Protests, Tariffs, and the First Amendment: The Ripple Effects of Policy Changes - Ep. 63

In this episode of Litigation Nation, co-hosts Jack Sanker and Danessa Watkins dive into two significant legal topics currently making headlines.

First, Danessa discusses the First Amendment implications of President Trump's announcement regarding federal funding for schools and universities that permit illegal protests. Trump’s controversial post on Truth Social threatens to cut off federal funding for educational institutions that allow such protests, raising concerns about free speech rights and the potential chilling effect on student activism. The discussion highlights the complexities of defining what constitutes an illegal protest and the responsibilities of educational institutions under the First Amendment. They explore the potential legal ramifications of Trump's statements, including the Foundation for Individual Rights and Expression's assertion that the president cannot compel institutions to expel students.

Next, Jack shifts the conversation to the ongoing issue of tariffs and their impact on the construction industry. He shares insights from a recent Law360 survey of real estate and construction attorneys, emphasizing the practical effects of new tariffs on materials like steel and aluminum. The hosts discuss how fluctuating tariffs create uncertainty in pricing and contracting, making it essential for businesses to include protective clauses in their contracts. They also touch on the challenges of navigating existing contracts in light of new tariffs and the potential for litigation as businesses seek relief from increased costs.

Join us as we take a comprehensive look at the intersection of free speech, government action, and economic implications in the current legal landscape.

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1. @timmatlack.bsky.social
   You guys keep up the good work, be safe, I have a feeling you’ll be busy over the next four years defending free speech. But it will cost you your security clearance.

What is Litigation Nation?

The Litigation Nation Podcast, hosted by Jack Sanker & Danessa Watkins, is a roundup of the most important and interesting legal developments happening right now, giving you an insider’s view to the legal system. If you haven't already, be sure to subscribe to Litigation Nation wherever you listen to podcasts, so you never miss an episode.

Jack Sanker: 00:05

Welcome to Litigation Nation. I'm your host, Jack Sanker, along with my cohost, Danessa Watkins. This is the show where we talk about some of the most important and interesting legal news of the past couple of weeks. Danessa, what do we have today?

Danessa Watkins: 00:17

Today, I'm gonna cover the first amendment issues that were or are raised by president Trump's recent announcement that he's going to pull federal funding for any school or university that allows for illegal protests.

Jack Sanker: 00:30

And I'm gonna be returning to the tariffs issue and how that's impacting my industry, is construction up and down the supply chain, how folks are working to protect themselves from the expected price hikes. All of that and more, here's what you need to know.

Danessa Watkins: 00:50

On March fourth of twenty twenty five, so just two days prior to this recording, President Donald Trump took to Truth Social with a post that has now gone viral stating the following, quote, all federal funding will stop for any college, school, or university that allows illegal protests. Agitators will be imprisoned or permanently sent back to the country from which they came. American students will be permanently expelled or, depending on the crime, arrested. And then in all caps, no masks, exclamation point, end quote. This post comes right as the Trump administration has launched a review of Columbia University's federal contracts conducted by the Department of Health and Human Services, Department of Education, and US General Services Administration for potential violations of Title VI of the Civil Rights Act.

Danessa Watkins: 01:47

In April of twenty twenty four, Columbia University became a focal point of news for their student activism when pro Palestinian demonstrators established an encampment on campus and called for the university to divest from Israel. The protest, which became known as the Gaza Solidarity Encampment, it escalated after university officials called in NYPD to clear the area, which ended up resulting in over 100 arrests. So the US Department of Health and Human Services just put out a press release talking about the investigation that they're going to do into the school. The release says, Americans have watched in horror for more than a year now as Jewish students have been assaulted and harassed on elite university campuses. Unlawful encampments and demonstrations have completely paralyzed day to day campus operations, depriving Jewish students of learning opportunities to which they are entitled, said Secretary of Education Linda McMahon.

Danessa Watkins: 02:49

Institutions that receive federal funds have a responsibility to protect all students from discrimination. Columbia's apparent failure to uphold their end of this basic agreement raises very serious questions about the institution's fitness to continue doing business with the United States government. Now while I don't see any issues with this investigation, I think it's certainly warranted, the concern about this post by President Trump is that, it it starts to infringe on First Amendment rights on many levels and has certainly raised red flags with universities as far as what they can do within the limits of the constitution to make sure that they don't lose federal funding. The Foundation for Individual Rights and Expression, which is a nonprofit group, recently released a statement saying, point blank, quote, the president can't force institutions to expel students, period, end quote, which I think seems accurate. But Trump has also told the secretary of state Marco Rubio that he wants noncitizen protesters that are admitted to The US on student visas to be deported.

Danessa Watkins: 04:04

Now the only way that that could probably be carried out is if those protesters are arrested and then processed, but that raises obvious concerns regarding free speech and protest rights. So if we have authorities subjectively plucking otherwise peaceful students out of an assembly because they look a certain way or have a certain accent and then unlawfully detain them just to determine if they're US citizens, you can see the escalation of issues here, not the least of which is chilling speech by causing people to stay home rather than come out and voice their opinions. So I wanna break this down a little bit. The biggest question that's come out of this recent post by president Trump is when does a protest become illegal? Now we understand the the first amendment right includes the right of the people peacefully to assemble and to petition the government for a redress of grievances.

