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Laura Bondank-Harmon: Since Donald Trump was elected, U.S. trade policy has shifted dramatically. Only months after taking office, he declared a national trade emergency and imposed sweeping tariffs on nearly all foreign trading partners. Six months ago, the Supreme Court struck down these tariffs, ruling that the president cannot use emergency powers to tax imported goods. But despite that decision, the Trump administration keeps finding new avenues to keep their trade agenda going. Most recently, a 50 percent tariff was announced for Canadian cars, dairy, and alcohol, pulling from a law that has not been used in this way in its 96-year history. At the same time, some members of Congress are drafting a law that would give the president new powers to place tariffs of up to 100 percent as sanctions on those who continue to buy oil and natural gas from Russia. Since Congress, not the president, holds the constitutional tax power, how are the Trump administration’s actions shaping the future of taxing?
I’m Laura Bondank-Harmon, and this is the Cato Podcast. Today, we are joined by two legal experts who can help us understand the moves that the Trump administration is making to justify imposing taxes on imported goods. I’m here with Clark Neily, Senior Vice President of Legal Studies at the Cato Institute, and Ilya Somin, co-counsel in one of the tariff cases from earlier this year, B. Kenneth Simon Chair in Constitutional Studies at the Cato Institute, and Professor of Law at George Mason University’s Antonin Scalia Law School. Welcome.
Clark Neily: Thank you for having us.
Ilya Somin: Good to be here.
Laura Bondank-Harmon: Clark, can you start us off with some context? Can you remind us what SCOTUS said in Learning Resources v. Trump, the tariff case decided earlier this year?
Clark Neily: Well, we have a president who thinks that tariffs are sort of almost a magical policy that does everything good and nothing bad, right? And this is an incredible way to raise revenue that has no significant negative effects. Of course, he’s wrong about that from an economic standpoint. But the question in these cases is, where does the president even get authority to impose tariffs on trade? And of course, the only legitimate source of that authority is from Congress. Congress has to authorize it. And the IEEPA litigation was essentially over the question of, did Congress authorize the president to impose the tariffs that were at issue in that case? And one of the conditions for the president to exercise tariff authority was that there had to be an unusual and extraordinary threat from trade deficits. So that was one of many issues in the case. But to drill down deeper, I think we would want to turn to Ilya because, as you know, Ilya actually helped litigate these cases.
Laura Bondank-Harmon: Yeah, Ilya, can you give us a little more context on the Learning Resources case from earlier this year?
Ilya Somin: Sure. So as I already indicated, I helped bring the case — actually, our case was not the Learning Resources case, but the V.O.S. Selections case that got consolidated with it. As it turned out, our case was the one that actually won, because Learning Resources got dismissed on jurisdictional grounds, which are way too boring to talk about and ultimately not that important. But what is important is that Trump was trying to use the International Emergency Economic Powers Act of 1977 to impose the biggest and most sweeping tariffs that we’ve had since the Great Depression, when we had the Smoot-Hawley tariff, which gravely exacerbated the Depression and made things even worse than they would have been otherwise.
With the help of the Liberty Justice Center and others, we brought a case challenging this. There were a bunch of different reasons why this was illegal. I’ll just mention some of the most important ones. One is that this law doesn’t even mention the word tariffs, or any synonyms such as duties or imposts. And this was ultimately the main basis for the Supreme Court’s decision — they simply said this law just doesn’t authorize tariffs. It does allow, quote, “regulation of importation” in some situations, but that’s not the same thing as the tariff power.
In addition, three of the six Supreme Court justices who voted our way said that the major questions doctrine applies here. This is the rule of interpretation which says that when the executive branch claims that Congress has delegated a major power to it — a power over some major social or economic issue — there has to be at least a clear statement in the law that that power was delegated. There’s nowhere near such a clear statement, not even remotely. So major questions certainly applies here.
And although only one of the six justices reached this issue, this case also raised the question of constitutional non-delegation. There have to be at least some limits to how much of its power Congress can delegate to the executive. Tariffs, like other taxes, are specifically a congressional power listed in Article I of the Constitution, which enumerates Congress’s powers — not Article II, which gives the president his authority. So the only way the president can impose tariffs or any kind of taxes is if Congress has delegated that authority to him. But there have to be at least some limits to that delegation.
