What is the likelihood of the United States declaring a national emergency and imposing tariffs?

In early 2025, CNN reported that Trump was considering invoking the International Emergency Economic Powers Act (IEEPA) to declare a national economic emergency in order to impose tariffs. Aside from wartime, only President Nixon in 1971, when he ended the gold standard for the dollar, imposed tariffs while declaring a national emergency. During Trump's previous term, he threatened to declare a national emergency to impose tariffs on Mexico to address immigration issues, but ultimately Mexico and the United States reached an agreement, and Trump's threat did not materialize. We believe that Trump may use the declaration of a national emergency to threaten other countries in his second term to push the U.S. to achieve its political goals, but the probability of this action being realized is relatively low.

On January 8, 2025, CNN reported that Trump's consideration of declaring a national emergency and imposing tariffs on other countries raised market concerns.

On January 8, U.S. media reported that Trump might invoke the International Emergency Economic Powers Act (IEEPA) to declare a national economic emergency to impose tariffs on other countries. IEEPA authorizes the president to take emergency measures, including trade and economic sanctions, when facing special threats that originate partially or entirely from abroad.

What is the difference between imposing tariffs based on trade investigation results and imposing tariffs after declaring a national emergency?

Both situations are based on U.S. legal provisions, where the U.S. Congress has delegated tax legislative authority to the president. However, there are differences in the efficiency of implementation between imposing tariffs based on trade investigation results and imposing tariffs after declaring a national emergency. Imposing tariffs based on trade investigation results requires an investigation and the imposition of tariffs after the investigation results are disclosed, while after declaring a national emergency, the president will have the power to immediately implement tariffs without needing Congressional approval, and theoretically, there are no restrictions on the range of goods subject to tariffs. Historically, there have been more cases of tariffs imposed based on trade investigations, while imposing tariffs after declaring a national emergency is relatively rare in peacetime.

What would it mean if Trump declared a national emergency?

Congress itself has the constitutionally granted power to legislate taxes. Since President Roosevelt in 1933, under the Trading with the Enemy Act of 1917 (TWEA), the U.S. president has the authority to declare a national emergency (this action does not require Congressional approval). After declaring a national emergency, the president has rights related to trade and economic sanctions to respond to foreign hostile forces, such as prohibiting trade with hostile countries, freezing hostile country assets, adjusting tariffs, restricting financial transactions, and limiting personnel and communication information. To clarify and limit the president's powers when declaring a national emergency, Congress passed the International Emergency Economic Powers Act (IEEPA) in 1977. Compared to TWEA, IEEPA imposes certain restrictions on presidential powers, including requiring that once the president invokes IEEPA to declare a national emergency, he must immediately submit a situation report to Congress, and the president must report at least once every six months on actions taken under IEEPA. Since 1977, successive U.S. presidents have begun to use IEEPA to restrict related international transactions, freeze assets, and implement financial sanctions, but there has never been a case of declaring a national emergency under IEEPA and imposing tariffs (there have been cases of U.S. presidents imposing tariffs after declaring a national emergency under TWEA) In peacetime, only President Nixon ended the gold standard for the dollar in 1971 while declaring a national emergency and imposing tariffs.

In 1971, President Nixon declared a national emergency under the Trading with the Enemy Act (TWEA) and implemented several economic measures, including tariff adjustments, to address the severe economic situation in the United States following the end of the gold standard for the dollar. In the late 1960s and early 1970s, the U.S. faced a huge budget deficit and increasing pressure on its gold reserves. In August 1971, President Nixon announced a national economic emergency, suspended the convertibility of the dollar into gold, ended the Bretton Woods system, and imposed a 10% tariff on imported goods to address the expanding trade deficit and the pressure on the dollar caused by the collapse of the Bretton Woods system.

Trump also declared a national emergency multiple times during his previous term and issued measures related to national security and public health.

For example, 1) Continuing the national emergency declared by the Obama administration in 2015 due to threats posed by the situation in Venezuela. 2) On August 6, 2018, declared a national emergency under IEEPA and other laws to impose economic sanctions on Iran. 3) On September 12, 2018, declared a national emergency in response to foreign interference in U.S. elections, authorizing government sanctioning capabilities. 4) On February 15, 2019, declared a national emergency at the southern border to allocate funds for building a border wall. 5) In March 2020, declared a national emergency due to the COVID-19 pandemic, releasing funds and resources to local governments.

During Trump's previous term, he did not effectively impose tariffs based on IEEPA after declaring a national emergency, but he did threaten Mexico with this to push for a resolution to the U.S.-Mexico illegal immigration issue.

During his first term, Trump threatened to declare a national emergency under the International Emergency Economic Powers Act (IEEPA) and planned to impose an additional 5% tariff on all Mexican imports starting June 10, 2019, to address the illegal immigration issue. He warned that if Mexico did not take action, the tariff would gradually increase to 25%. This threat prompted the Mexican government to respond quickly, and ultimately both sides reached an agreement, with Mexico agreeing to take strong measures to stop illegal immigration, thus Trump's tariff plan was indefinitely suspended.

We believe Trump may use the declaration of a national emergency to threaten other countries to advance U.S. political goals, but the probability of this actually happening is relatively low.

Specifically, we believe the probability of the U.S. actually declaring a national emergency and implementing immigration-related measures is relatively high (similar to how Trump obtained funding for the wall during his previous term), but aside from wartime, the situation of directly imposing tariffs under a declared national emergency has only occurred once in 1971 (when the dollar was decoupled from gold). We believe the probability of directly imposing tariffs under a declared national emergency is low; it is more likely that the U.S. president would use this as a threat and as a tool in trade negotiations. However, the tariff policy has indeed become the most significant tail risk this year since Trump took office, and if the U.S. president ultimately imposes tariffs through the declaration of a national emergency, it would cause severe fluctuations in the global financial market Risk Factors:

Trump's policies have exceeded expectations since taking office; the U.S. hawkish stance towards China has exceeded expectations; risks of trade friction between the U.S. and other countries have exceeded expectations, etc.

Authors of this article: Mingming S1010517100001, Zhou Chenghua, Wang Nanqian, Source: CITIC Securities Research, Original title: "Debt Market Enlightenment | How Likely is the U.S. to Announce a National Emergency and Impose Tariffs?"