Danessa Watkins: 05:03

So alright. We know what the constitution says, but what does peaceably assemble actually mean, and what are the bounds of this core right? So first, just generally speaking, this right allows for protests in public spaces. So streets, sidewalks, parks, the government designates certain areas that are where people are allowed to assemble. And obviously, there's just no blanket right to assemble on your neighbor's back porch, for example.

Danessa Watkins: 05:32

But there are certain actions even within a public space that can render a protest unlawful. So again, just a basic overview. You can't block access to sidewalks or buildings. And this has come up in cases where, for example, protests were held outside of abortion clinics. So if the protesters are physically preventing access to a building, denying people healthcare, denying doctors the ability to go in, they're obviously gonna be subject to arrest or removal.

Danessa Watkins: 06:05

Disruptive counter protests, you cannot physically interfere with an assembly that you oppose. This has come up at times where maybe one group puts out publicly that they're gonna be at a certain place at a certain time and an anti group shows up and tries to disrupt that, the police can step in in those situations. And then there are limitations on the type of speech that would be protected even if you are peacefully assembling. So just to be clear, you can be sued for defamation if you make statements at a public rally that are false and harmful to someone's reputation. So in other words, simply because you're chanting along with two twenty or 200 people that Pete Diddy engaged in tax evasion, among other If you know that statement is false or you are reckless in making it, you could be liable.

Danessa Watkins: 07:04

Although I think Diddy, at this point, probably has plenty of other issues he's worrying about. Other speech that's not protected is speech that's obscene. So that's generally been defined as sexually explicit expression that is patently offensive and has no serious literary, artistic, political, or scientific value. And then you cannot express yourself in a manner that incites immediate violence or dangerous disturbances. Now this is probably one of the more highly litigated issues with regards to protests and public assemblies.

Danessa Watkins: 07:40

In 1969, the Supreme Court's decision, which is usually cited as the landmark decision, Brandenburg versus Ohio, came out. The plaintiff there, Clarence Brandenburg, he was a Ku Klux Klan leader in rural Ohio in the mid nineteen sixties, and he was charged with advocating violence under an Ohio state statute that prohibited advocating crime, sabotage violence, or unlawful methods of terrorism as a means of accomplishing industrial or political reform. Now he sued claiming that this violated his first amendment right to free speech, and the Supreme Court unanimously agreed with him that that Ohio statute did infringe on his rights. However, it set some precedent that there are going to be instances where inciting speech might go beyond First Amendment protection. So they came up with this test that we now refer to as the Brandenburg test which sets a threshold.

Danessa Watkins: 08:43

So one, if the speaker intends to incite imminent lawless action, so that's a subjective analysis, And two, is likely to incite or produce such action. So that's So it's an and, not a or. Right? Yes. Okay.

Danessa Watkins: 08:58

If those two categories can be met, then there is no protection under the first amendment for that speech. Now this obviously was highly debated following January 6, and legal scholars came down on both sides about whether Trump could be held liable for inciting violence with his speech. I'm sure you saw a lot on that.

Jack Sanker: 09:22

Have you heard about this first?

Danessa Watkins: 09:23

Yeah. And just kind of taking the most basic view of this, the obvious issues that come up is that you have to be able to prove that he intended to incite that lawless action. But then there's also this issue of imminence. So protesters had to march more than a mile to get to the capital before they engaged in unlawful actions. And by that time, substantial time had passed.

Danessa Watkins: 09:48

So, you know, was it really Trump's words that caused that violence?

Jack Sanker: 09:52

And Americans walking a mile, I mean, that's an hour and a half. Yes.

Danessa Watkins: 09:57

Oh, it depends on which app you're using. Google Maps

Jack Sanker: 10:00

or whatever.

Danessa Watkins: 10:03

Okay. You know, but the the challenge here is obviously the real time enforcement. So going back to these pro Palestinian marches, the government obviously cannot restrict a group from protesting simply because they don't agree with their messaging or their beliefs. So put another way, if a pro Palestinian student group applied for a permit to hold a rally on a university square, they couldn't be denied that permit just because this is a highly contested issue that could result in unlawful behavior.

Jack Sanker: 10:37

I mean the famous Illinois Nazis in the 1970s. Right.

Danessa Watkins: 10:42

Yep, absolutely. So that case essentially said just because it's the KKK that's requesting the right to protest and given the history of violence associated with that group, you still cannot restrict them from their right to peacefully assemble.

Jack Sanker: 10:58

Right.

Danessa Watkins: 11:01

Now I wanna just pivot for a moment to another important part of of Trump's recent post that may have not been obvious to everyone or maybe it was misinterpreted. So at the end of his statement, again, puts in all caps, no masks. And I can tell you with 99% certainty that he's not waging a war on Doctor. Fauci or claiming that masks aren't important in COVID. What he's referring to here is that protesters sometimes use masks to conceal their identities so they can evade arrest.

