*

Trump employs various legal authorities to impose tariffs

*

If emergency law disallowed, other tariff paths remain

*

Countries negotiate trade deals to mitigate tariff impact

*

Tariffs strain corporate profits, risk inflation increase

By David Lawder

WASHINGTON, November 3 (Reuters) - U.S. factory

equipment maker OTC Industrial Technologies has long used

low-cost countries to supply components - first China and later

India - but President Donald Trump's blitz of tariffs on

numerous trade partners has upended the supply chain math for

CEO Bill Canady.

"We moved things out of China and went to some of those

other countries, and now the tariffs on those are as bad or

worse," Canady told Reuters. "We just have to hang on and

navigate our way through this so we don't all go broke in the

short run."

It is a dilemma that is sinking in with companies, foreign trade

ministries, trade lawyers and economists as the U.S. Supreme

Court considers the legality of Trump's global tariffs, with

arguments set for Wednesday. Under one legal authority or

another, Trump's tariffs are expected to stay in place long

term.

LOWER COURTS RULE AGAINST TRUMP

The court, whose 6-3 conservative majority has backed Trump in a

series of major decisions this year, is hearing his

administration's appeal after lower courts ruled that the

Republican president overstepped his authority in imposing

sweeping tariffs under a federal law meant for emergencies.

A ruling striking down Trump's use of the 1977 International

Emergency Economic Powers Act, or IEEPA, to quickly impose broad

global tariffs also would eliminate a favorite cudgel to punish

countries that draw his ire on non-trade political matters.

These have ranged from Brazil's prosecution of former president

Jair Bolsonaro to India's purchases of Russian oil that help

fund Russia's war in Ukraine.

"If we don't have tariffs, we don't have national security,

and the rest of the world would laugh at us because they've used

tariffs against us for years and took advantage of us," Trump

told reporters on Air Force One on Sunday.

"We were subject to being abused by a lot of other

countries, including China - for years, not anymore. Tariffs

have brought us tremendous national security," Trump said,

reinforcing a key justification for the duties.

Trump added that he will not attend Wednesday's arguments after

previously indicating he might.

Trump is the first president to invoke this statute - which

often has been used to apply punitive economic sanctions to

adversaries - to impose tariffs. The law provides a president

broad authority to regulate a variety of economic transactions

when a national emergency is declared. In this case, Trump

deemed a $1.2 trillion U.S. goods trade deficit in 2024 a

national emergency - even though the United States has run trade

deficits every year since 1975 - and also cited overdoses of the

often-abused painkiller fentanyl.

U.S. Treasury Secretary Scott Bessent said he expects the

Supreme Court to uphold the IEEPA-based tariffs. But if it

strikes down the tariffs, Bessent said in an interview, the

administration will simply switch to other tariff authorities,

including Section 122 of the Trade Act of 1974, which allows

broad 15% tariffs for 150 days to calm trade imbalances.

Bessent said Trump also can invoke Section 338 of the Tariff Act

of 1930, a statute that allows tariffs up to 50% on countries

that discriminate against U.S. commerce.

"You should assume that they're here to stay," Bessent said

of Trump's tariffs.

For countries that have negotiated tariff-lowering trade

deals with Trump, "you should honor your agreement," Bessent

added. "Those of you who got a good deal should stick with it."

The Supreme Court case covers only a portion of the tariffs

Trump has imposed this year. His administration already is using

other authorities for certain tariffs. He is busy piling up

tariffs under Section 232 of the Trade Expansion Act of 1962

involving national security concerns to protect strategic

sectors including autos, copper, semiconductors,

pharmaceuticals, robotics and aircraft, as well as tariffs under

Section 301 of the Trade Act of 1974 involving unfair trade

practices investigations.

"This administration is committed to tariffs as a

cornerstone of economic policy, and companies and industries

should plan accordingly," said Tim Brightbill, co-chair of law

firm Wiley Rein's trade law practice in Washington.

