History of the US Customs Agency: Possible Implications of the Trump Administration’s ERS Announcement

On January 20, President Trump formally announced the development of the External Revenue Service (ERS) for the purposes of collecting tariffs, duties, and other foreign trade related revenues. As the question now turns to the implications for the US Customs and Border Protection (CBP) agency, this perspective examines the parallels with the reorganization of the Customs agency upon the creation of DHS, and the explores potential implications, including a reversal of Customs’ current alignment under DHS back to the Treasury.

Proposal for the ERS

President Trump has announced plans to establish the ERS to collect tariffs, duties, and revenues from foreign sources. As outlined in the America First Trade Policy executive order, this proposal suggests a shift in the collection of foreign revenues, currently managed by CBP.

The executive order mandates the Secretary of the Treasury, in consultation with the Secretary of Commerce and the Secretary of Homeland Security, to investigate the feasibility of establishing the ERS and recommend the best methods for its design and implementation. This directive underscores the administration’s focus on enhancing revenue collection mechanisms and addressing trade imbalances.

Parallels With the Creation of DHS

The creation of DHS in 2002 marked a significant restructuring of federal agencies, including the transfer and dissolvement in 2003 of the “United States Customs Service” to DHS to enhance national security. Prior to the reorganization, there was significant concern that DHS might overshadow Customs’ revenue collection functions. To address those concerns, there was a statutory carveout in the HSA that allowed Treasury to delegate — but not transfer — its authority related to revenue functions to DHS.

This re-organization essentially integrated Customs’ functions with other security-focused agencies, emphasizing border and transportation security. Similarly, Trump’s proposed ERS represents a structural shift, potentially reversing the integration of Customs to DHS. Under the law, Treasury could claw back the revenue related functions currently delegated to DHS and transfer that authority to a new office – i.e., the ERS – under Treasury.

Both initiatives reflect a response to perceived national needs — DHS to address security threats post-9/11, and the ERS to address economic and trade imbalances, which has been a focal point for President Trump. However, while DHS aimed to consolidate security functions, ERS focuses on economic sovereignty and revenue generation.

Customs’ Role Under Treasury

Historically, under the Treasury, the Customs Agency was integral to the economic health of the nation, focusing on revenue generation, trade facilitation, and the enforcement of trade laws and agreements. Its primary responsibilities included collecting tariffs and duties, regulating trade, facilitating international commerce, protecting domestic industries, and enforcing trade agreements.

Legal Questions and Operational Implications

The establishment of the ERS raises serious legal and operational questions. For one, it is not yet clear whether the ERS would be a standalone agency. If so, any creation of a new federal agency requires congressional approval. Given the current makeup of a Republican-controlled Congress, Trump may have the necessary support to create such an agency. However, if it is not a standalone agency, Trump could potentially order the creation of the ERS via an executive order. If so, and as noted above, the ERS would likely need to be housed within Treasury to fit within the current legal framework. Moreover, the ERS would need to navigate existing legal frameworks governing trade and tariffs, potentially leading to jurisdictional challenges at the US Court of International Trade (USCIT).

The transition could also impact the efficiency of revenue collection and enforcement of trade laws. While the ERS might streamline tariff collection in the long run, it could face challenges similar to those encountered during the DHS integration, such as inter-agency coordination and resource allocation.

Potential Implications: Significant? Or Mere Rebranding?

At this juncture, it is not clear what impact, if any, the creation of a ERS could have on the importing (and potentially exporting) community. As noted above, one possibility is that Customs could come back under the auspices of Treasury. The potential reversion of these functions to a Treasury-aligned ERS could restore the agency’s original economic focus. Under this scenario, there could be questions about which agency is responsible for CBP’s border security functions, among various other functions currently covered by the agency. Other possibilities could include the establishment of ERS as a new office, bureau, or agency, while maintaining CBP under DHS. Similar questions on the share of functions would need to be addressed and may include whether ERS would have oversight over CBP or different revenue functions than CBP, as well as the timing on the implementation of these different roles.

Second, without an expanded role beyond collecting tariffs from importers, the ERS’s functions –whether it’s part of the Treasury or standalone agency or bureau — would likely not be much different than what CBP does today. Ultimately, it is the importer of record, not the exporter, that has the legal liability to tender duties and fees associated with imports. However, if the ERS’ functions somehow were expanded to target foreign exporters, this could mean additional costs and more regulatory compliance, with an ultimately likely impact on higher consumer prices.

Conclusion

While the ERS aims to enhance revenue collection and address trade imbalances, it must navigate complex legal, economic, and political landscapes.

As the US Customs Agency continues to adapt to evolving national priorities, the ERS proposal underscores the ongoing tension between security, economic sovereignty, and global trade dynamics. The historical context of Customs under the Treasury provides a framework for understanding the potential impacts and challenges of this proposed reorganization, particularly in light of the America First Trade Policy executive order.