Danessa Watkins: 11:39

So he's saying if these protests happen on campus there absolutely can be no masks worn, no efforts to hide your identity. And I think the implication is that that is illegal and those people can be pulled regardless of whether they're engaging in unlawful activity, regardless of the type of speech or expression but just simply being present wearing a mask is going to be considered illegal. This raises two obvious concerns under the First Amendment. One is the right to freedom of expression, and the other is the right to anonymous speech.

Jack Sanker: 12:21

So And is the the act of wearing a mask also considered speech in certain instances?

Danessa Watkins: 12:27

Yes. So it's well, it's expression. Right. Sorry. Yeah.

Danessa Watkins: 12:31

Which is protected under the First Amendment. But it's been highly litigated, as you can imagine. There have been cases where well, actually, let's jump right to the the one with, again, the KKK that came out in 02/2004. Church of the American Knights of the Ku Klux Klan versus Carrick. And this came down in the second circuit of appeals.

Danessa Watkins: 13:03

So it was a original originally a New York case. So the American Knights applied to the NYPD for a parade permit. Let's see. They were gonna be holding an event on a Saturday on the steps of the New York County Courthouse. So court's not in session.

Danessa Watkins: 13:23

There's no issues with them disrupting government. But the police department notified them that their plan to wear masks would be in violation of a local penal law, which was specifically about loitering. So being masked or in any manner disguising by unusual or unnatural attire or facial alteration. If you loiter, remain, or congregate in a public place with other persons so masked or disguised, you're gonna be guilty of loitering. Now the group obviously filed a lawsuit in connection with this.

Danessa Watkins: 14:06

They did end up holding the event without people showing up in their hoods, but I think the attendance was way less than it would have been otherwise.

Jack Sanker: 14:14

At

Danessa Watkins: 14:17

the district court level, so at the trial court level, actually sided with the KKK and said, Yes, absolutely, this is a restriction on your right to expression. But this went all the way up to the Supreme Court and ended up getting overturned. So specific to the expressive conduct, the court did acknowledge that sometimes wearing certain things can be an expression and can be something that's protected. It noted that hooded masks are an integral part of the message that links the American Knights to the KKK and its horrific ideology, which is actually what they're trying to achieve.

Jack Sanker: 14:57

So

Danessa Watkins: 14:59

clearly the masks have some protected expression to them. However, the court found that when you take the totality of the circumstance here, so the fact that the American knights were showing up in robes, in masks, in hoods, and they had all these different items that were expressive. Taking away the right to one of those items didn't unfairly infringe on their rights to expression. So they could essentially make their connection to the KKK by wearing, you know, their their other things that didn't hide their identity. They're still able to convey their message.

Danessa Watkins: 15:43

And the court actually said the expressive force of the mask is redundant. So interesting, I guess. Depends on I don't know. It's a case by case analysis.

Jack Sanker: 15:55

Well, the hood is like the white hood is like I don't wanna say iconic. That's not the word. But it's a it it speaks for itself in some degree, whereas, like, a ski mask, which is, like, be worn in, you know, a college protest, probably doesn't. Mhmm. Those I mean, that's one distinction.

Danessa Watkins: 16:10

Yeah. Yeah. Yeah. I mean, I was kind of surprised that that the court broke it down that way, I guess, because I could just think of, like, cultural outfits where, you know, every piece matters or every piece has a certain level of symbolism. And not that, you know, I agree with the KKK's messaging, but I'm sure that that was their argument is that it's the entire, you know, it's the entire outfit.

Danessa Watkins: 16:38

Like that's a whole part of it. Right. But ultimately, the the court disagreed. Now this other the court actually took up this other issue, is the right to anonymous speech. And to be clear, this has for decades been decided to be a core right under the First Amendment, so the ability to speak anonymously.

Danessa Watkins: 17:02

And just to go back for a minute as to some of the early decisions on that, Talley versus California from the nineteen sixties was one of the originals. And the court stated that quote, persecuted groups and sex from time to time throughout history have been able to criticize oppressive practices and laws either anonymously or not at all. And the court noted that even the Federalist Papers, for example, were published under fictitious names. So that anonymity provides a way for a writer who either for safety reasons wants to hide their identity or maybe they are just unpopular in and of themselves. And the only way that they can get their message across without readers prejudging the message is to do it anonymously.

Danessa Watkins: 17:56

So again back to this KKK versus Carrot case. On this issue the obvious argument was that historically speaking KKK members have wanted to hide their identities. Know they want to be part of this group but when it comes to public perception of them obviously they fear for their safety, their jobs, their you know status in the community if they if they express that these are their beliefs. So, that was one of the arguments they made about that New York anti mask statute being unconstitutional on its face. And the court declined to extend anonymous speech to that sort of behavior that was at issue here, holding that the concealment of one's face while demonstrating may be constitutionally protected, but there are gonna be situations where government concerns are gonna outweigh that right.

Danessa Watkins: 18:57

So essentially they held that even though we have this right, there is not gonna be a guarantee of ideal conditions for spreading your speech anonymously. So in this case, I guess there had been, I think, some history of violence breaking out and people wearing masks for the purpose of evading police capture. And so the court said, you know what? The New York had a solid basis for putting this role into place. They did it in a content neutral manner, meaning it's not like they were only invoking this for Only in the one beat,

Jack Sanker: 19:44

two point. Yeah.