As Clark mentioned, this statute also can only be used if there is, quote, an “emergency” that amounts to an “unusual or extraordinary threat” to the United States. We argued that trade deficits as a pretext for a tariff regime don’t qualify, but the Supreme Court didn’t reach that issue. They didn’t have to, because they just said this statute doesn’t authorize tariffs, whether there is an emergency or not. So they didn’t have to reach the question of what counts as a real emergency or a real unusual and extraordinary threat. Those issues may well recur in future cases.
Clark Neily: So, Laura, I want to extract three points from that excellent and very detailed answer, for those playing at home, to perhaps help keep track of it. In a case like this, there are many questions, but three of the most important ones are, as Ilya pointed out: can Congress delegate this power to the executive branch? In other words, does the Constitution even permit it if Congress wanted to? That’s question one. Second, if Congress can delegate it, did it delegate the power? And that involves the major questions doctrine, as Ilya noted — it’s a question of the statutory language, does it actually confer this power on the president? And then the third question is, if so, have the conditions that Congress set for the exercise of this power by the president been met? All of those questions arise every time this question of the president’s tariff power comes up, and it’s going to keep coming up as the administration looks to new sources of statutory authority to impose tariffs.
Laura Bondank-Harmon: All right. Thank you for that synopsis, I appreciate it. Now, obviously, the court said that IEEPA — specifically the statute IEEPA — does not justify these tariffs, but that hasn’t stopped the Trump administration from trying to work around that decision and figure out new ways to impose tariffs using other statutes that may or may not confer that power. Ilya, can you explain some of these statutes and how the administration is currently trying to rely on them to impose new tariffs?
Ilya Somin: Yeah, there are at least two that they’re using to try to impose sweeping tariffs on the entire world, and one potentially against Canada.
In the immediate aftermath of the Supreme Court ruling, almost the same day, the administration announced they’re going to use Section 122 of the Trade Act of 1974 to impose new 10 percent tariffs on most imports from countries around the world. Section 122 is sort of a historical artifact, because it was enacted to allow for the imposition of tariffs when there’s a global balance-of-payments crisis that creates severe balance-of-payments deficits for the United States. What is a balance-of-payments deficit? This isn’t completely clear, but it seems to relate to what existed under the Bretton Woods International Monetary System, which was in place from 1944 to 1973, when, among other things, the U.S. promised to exchange dollars for various foreign currencies at fixed exchange rates — or rather, other countries promised to exchange their currencies for dollars at fixed exchange rates, and the U.S. in turn promised to exchange dollars for gold at a fixed rate. So if there were too many people seeking to exchange dollars for gold, we might not have had enough gold to meet the demand.
In the early 1970s, there was a crisis in this system, and Section 122 was enacted at a time when it was thought that the system, or something like it, might be reinstated, so the U.S. could use tariffs to balance the situation — to deal with something like what occurred in the classic James Bond movie Goldfinger, where Goldfinger plots to blow up the U.S. gold reserve at Fort Knox, which would not only increase the value of his own gold stocks but would also have destroyed the international monetary system as it existed at the time.
Anyway, contrary to expectations, since 1974, when this law was drafted, the Bretton Woods system — nor anything like it — has ever been reinstated. We now have flexible exchange rates, and therefore it’s simply not possible to have this kind of balance-of-payments deficit anymore, which is why nobody had ever previously used Section 122 tariffs. Meanwhile, the Section 122 tariffs, for the moment at least, are suspended, because they can only last for 150 days. If the Trump administration were to win this case, they could potentially just announce a new balance-of-payments crisis and reimpose them.
For the moment, though, they’ve instead sought to use Section 301 of that same Trade Act of 1974, which allows the U.S. to impose tariffs on trading partners whose unfair, discriminatory trade policies burden U.S. exports in various ways. Trump has used this to impose either 10 or 12.5 percent tariffs on 80 trading partners — virtually all of our major trading partners — on the pretext that they’re allowing goods made from forced labor to somehow affect U.S. exports, even though with the vast majority of these countries there’s no real evidence of any forced labor. We’re talking about countries like the European Union, Canada, Australia, and others whose restrictions on forced labor are frankly at least as tough as those the United States itself has. This is also being challenged in court, in two lawsuits that were filed just a few days ago. We’ll see how they turn out.