NEGOTIATING POWER

Trump administration officials have touted his tariffs as

pushing major trading partners such as Japan and the European

Union to negotiate major concessions that will help to reduce

the U.S. trade deficit, arguing those concessions will survive

any Supreme Court ruling.

U.S. trade partners are not waiting for a Supreme Court

ruling in deciding how to proceed. The U.S. Trade

Representative's office has announced finalized framework trade

deals with Vietnam, Malaysia, Thailand and Cambodia, locking in

tariff rates of 19% to 20%. South Korea agreed to terms on a

$350 billion investment plan, unlocking a 15% tariff for its

cars and other goods.

Negotiations with China have proven more difficult due to

its willingness to retaliate against the United States and cut

off its supplies of rare earth minerals and magnets essential

for U.S. high-tech manufacturing from autos to semiconductors.

Instead of major concessions, Trump's administration has had

to settle for extensions of a delicate truce under which

American and Chinese tariffs were reduced to keep the rare

earths flowing.

In South Korea last Thursday, Trump agreed in talks with Chinese

President Xi Jinping to halve the U.S. tariff rate on Chinese

goods related to fentanyl to 10% and to delay tighter technology

export controls for a year in exchange for China's year-long

pause on its tough licensing requirements for global rare-earth

exports.

Xi agreed to resume purchases of American soybeans that China

had halted for months, while Trump paused new U.S. port fees for

China-linked ships for a year.

REVENUE, INVESTMENT CONCERNS

Some investors have said financial markets, which have grown

accustomed to the Trump tariff status quo, could be thrown into

turmoil if the Supreme Court strikes down the IEEPA tariffs.

A major reason for concern, particularly in the Treasury

debt market, is the risk of having to refund more than $100

billion in IEEPA tariff collections and forgoing hundreds of

billions of dollars of revenue annually.

The IEEPA tariffs collected so far this year make up the

biggest portion of a $118 billion increase in net customs

receipts in the 2025 fiscal year that ended on September 30.

That helped offset rising healthcare, Social Security, interest

and military outlays, helping shrink the U.S. deficit slightly

to $1.715 trillion.

"It's a significant political economy risk that we get

addicted to tariff revenue," said Ernie Tedeschi, a senior

fellow at the Yale University Budget Lab, adding that makes it

harder for any future presidential administration to lower the

duties.

Getting the money back also would be difficult, as a tariff

reversal "is unprecedented at this scale" for U.S. Customs and

Border Protection, said Angela Lewis, global head of customs at

freight forwarder and customs broker Flexport.

The onus could be on individual importers to apply for

"post-summary corrections" with the agency, a messy process that

could take years and not be worthwhile for some smaller firms,

Lewis said. For those getting refunds, U.S. taxpayers also would

be on the hook for 6% annual interest costs compounded daily.

INFLATION TIMING

The biggest dilemma is managing costs. Importers for the most

part have eaten the tariffs, according to academic studies and

comments from executives, reducing profit margins but limiting

higher consumer prices and protecting market share.

While this has dampened the inflationary impact so far, cost

pass-throughs are broadening through clothing and other goods

prices, according to Oxford Economics, which estimated that

tariffs added 0.4 percentage point to September's Consumer Price

Index annual rate of 3.0%, keeping inflation well above the

Federal Reserve target.

Corporate earnings have taken the biggest hit, with global

companies flagging more than $35 billion in tariff-related costs

so far heading into third-quarter earnings season.

Ohio-based OTC designs and builds factory production lines

and automation systems. Soon, CEO Canady said, companies like

his will have to "place their bets" on where to shift production

for a more sustainable cost base. That may mean back to U.S.

shores for high-end products, and to Mexico for lower-value

parts.

"I think the new normal is going to be 15%," Canady said of

Trump's tariffs, regardless of the legal authority he invokes.

"They're going call it whatever they need to call it so that it

is not challengeable."