Danessa Watkins: 19:44

Right. So, yeah, it it upheld it and said there was nothing unconstitutional on its face about that statue.

Jack Sanker: 19:53

Which is interesting because, you know, the problem that people have with with protests generally are usually when they're repeated protests. So it kind of when it's like the same cause over and over again, like if if people just show up one time, protest one thing, kind of comes and goes. Mhmm. When people really start to get upset about it is when it's sustained or regular, at which point it seems like, they could avail themselves to the reasoning of the court here more easily.

Danessa Watkins: 20:24

Yeah. I mean, we see it all the time here in Chicago where protesters shut down Lakeshore Drive or we're right on an intersection, a very busy intersection where a lot of times people congregate and it does, it stops stuff. I mean, that's the point, I guess, is to disrupt life to an extent that you have to pay attention to the messaging. But that's where the limitations on on the right to assemble and the right to to speak come into play,

Jack Sanker: 20:54

which And stretching the the the bounds of, like, you know, what is disruptive and peaceful versus, you know, what's allowed. I think that the peaceful angle in particular is always, like, heavily contested.

Danessa Watkins: 21:08

For sure. Because there's a lot of gray area of what is peaceful. Just because people get upset, does that mean it's not? Just because people raise their voice, just because people amass in a group that causes traffic to slow down. There's all these different factors.

Jack Sanker: 21:30

And some extent of property damage, but property damage to public space versus private property. Those are all factors. I know, for example, that these particular protests like, and sometimes some of the justifications for the the the breakups of these, like, encampments. I'm talking about the pro Palestinian Mhmm. Protests in college campuses.

Jack Sanker: 21:52

Some of the breakups were justified as it's not peaceful because they're on the lawn, and the lawn's being destroyed by these people. And it's the lawn of probably a public college, so that's destructive, quote unquote. So it can get kind of tenuous as to the justification for this is no longer within the realm of allowed protest activity.

Danessa Watkins: 22:17

Right. Well, yeah, and I think this came about a lot with the abortion protest, but now we've seen it on campuses with the pro Palestinian is the constant presence of people who are, I don't even know how to describe it, but if you're on the other end of that, if you're the receiving end of that, you know, I'm sure it's causing students or it has for sure caused students not to go to class, to wanna leave their dorms, not to wanna because it's in your face.

Jack Sanker: 22:49

Yeah. Mean, that's right. It's like a, a sense of like, does this person feel safe going about their life and everything else? I mean, yes. But that does not speak to the legal requirements that we're talking about though.

Jack Sanker: 23:06

That speaks to the level of discomfort that the protest causes people, but that's kinda the point of protest, you know?

Danessa Watkins: 23:13

Yeah, if we're talking just about people assembling, yes, of course, that's the point. But there are avenues for the government to put in reasonable time, place, manner type of requirements, and that's just to allow society to continue forward in the manner that it should.

Jack Sanker: 23:35

Like not blocking intersection during rush Yeah.

Danessa Watkins: 23:37

Yeah. Or setting even like I'm sure there's statistics that more crime happens at night. So all protests must end before dusk or whatever.

Jack Sanker: 23:46

Permitting, etcetera.

Danessa Watkins: 23:48

Permitting, yes. Requiring permits for large groups. As long as it's done in a neutral manner, in that it's not based on who's requesting the permit or the type of speech they're gonna be conveying, then those types of things are generally found to be not intrusions on your rights under the First Amendment. But schools is kind of an interesting dynamic because there has and there hasn't been a lot of litigation on this. What we know based on our precedent is that there there is a distinction made obviously between public and private.

Danessa Watkins: 24:27

There's also a distinction made between primary and secondary schools. So, like, elementary, middle, and high schools versus colleges and universities. So the lower levels there, I would say, there's more freedom for the schools to restrict speech based on the circumstances. If it's inconsistent with their basic educational mission. I think it's just viewed at this level of like yes students do have free speech rights.

Danessa Watkins: 25:03

But I think honestly, I I think they look at it more of like a maturity thing. And like high school education being like something you have to get through. So like, you know, we gotta focus on making sure that we fulfill our mission of educating you whereas colleges and universities are looked at as this kind of like think tank where you really want to protect the freedom of speech and ideas and debate

Jack Sanker: 25:36

Which, yeah, that's what they all love to say about themselves.

Danessa Watkins: 25:41

Right, As

Jack Sanker: 25:42

an aside, there's a long and detailed history of crackdowns on speech predominantly happening on college campuses.

Danessa Watkins: 25:51

Yes, no doubt. Even more recently.

Jack Sanker: 25:54

Yeah, and so I think when everything is good and there's not protests, they kind of all take this position of like, we love student activism. And then when anyone becomes an activist, the tone changes for right or for wrong, but there's a lot of instances of

Danessa Watkins: 26:10

that. Mhmm. Well, and I think that's kind of the concern now with this latest statement from the president and the action of its administration. In, you know, looking at they've actually suspended, I think is it 51,000,000 that Columbia gets? I have that number here.

Danessa Watkins: 26:38

51,400,000.0 in in contracts between Columbia University and the federal government that are currently being stayed.

Jack Sanker: 26:48

And those are part of the whole Doge thing, I would assume?