And finally — this is a narrower set of tariffs than Section 122 or Section 301 — Trump is very angry and unhappy at Canada, and he announced recently that he wants to use Section 338 of the Smoot-Hawley Tariff Act of 1930 — yes, the very same one that helped exacerbate the Great Depression — to impose 50 percent tariffs on Canada in retaliation for tariffs they’ve imposed on some U.S. products, which of course were imposed in retaliation for tariffs that Trump himself imposed on Canada earlier in his second term. Those tariffs are scheduled to take effect on August 19th. Whether they actually will or not remains to be seen.
Laura Bondank-Harmon: To what extent can courts question the executive’s declaration that there’s a problem or crisis that needs to be addressed by the imposition of tariffs?
Ilya Somin: Yeah. So for all of these statutes we’ve been talking about, the executive needs to claim that there’s some sort of problem, crisis, or emergency that the tariffs are addressing. And there are questions about whether the judiciary can consider or reject the executive’s claims that these facts actually exist. I would argue it’s very important for the judiciary not to simply take the executive’s word that a problem actually exists, because otherwise a power that’s only supposed to be used in an extraordinary situation becomes a blank check the president can invoke any time he wants, which makes a hash out of the statutory text. It also undermines the rule of law, because it essentially makes the tariff power subject to one person’s whims — if tariffs can be raised or lifted any time one person feels like it, if he wakes up on the wrong side of the bed, or gets mad about recent wildfires in Canada, as Trump has done (he’s threatened to impose additional tariffs on Canada because of those wildfires, even though it’s likely the Canadian government was not at fault in any way). So this is both legally dubious — the idea that the executive should get total deference in this area — and it leads to serious practical problems if we allow that kind of deference to go on.
Laura Bondank-Harmon: And Clark, what do you think? Do you think courts have the power to review these decisions?
Clark Neily: I think they have to. It’s a very uncomfortable position, frankly, for judges to be in, because essentially what they’re doing is saying, potentially, that the president is lying — or at least being disingenuous — in finding that the conditions for invoking some of these statutory provisions have been met, when it’s fairly clear in some instances that they have not been met. And as Ilya was saying, you really can’t even have a trade imbalance, or a — what is it?
Ilya Somin: A balance-of-payments deficit.
Clark Neily: A balance-of-payments deficit — any more than you can have a problem with a woolly mammoth trampling your yard, because it doesn’t exist anymore. The conditions for it don’t exist. But what do you do when you have an executive who’s prepared to say with a straight face that these conditions have been met? “I find that Canada is discriminating against our trade. I’m not imposing this tariff because my feelings got hurt by perceived disrespect the last time I had a phone call with the head of this country” — which happens. So I think it’s a potentially uncomfortable position for courts to be in, but I think they have to step up nevertheless. Otherwise, as Ilya was saying, we’ve got a situation where the words on the page don’t mean anything. These powers are restricted unless certain conditions are met, for a reason — and sometimes for very good reasons. We don’t want a situation where a president can, in effect, wield the tax power willy-nilly whenever he sees fit, as opposed to the very limited conditions Congress has chosen.
Laura Bondank-Harmon: Now, shifting gears a little bit — Ilya, certain members of Congress are working on a bill that would give the president the power to impose sanctions. The bill’s text says the president can exercise IEEPA’s enforcement authorities under Sections 203 and 205 of the statute to carry out these sanctions. Why does that matter legally?
Ilya Somin: So legally, obviously, this would give him new authority. In the case of these particular trading partners — countries that rush in to buy Russian oil and natural gas — he’d be able to use IEEPA to impose tariffs, whereas before, as the Supreme Court said, IEEPA could not be used to impose tariffs at all. Now, it still wouldn’t be the case that he could use IEEPA to impose any tariffs he wants on any nation for any reason. But as I understand it, this law, if it passes — which it likely will — would allow him to impose tariffs on the five largest purchasers of Russian oil, and possibly also natural gas, so long as they were purchasing at least 15 percent, I think, of Russia’s total oil exports. So it would give him this tariff authority to be used against up to five countries.
Laura Bondank-Harmon: And the bill uses the term “sanctions.” How distinct are the concepts of sanctions and tariffs in this context?
Ilya Somin: Not very. I think a sanction, the way the word is usually used, is some kind of policy we adopt to punish or incentivize foreign governments who are doing something we want them to stop — the idea being that if we sanction it, that gives them an incentive to stop. There are many different kinds of sanctions that have been used at various times, but in this case, tariffs would be used as a sanction, though obviously that’s not the only thing tariffs have historically been used for.
