WASHINGTON, November 3 — United States (US) 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.
"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. We just have to hang on and navigate our way through this so we do not all go broke in the short run," its chief executive officer Bill Canady told Reuters.
It is a dilemma that is sinking in with companies, foreign trade ministries, trade lawyers and economists as the US Supreme Court considers the legality of Trump's global tariffs, with arguments set for Wednesday. Under one legal authority or another, his 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, would also eliminate a favourite 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.
"For decades, our country has been looted, pillaged, raped, and plundered by nations near and far, both friend and foe alike," he said in announcing sweeping reciprocal tariffs in April under this law.
"Reciprocal — that means they do to us and we do it to them," Trump added.
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 grants the President broad authority to regulate a variety of economic transactions during a national emergency.
In this case, Trump deemed a US$1.2 trillion (RM5.03 trillion) US goods trade deficit in 2024 a national emergency — even though the country has run trade deficits every year since 1975 — and also cited overdoses of the often-abused painkiller fentanyl.
US Treasury Secretary Scott Bessent said he expects the Supreme Court to uphold the IEEPA-based tariffs. Speaking in an interview, should the tariffs be struck down, he said the administration will simply switch to other tariff authorities, including Section 122 of the Trade Act of 1974, which allows broad 15 per cent tariffs for 150 days to calm trade imbalances.
Bessent added that Trump also can invoke Section 338 of the Tariff Act of 1930, a statute that allows tariffs up to 50 per cent on countries that discriminate against US commerce.
"You should assume that they are here to stay," he said of Trump's tariffs.
For countries that have negotiated tariff-lowering trade deals with Trump, Bessent said: "You should honour your agreement. Those of you who got a good deal should stick with it."
Trump 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 law firm Wiley Rein's Washington-based trade law practice co-chair Tim Brightbill.
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 US trade deficit, arguing that those concessions will survive any Supreme Court ruling.
US trade partners are not waiting for a Supreme Court ruling in deciding how to proceed. The US Trade Representative's office has announced finalised framework trade deals with Vietnam, Malaysia, Thailand and Cambodia, locking in tariff rates of 19 per cent to 20 per cent.
South Korea agreed to terms on a US$350 billion (RM1.46 trillion) investment plan, unlocking a 15 per cent tariff for its cars and other goods.
Negotiations with China have proven more difficult due to its willingness to retaliate against the US and cut off its supplies of rare earth minerals and magnets essential for US 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.
Last week in South Korea, he agreed in talks with Chinese President Xi Jinping to halve the US tariff rate on Chinese goods related to fentanyl to 10 per cent 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 US 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 US$100 billion (RM419.9 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 US$118 billion (RM495.5 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 US deficit slightly to $1.715 trillion (RM7.20 trillion).
"It is a significant political economy risk that we get addicted to tariff revenue," said Yale University Budget Lab's senior fellow Ernie Tedeschi, noting that makes it harder for any future presidential administration to lower the duties.
Freight forwarder and customs broker Flexport's global head of customs Angela Lewis said that getting the money back also would be difficult, as a tariff reversal "is unprecedented at this scale".
She added that 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.
For those getting refunds, US taxpayers also would be on the hook for six per cent 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 so far dampened the inflationary impact, cost pass-throughs are broadening across clothing and other goods prices, according to Oxford Economics, which estimated that tariffs added 0.4 percentage points to September's Consumer Price Index annual rate of 3.0 per cent, keeping inflation well above the US Federal Reserve's target.
Corporate earnings have taken the biggest hit, with global companies flagging more than US$35 billion (RM146.9 billion) in tariff-related costs so far heading into the third-quarter earnings season.
Ohio-based OTC designs and builds factory production lines and automation systems. Canady noted that soon, 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 US shores for high-end products, and to Mexico for lower-value parts.
"I think the new normal is going to be 15 per cent," Canady said of Trump's tariffs, regardless of the legal authority he invokes.
"They are going to call it whatever they need to call it so that it is not challengeable," he concluded.