Danessa Watkins: 26:53

I didn't see a connection with that. Actually, yeah, that's an interesting point. Haven't seen or haven't personally read anything that it's connecting it to that.

Jack Sanker: 27:05

Because that's a separate element of this. Yeah. The tweet from Trump is, know, the threat is we're gonna defund universities that allow quote unquote illegal protests.

Danessa Watkins: 27:17

Mhmm.

Jack Sanker: 27:17

And that's like, well, of who's we here? And the federal funding will stop. I mean, is maybe better done in a separate episode, but the whole can the president just align item veto spending that's been approved by Congress to universities based on whatever his grievance is of the day. So that's by the book that it requires, or at least as we were all taught it in law school, it would require congressional action. It's different, and it gets run through the executive agencies which administer this stuff.

Jack Sanker: 27:50

And it's honestly so much to think and talk about that I haven't wrapped my head around it because of the way in which the Department of Governmental Efficiency, is that what's, Yeah. Yeah. Is approaching this by just basically, you know, turning the light switch off for every one of these contracts. So that's, I mean, that's another thing. That's a even if there's a, this is okay from a First Amendment threshold, can the president unilaterally do that?

Jack Sanker: 28:22

And I think the jury's very much still on that. Although I saw that the USAID decision just came down, also probably good for another podcast episode, which restored like 2 and a half billion

Danessa Watkins: 28:33

Right.

Jack Sanker: 28:33

In funding because it was done illegally through Doge and everything else. So there's it's an onion, you know? There's lots of layers.

Danessa Watkins: 28:41

Yeah. No. Oh, for sure. So many layers. Yeah.

Danessa Watkins: 28:46

And I yeah. We can't unpack all of the you know, whether whether Trump or his administration can do any of these things. I'm more concerned from a standpoint of if this is the message that's going out, how are colleges and universities gonna respond to it? And it actually says college, school, or universities. So I would argue it applies to any public school at any education level, is the intent.

Danessa Watkins: 29:15

How are they going to interpret illegal protests? I I just discussed some of the basics, but there's so much gray area there. And are they going to start, I don't know, implementing policies or rejecting permits or, you know, preventing certain student bodies from assembling just because they're concerned about their budgeting and how much speech are we silencing.

Jack Sanker: 29:45

Yeah, like theoretically you could say, well we would prevail on a lengthy lawsuit and appeal, or we can just not allow this one group to, you know, have a permit to protest in the quad. You know? And that's that's an easy decision for, I imagine, most administrators to make. Mhmm. Who are, you know, worried about their own budgets and everything else.

Jack Sanker: 30:05

Mhmm. I have kind of a dumb question that you might know the answer to, but the for, like, student visas, like, foreign students that are here on temporary grounds, are they I mean, they afforded the same speech rights as everyone else? You're laughing at me.

Danessa Watkins: 30:27

So I knew you were gonna ask this question. And I should have probably prepared a better answer. My understanding is yes, asterisk Mhmm. As is a typical lawyer answer. The free speech rights have been ruled to be afforded to non citizens regardless of their immigration status.

Danessa Watkins: 30:58

I think that's the easy answer.

Jack Sanker: 31:03

There's also the element of the tweet where it's quote unquote illegal protests.

Danessa Watkins: 31:08

Right.

Jack Sanker: 31:09

And so I understand that criminal offenses, things like that can be a factor in terms of immigration status, of course. If someone comes here and commits a bunch of horrible felonies, they can be removed. So this is, to take it at its face value, this is predicated on the protesters in question here being involved in a quote unquote illegal protest, which is subject to all of those things you were just talking about, of course, whether it's permitted under the First Amendment or not. However, I think we're going to see a expansion of, you know, what's deemed illegal, you know, as you mentioned.

Danessa Watkins: 31:53

So, I mean, just to wrap this up because I think we could go down six different wormholes here. I guess we're just gonna have to see as always about how I mean, that's the only answer I have is to see how universities react to this. And no doubt there will probably be some lawsuits filed as a result of this by students who feel that their right to speech, their right to assembly is being infringed upon. I I, you know, I just it's it's crazy how I mean, how many words is this? Like, 25 words?

Danessa Watkins: 32:35

A 25 word post has so many implications and raises so many it's just it's all gray.

Jack Sanker: 32:50

Right. And none of this is through the normal channels of legislation and everything else. You don't wanna let a tail wag a dog too much with this stuff, but how can you not?

Danessa Watkins: 33:05

Mhmm. Alright. Well, more on that.

Jack Sanker: 33:12

Fantastic. So I'm gonna be talking more about tariffs again because I can't can't avoid it, can't escape it. Everyone keeps asking me about it. I'm not a trade lawyer. We have excellent trade lawyers at the firm.

Jack Sanker: 33:29

I've I plugged one of our trade lawyers in our most recent tariff episode who can talk about the ins and outs of the tariffs, and I think that's all interesting to kinda know as background, but, you know, not what we're gonna be talking about here. What I want to get into a little more is the sort of boots on the ground practical effects of the new tariffs that have been rolled out kind of every week now for the past month or so from the Trump administration and how it's trickling down into the real world and what you're you know, and this isn't an economics podcast. This isn't, you know, a finance podcast, but we're kind of around it, and I think those are important things to consider. What I'm gonna be talking about today and relying on is a publication from Law three sixty. It's their tax authority kind of sub vertical where they did a survey of a bunch of different real estate and construction attorneys.

