Sectoral Tariffs Still Loom. Why Some Areas Could Dodge the Bullet.

Tariffs represent a considerable cost for companies and consumers. Above, $100 notes are shown at the Bureau of Engraving and Printing in Washington, D.C. (Mark Wilson/Getty Images)

While companies and analysts have been waiting for weeks for another batch of tariffs to hit, a White House executive order late Friday offered hints of how the administration may try to cushion the blow. It even floated the prospect of tariffs going to zero for some.

President Donald Trump’s sweeping country-oriented tariffs are being challenged in the courts. The Supreme Court is expected to hear the administration’s appeal of decisions by two lower courts that found the White House overstepped its authority in using the International Emergency Economic Powers Act to impose a spate of levies.

But analysts expect the administration to find other conduits for imposing tariffs. One way to do that would be to use sectoral tariffs: Some are already in place on autos, steel and aluminum and many more could follow.

While the sectoral tariffs are widely expected to be much more durable, Friday’s executive order and recent moves by the administration on existing sectoral tariffs suggest efforts to minimize the hit of the levies, which have been a major sticking point in trade negotiations. Sectors the administration has said could face industry-specific tariffs, such as pharmaceuticals and semiconductors, are critical areas for Europe, Japan, and others.

Analysts have looked to the sectoral tariffs already in place for some guidance of what’s to come in other industries. The administration has added to the list of goods facing tariffs in some cases: An example includes adding derivative products to the list affected by the levies on aluminum and steel.

But it has also retroactively adjusted tariff lists, including for auto parts, to minimize the disruption and cost. It excluded raw materials from copper tariffs this summer.

The delay in announcing tariffs on other sectors, especially semiconductors and pharmaceuticals, could be a sign the White House is considering upfront carve-outs from tariffs instead of having to amend the duties later, Beacon Policy Advisors said in a note to clients.

Applying tariffs too broadly to the chip sector could create widespread issues, hitting consumers hard if there isn’t some sort of workaround for the electronics sector. Trump has also hinted that pharmaceutical tariffs could include measures intended to soften the initial blow.

The executive order Trump signed late Friday created a list of four product categories he can decide to exempt completely from tariffs if countries reach deals with the U.S.  Among the categories that could be exempt are certain generic pharmaceuticals and their ingredients. Beacon analysts say those would have been among the most hard hit by sectoral tariffs on pharmaceuticals.

A spate of other sectors could see tariff announcements as well, especially as the administration looks to broaden levies using other authorities in case the Supreme Court finds it overstepped on the IEEPA tariffs. More sectoral tariffs still loom for trucks; timber and lumber and furniture; processed critical minerals; commercial aircraft and jet engines; wind turbines; unmanned aircraft systems; and polysilicon and its derivatives, according to Veda Partners.

Also of note, Trump’s order Friday also suggested tariffs could be lifted entirely. That diverges from other indications from the administration that just about all trading partners would be stuck with some level of tariffs.

In the order, Trump says: “My willingness to reduce the reciprocal tariff to zero percent for a given import or to modify tariffs imposed under section 232 will depend on numerous factors, including the scope and economic value of a trading partner’s commitments to the United States in its agreement on reciprocal trade, the national interests of the United States, the need to deal with the national emergency declared in [an earlier Executive order], and the need to reduce or eliminate the threats to national security I have found pursuant to section 232 [of the Trade Expansion Act].”

The order also suggested certain industrial goods, including certain types of coal, titanium ores, select petroleum oils, not be subject to tariffs. While the administration has said it isn’t granting exemptions, the order will likely raise hopes for some companies that there are still options for avoiding levies.

Write to Reshma Kapadia at reshma.kapadia@barrons.com