” adding, “We will need about two to three months to recalibrate tariffs in a way that complies with the conditions for implementing the agreement.” Because the global tariff is added on top of existing duties, South Korea—an FTA partner with an existing tariff rate of 0%—would face a somewhat more favorable rate than the EU or Japan.

Washington=Correspondent Lee Sang-eun selee@hankyung.com