Jack Sanker: 34:31

I was not asked to participate, but kind of yeah. What's everyone's 2¢ on these tariffs and how it's gonna affect real estate and construction in particular? And and it's a lot of what I've already said on the show is kind of, you know, coming true. I think anyone in the industry can put two and two together and tell you that a 25% blanket tax on, steel and aluminum imports is going to drive the price of steel and aluminum products up a certain amount. So that's, I think, fairly obvious.

Jack Sanker: 35:00

But to recap, what are the tariffs? Like, the tariffs. Right? 25 tariffs on goods from Canada and Mexico, Ten Percent on all Chinese goods. This is all, by the way, it's the 25% tax on goods from Canada and Mexico that is being raised from, I believe, 10%.

Jack Sanker: 35:19

So it's not 25 on top of 10, it's just it is two twenty five. 10 percent on Chinese goods, I think, is being raised to certain amount from pre existing ones. 25% on steel and aluminum is, I think, being raised from 10%.

Danessa Watkins: 35:34

And as we're recording this, like literally, I was gonna say ninety minutes ago. Yeah. There is a a stay on or a reversal of both the Canada and Mexico tariffs.

Jack Sanker: 35:49

Alright. Well, okay.

Danessa Watkins: 35:52

Well, just a delay.

Jack Sanker: 35:53

I'm gonna interject my previous line of thought and of speaking because as we're sitting here recording, all the tariff numbers changed again. So there's now a a month long stay, I guess we'll call it, to the imposition of the auto tariffs that assume are the product of some pretty fancy lobbying on behalf of the auto industry. Right? A similarly, a delay on the imposition of the new tariffs on Mexico. The Chinese tariffs on all goods were 10% about three hours ago and are now 20% as we sit here recording it.

Jack Sanker: 36:34

So that's like a good flavor for the environment that we're all in. Why does that matter so much? Mean, who cares? Some of these tariffs are being adjusted before they're even formally implemented. The Canadian and Mexico tariffs had only gone into effect for I think one day, then they were changed and they were rolled back.

Jack Sanker: 36:57

You know, some people might be inclined to say, okay, what's the big deal? They were only in place for one day.

Danessa Watkins: 37:01

It's like the Twitter ban, right?

Jack Sanker: 37:02

Yeah. I mean, why is that a big deal? Because people are signing contracts that last longer than one day, of course, And people are making decisions that are, you know, based on some reasonable level of predictable projection of, like, things. Know, if you look at a couple months ago, if you would look at whatever your small business that imports, widgets from China, you would say, I don't think as of the March that there will be a 20% increase in Chinese tariffs, so I could sign this contract with this supplier or whatever to import their things. And now, you know, now you're screwed.

Jack Sanker: 37:40

Right? That's what we're talking about here today is the the kind of up and down effects of the tariffs, price hikes, really the uncertainty so much more than the individual prices. And we have seen price hikes in the things that I deal with. So steel, hardware, tools like that, you know, box of nails, for example, raw materials, manufactured goods, things like that, the prices have already gone up, prices go up when the rumors of the tariffs come about, not even when the tariffs are announced. And even when they're announced, they're announced they're gonna go into effect a month from now or whatever.

Jack Sanker: 38:20

Prices go up in advance because a lot of these businesses are selling an item or taking an order for an item that then has to come and get shipped from across the world or whatever. So by the time it gets here, may be subject to those tariffs or or whatever. So when when you start tinkering with these type of things, the safest thing that someone who's in the supply chain can do is assume the price hike is gonna be permanent and include it in their pricing. So the so the a lot of these price hikes, whether they're permanent or not, have already been passed on to further down the supply chain and ultimately to consumers. Whether that a whiplash back, if and when these things are removed, who knows?

Jack Sanker: 39:06

I mean, in my experience, prices rarely go down. They just especially if there's enough demand, the prices just kinda go up and stay up.

Danessa Watkins: 39:15

But I think you had said this in a prior episode, this is kind of the importance of having an attorney review your contract though and maybe add in the type of language that allows for that fluctuation so that it's, you know, not falling on one party or the other.

Jack Sanker: 39:33

Yeah. I mean, I I hate to to to be so glib about it, but, you know, uncertainty in contracting and everything else is, you know, it benefits the lawyers because people now have to plan for a contingency that was never on their mind. And and this reminds me a lot of what things were like during COVID. And you saw everything from commercial leases to, again, like anywhere up and down the supply chain of what to do now when, for example, ports are closed or ports can't be staffed because there's not people to go and work there. So things can't be imported.

Jack Sanker: 40:15

So products that you've already taken an order for sitting in a shipping crate, you know, in the ocean or or at a dock for months at a time, things like that. And around that stuff, what you saw was a a lot of focus on a contractual mechanism that is already common enough, is the force majeure clause, which is kind of a term of art for an unexpected, complicating factor that no one could have reasonably foreseen. We don't call it this anymore, but you might have heard the term act of God, things like that. That relieves you of your contractual obligation, right, because no one could have seen this coming. So there's no way you could have foreseen this risk.

