Trump Imposes New Tariff After SCOTUS Loss
Quick Read
Summary
Takeaways
- ❖The Supreme Court ruled 6-3 that the International Emergency Economic Powers Act (IEEPA) cannot be used to impose tariffs, citing Congress's exclusive power over taxation.
- ❖The ruling is seen as an example of checks and balances working, particularly due to the 'major questions doctrine' which requires explicit congressional delegation for significant powers like taxation.
- ❖Immediately following the decision, Trump announced a new 10% global tariff under Section 122 for 150 days, and initiated new Section 301 and 232 investigations to pursue more permanent tariffs.
- ❖The Trump administration initially preferred IEEPA for tariffs because it required no process or justification, unlike Sections 232 (national security) and 301 (unfair trade practices).
- ❖An estimated $175 billion in tariffs collected under the invalidated IEEPA authority is now in limbo, with established law dictating refunds for illegally collected tariffs, though the process is expected to be messy and litigated.
- ❖The US withdrawal from the Trans-Pacific Partnership (TPP) is viewed as a missed opportunity, as the remaining CPTPP continues to set high trade standards without US participation, weakening US influence in the Indo-Pacific.
- ❖Tariffs, while costly to American consumers and manufacturers, have been observed to bring countries to the negotiating table, demonstrating their unconventional utility as a foreign policy tool.
Insights
1SCOTUS Limits Executive Tariff Power Under IEEPA
The Supreme Court, in a 6-3 decision, ruled that the International Emergency Economic Powers Act (IEEPA) cannot be used by the President to impose tariffs. This decision reinforces the constitutional principle that the power of taxation rests with Congress, and the IEEPA statute does not explicitly grant the executive such authority. This limits the President's ability to unilaterally impose tariffs without specific congressional delegation.
Mike Froman states, 'the court made a decision... by a majority of 6-3 that... AIPA... cannot be used to impose tariffs. ...the taxing of power lies with the Congress and if unless the Congress specifically... gives the executive that authority... then the president can't do it under AIPA.'
2Trump's Immediate Pivot to Alternative Tariff Authorities
Following the SCOTUS ruling, Donald Trump immediately announced a new 10% global tariff under Section 122 of the Trade Act of 1974, effective for 150 days. He also initiated new investigations under Sections 232 (national security) and 301 (unfair trade practices) to pursue more permanent tariff solutions. This demonstrates a clear intent to maintain a high-tariff trade policy despite the IEEPA setback.
Froman notes, 'he announced in this press conference today one of those actions under section 122 a 10% tariff for 150 days during which time he'll pursue other authorities that he has and come up with a more permanent solution.' Trump's quote confirms, 'Today, I will sign an order to impose a 10% global tariff under section 122... And we're also initiating several section 301 and other investigations.'
3The 'No Process' Appeal of IEEPA Tariffs
The Trump administration initially favored using the IEEPA for imposing tariffs because, unlike other trade statutes (like Sections 232 or 301), it did not require any formal process, investigation, or justification. This allowed for immediate, arbitrary imposition of tariffs based on presidential discretion, which is now curtailed.
Froman explains, 'The reason why the president liked imposing tariffs under AIPA is that it doesn't require any process. He could just announce it. I'm going to put a 50% tariff on Brazil because I don't like the way that they treated former President Bolsinaro. He couldn't do that under the other ones.'
4Uncertainty and Litigation Over $175 Billion in Tariff Refunds
The Supreme Court's decision leaves approximately $175 billion in previously collected IEEPA tariffs in legal limbo. While established law dictates that illegally collected tariffs must be refunded, the logistical process will be complex, messy, and likely involve significant litigation over several years, as the Court's opinion did not explicitly detail the refund mechanism.
Trump states, '$175 billion in tariff revenue that is now in limbo. Do you have to refund $175 billion?... It wasn't discussed.' Froman confirms, 'it is established law from many many cases that if tariffs have been collected illegally... they are to be refunded. There's really no question about that.' He adds, 'My guess is it will be messy. There will be some litigation, but that ultimately those tariffs will be refunded.'
5The Enduring Relevance of TPP and US Absence
The Trans-Pacific Partnership (TPP), from which the Trump administration withdrew, continues to exist as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It has expanded to include the UK and other countries are seeking to join. The US's absence means it is not benefiting from the higher trade standards and common approach to China that TPP was designed to foster, despite the current administration's efforts to achieve similar objectives through other means.
Froman states, 'the Trump administration withdrew from TPP... but ever since then has been working to try and get countries to work together with us visav China and have a common approach to set certain higher standards... which is exactly what the goal of TPP was.' He adds, 'the US isn't getting the benefit of it and the US isn't part of it.'
Bottom Line
Despite the economic costs and legal challenges, tariffs have proven to be an effective, albeit unconventional, tool for the US in forcing other countries to the negotiating table and achieving specific concessions.
This suggests that future administrations, regardless of traditional economic views, may continue to employ tariffs as a foreign policy lever, prioritizing perceived strategic gains over immediate economic efficiency. Businesses should prepare for continued trade volatility.
Companies that can adapt supply chains to mitigate tariff impacts or that specialize in trade compliance and litigation services will find increased demand. Furthermore, nations seeking to influence US policy may need to re-evaluate their negotiation strategies, recognizing the potential for tariffs as a primary US bargaining chip.
Key Concepts
Major Questions Doctrine
This legal doctrine states that courts are reluctant to defer to administrative agencies' interpretations of statutes when those interpretations involve 'major questions' of political or economic significance, especially when Congress has not clearly delegated such authority. In this case, tariffs, being a form of taxation, were deemed a major question, requiring explicit congressional authorization.
Trade-offs in Trade Policy
Every trade policy, including tariffs, involves a balance of costs and benefits. While tariffs can be used as leverage in negotiations or to protect domestic industries, they often lead to higher prices for consumers, increased costs for manufacturers relying on imported inputs, and global economic uncertainty. Policymakers must openly debate these trade-offs.
Notable Moments
The host expresses surprise at Mike Froman's 'relatively positive terms' regarding the efficacy of Trump's trade wars, expecting a more critical assessment from a former trade negotiator.
This highlights a nuanced and potentially contrarian perspective from an experienced diplomat: while tariffs carry significant costs, they have, in some instances, achieved the objective of bringing reluctant parties to the negotiating table, challenging the conventional wisdom that trade wars are universally ineffective.
Quotes
"AIPA... cannot be used to impose tariffs. ...the taxing of power lies with the Congress and if unless the Congress specifically... gives the executive that authority... then the president can't do it under AIPA."
"The reason why the president liked imposing tariffs under AIPA is that it doesn't require any process. He could just announce it."
"If we are willing to live in a less efficient, more expensive world, particularly for American consumers, where they're going to pay more for for very basic items that they depend upon in order to achieve some other objective, then, you know, that's what the democratic process should debate. But we shouldn't pretend as though this is free."
"It is established law from many many cases that if tariffs have been collected illegally, inappropriately, mistakenly, they are to be refunded. There's really no question about that."
"The US isn't getting the benefit of it and the US isn't part of it."
Q&A
Recent Questions
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