Jack Sanker: 41:00

Right? So two consenting parties could not have bargained for this in a contract. So, okay, these tariffs, right, are they is this a force majeure type situation? The answer seems to be no, is what we're seeing. There are legal standards, I won't get into, I don't have them in front of me, But there are legal standards for, like, you know, what is in in this this type of unaccepted, or unanticipated risk.

Jack Sanker: 41:35

And, I will quote from the Law three sixty piece, which is itself quoting from a Los Angeles Attorney who's who's I think puts it right, quote, force majeure based on a contract provision. It has to meet certain standards. A tariff is not like most of the categories in force majeure, unexpected events, acts of God, weather events, outbreaks of disease, war, general strikes. It's usually pretty extreme, totally beyond contemplation of the parties. That doesn't mean the parties can't contract.

Jack Sanker: 42:04

The better way to do it is to take it on straight up the impacts of the tariffs and other trade regulations and restrictions, what might happen and what the parties want to do about that. You can do that with a very fine tooth comb, unquote.

Danessa Watkins: 42:18

The idea being that it's not completely unforeseeable that we're gonna have a change in government. We're gonna have new laws. Gonna be new trade regulations. There's like those sort of things are something that contracting parties can anticipate even if unlikely, they can still foresee that that would affect their contract. Is that the idea?

Jack Sanker: 42:42

Yeah. And a lot of these you know, it's the separate question of what you should do if you're signing a contract today, which is if you're if you're signing a contract today, what you ought to do is make sure that you talk to someone who knows how to protect and add something into your contract, which I I mentioned on the last time we covered tariffs, of how to add protections in. One way you could do it is cost sharing provisions if the price of a certain material that's contemplated by the contract goes above a certain percentage as measured by, like, a neutral trusted arbiter and that type of thing. The Bureau of Labor Statistics seems to be where we're seeing this most, and they're looking at the producer price index, PPI. So you could say, right, if if a, you know, price of steel goes up 10% as recorded by PPI, that that change in cost will be shared between, you know, the prime and the sub or the owner and the sub or whatever.

Jack Sanker: 43:39

You can also include to kind of contract around this change of law provisions, which is effectively saying if the law has changed that would materially alter the performance of this contract, then you can be subject to certain relief. You can do again like a cost sharing agreement, or you can just be straight up alleviated from performance of the contract. You can walk away from the contract, right? And if the price of you know, if you're building a house and the price of lumber goes up 40%, like, you just can't do it and make money. So you have to walk away or put your company under, right?

Jack Sanker: 44:17

That is these types of things are not standard. They're not in most contracts, especially lower down with smaller subs and smaller distributors and and things like that. But they ought to be contemplated and they ought to become more common. The bigger issue is what people are getting stuck with now, which is trying to fit the square peg through the round hole in existing contracts. If you signed a deal two years ago, for example, and now you're stuck dealing with these tariffs, what can you do given the fact that whatever you promise to deliver relies on imported goods, the price of which has now gone up 25% or more.

Jack Sanker: 44:58

What do you do there? Well, you can litigate the force majeure issue, which, you know, I I I don't know on hand how that's gonna work. I'll be interested to see. I know I saw some people try some really interesting things during COVID. I'll be a hater here because I saw a rival law firm try to get out of their commercial lease by claiming that force majeure because of COVID, and so they can't you know, they shouldn't have to pay their the remainder of their ten year lease at their, like, their nice Downtown Chicago office.

Jack Sanker: 45:32

It was not us.

Danessa Watkins: 45:34

It was it was not us. Okay.

Jack Sanker: 45:36

It was but it was a rival firm. It was like, alright. I thought that was kinda slimy. But you saw people try to bend those definitions of those established things to address the current scenario, and you're just seeing that again now. The and what I think is let me go back to another quote here, from the law three sixty piece.

Jack Sanker: 46:06

Regarding current projects that are already under contract, the best avenue for seeking relief is probably going to be change in law provisions. Change in law may be listed as a force majeure event, which I think is pretty rare, or maybe a standalone provision of the contract. New tariffs are essentially new taxes and, unquote, what they're implying there is that new taxes are new laws. I don't know if I agree with that because the statutory authority for these tariffs have been in place for decades. So I don't know how a court would interpret that, but, you know, unquote, quote again.

Jack Sanker: 46:39

Regulations treat tariffs that way and allow relief for contractors who pay tariffs that were imposed after the date set for the bid opening. The closer the contractor is to the supply chain to the imposition of the tariff, the better chance they have of seeking recovery. When they're importing directly or buying them from a supplier who is importing directly, it's easier to claim the tariff is a new tax paid by the contractor. It gets more complicated though, when the product passes through multiple hands, crosses the border multiple times, etcetera, because the tariffs get baked into the price the contractor pays later down the the line. In those situations, the contractor may be better off relying on a broader material cost escalation provision, which is something I talked about two episodes ago, that allows for reimbursement for the increased costs, unquote.

Jack Sanker: 47:24

So what they're saying here is if if you're the the direct importer, right, if you are the person who is at the port picking up the widgets from the shipping crates, and you're the one who is now dealing, you know, directly with the price hike that's coming from the exporter as they pay these new tariffs, You know, that new price is directly attributable to the tariffs. I think you could argue, and you could say, well, okay, that's change of law. I've been affected by that. This implicates, you know, our force majeure clause or our change in law provision. But if you're three or four rungs down the ladder in terms of the supply chain, the reason that the price of your widget or your material went up is because the person who sold it to you hiked their price, right?

Jack Sanker: 48:12

And they may have hiked the price because the person they bought it from hiked their price, and they may have done the same because ultimately the person they imported it from hiked theirs up. But it's a downstream thing. People don't generally impose price hikes on a one for one basis in new taxes either. A lot of these contracts are like cost plus contracts too, where it's cost of labor and materials plus a percentage. That's how a lot of construction contracts are in particular.

Jack Sanker: 48:43

So that percentage goes up as well. So the cost of a project is $100,000 it's cost plus 30% is the contract. So $100,000 materials and labor plus 30%, it's 130,000 If the price of materials and labor goes up to $150,000 not only are you paying the additional $5,050,000 dollars for material and labor, your 30% has now also risen by another $15. So now you're paying what? $1.90 no.

Jack Sanker: 49:17

$1.85? Yeah. 185,000. On a contract that was originally set to be, you know, 100,000 or 130,000, right? So it's like I not do the math there, right?

Jack Sanker: 49:29

But you guys know what I'm talking about. And now, by the way, that person who purchased that thing on a cost plus basis now has to do the same and maybe resell it to whoever else is next down the line for them. And so it's a multiplier effect. The price goes up not just 25% because we're not buying our goods from the importer, generally. We're buying our goods from distributors at all levels of supply chain.

Jack Sanker: 50:04

Kinda to drive this home. I'll go back to the piece. And I'm just reading these quotes because it's it's from different geographic areas, different markets. This is one from a partner at a prominent Philadelphia firm. Quote, I don't have any contracts top of mind that have provisions that specifically mention tariffs in a first major section.

Jack Sanker: 50:24

The first major section will usually discuss change in law, which this situation may cover. Similarly, this potentially falls under government action, frustration of purpose, impossibility, and commercial impractibility. All this is gonna be very contract specific given that every contract is different, unquote. So everyone's kind saying the same thing here, which is we don't really know how this is gonna shake out, and it's going to be a developing set of laws in every jurisdiction, frankly, because people going to to, are going to sue over this, and the courts are going to have to decide what is or what isn't frustration of purpose, force majeure, change in law, etcetera. And you're going get disparate outcomes too, because as I sit here now, there's some of those things that, you know, are seem appealing and persuasive to me and some of them right away, which don't.

Jack Sanker: 51:13

And, you know, I'm just, you know, humble city lawyer here, but that's how the judges are gonna view them as well. What it's gonna lead to is like really, really, really disruptive pricing across the supply chains across. And by the way, I haven't even gotten tax implications on this stuff too. State state income taxes and and state sales taxes and all of that too because the price is going to drive up the cost of doing of state administered taxation as well. So it's gonna not only lead to, like, higher prices, which I think is pretty clear, but just uneven pricing and, unforeseeability, is the bigger issue.

Jack Sanker: 51:54

I think a lot of businesses would stand a better chance if they knew, okay, the price of my inputs are going up 25%, you know, I can either budget for that or I can't, you know, that's it. Right? Some people can and they can absorb that, they can absorb it into their margins, they can restructure, I'm sure a lot of people get laid off, you know, things like that, or they can't and, you know, someone else maybe can, or we just don't have that widget in our, you know, on our grocery shelves or or Best Buy shelves anymore. But if you don't, know, you know, like, ultimately what the price tag is of the thing that you're doing, you're kinda frozen. And that's, like, that's, I think, the bigger issue, especially in light of the slowdown in in new construction in this country and our local market in particular.

Jack Sanker: 52:43

Housing in general is most people will say, I'm not gonna sign anything that obligates me, you know, to pay something twelve months out until I know where this all shakes out at. So people are just frozen in place. You see it show up in the data on consumer sentiment, on business investment, expectations, things like that. Everyone's more or less saying, we're gonna hit pause until we know what's going on here, and maybe, you know, do something, like, you know, like buy bonds. Right?

Jack Sanker: 53:14

Which is what a lot of people are doing. So it's it's just a wacky time to do it, and there's no sense getting upset about it from a political perspective. You know, the president, like, has this prerogative for tariffs in some respect. But it's it is frustrating, the lack of clarity. And I think, you know, as again, in the middle of the episode, we have to interrupt to to make mention that the the tech the tariff rates had changed.

Jack Sanker: 53:47

It just makes it impossible to plan more than five minutes in advance, and that's the real issue that in my industry and in in a lot of related industries are seeing right now. Thanks, everyone. Thanks for listening. As always, you can find us on Apple Podcasts, Spotify, YouTube, wherever you get your shows. We put out new episodes once every two weeks.

Jack Sanker: 54:14

We'll try not to dwell so much on every step of the way, the Trump administration, everything else, but it's kinda hard not talk about anything else right now. Otherwise, talk to you in a few weeks.