Laura Bondank-Harmon: Now, Clark, we’ve touched on some of the constitutional issues regarding the president’s power to impose tariffs during this episode, but I want to understand why the Constitution gives Congress, not the president, the power to tax and impose tariffs, and what are some of the consequences of delegating these powers to the executive branch?
Clark Neily: It’s a really important question, and there’s a fairly clear answer, which is that throughout history — and certainly including the history of our own country — the power to tax has been one of the most controversial powers government has. It’s been described by many, including our Supreme Court, as “the power to destroy.” So it matters tremendously who gets to wield that power, and how accountable those imposing taxes end up being to the electorate. Our Constitution has a number of provisions that significantly restrict and guide the exercise of the taxing power, including the requirement that bills to raise revenue must originate in the House, which is the most accountable branch of government, since its members all have to stand for re-election every two years. So the founders’ desire to ensure the tax power was particularly restricted and particularly democratic — or at least accountable — is unmistakable.
The reason for that is, again, because it’s a power that’s extremely tempting for governments to exercise, since governments tend to want to expand, and to expand they require additional funding. It’s a power that can get us into a lot of trouble when it’s abused, as we can see from our — I haven’t checked lately, but I think we’re now above a $40 trillion deficit. So there are very good reasons to constrain this power, and I think the founders very clearly went out of their way to do so. What we’re seeing now is a kind of push-pull between not only the executive branch and Congress, but in some ways the Constitution itself, over how faithfully these restrictions on the tax power should be applied. And of course, as we’ve discussed, it involves questions of delegation — can Congress delegate this power to the president? And major questions arise — has Congress delegated this power to the president? But the constraints are there, and hopefully the Supreme Court will continue to make a real effort to enforce them, as it has so far. I think it’s terribly important that trend continues.
Ilya Somin: If I might briefly add to that — the founders had learned from British history on this. In the 17th century, British monarchs, most notably Charles I, had sought to impose taxes by abusing emergency powers without going to Parliament for approval. Charles I famously, or notoriously, imposed so-called “ship money” taxes without parliamentary approval. Ship money was a long-standing tradition in Britain, where in a time of threatened naval invasion, you could impose taxes on coastal communities to build warships and facilities to repel the invasion. Charles I said, well, I can impose this not just on coastal communities but on the whole country, and I get to be the sole judge of when there’s a real threat of invasion or not. This led to litigation and an outcry — it was one of the causes of the English Civil War, and literally one of the reasons King Charles I lost his head. The founders learned from this experience. They were determined that no one person should be able to impose taxes on his own — it can only be done through a representative legislature — and therefore the risk would be lower.
Laura Bondank-Harmon: All right. Ilya, can you tell us what some of the consequences of these tariffs have been for Americans, and how they’ve impacted international trade?
Ilya Somin: Sure. The consequences are basic economics 101 — this is one of those issues economists across the political spectrum agree on. When tariffs are imposed, they lead to higher prices for the goods in question, not just the imported goods but American goods in the same market as well, because American producers can raise their prices too. So consumers pay higher prices, which disproportionately hurts the poor and disadvantaged, but really hurts everybody. In addition, American business slows down and becomes less productive, because many imported goods are factors of production — that is, we import goods that then get used in products made in the U.S. So while the claim is that this will somehow save American manufacturing, over the last year since Trump first imposed his massive tariffs, American manufacturing production has actually gone down, because there are now higher prices for many of the inputs American manufacturers use. Overall, this makes the American economy less dynamic and less efficient, so we get slower growth — which in any one year may seem relatively small, but over a cumulative period of five, ten, or fifteen years, it gets very substantial, and we end up significantly poorer than we otherwise would be.
Laura Bondank-Harmon: One final question for you both. Given how the Trump administration is behaving, what can we expect the future of U.S. tariffs to look like? Is it going to be a never-ending battle of finding ways to regulate international commerce under the claim of “America First”? Clark, let’s start with you.
Clark Neily: I would say it could well be, but it doesn’t have to be. If we had a more functional Congress, I think this would be a wake-up call to members of both parties that the various statutes that may or may not provide tariff authority to the executive branch have got to be overhauled, clarified, and significantly narrowed. This is not a power that should be exercised lightly, and as I hope readers or listeners will take from this discussion, it’s a power that ought to be exercised as democratically as possible, by a branch that’s accountable to the people for the exercise of these powers. We’re suffering from bad policy right now, and there should be consequences for that. Whether that’s going to come to pass, I can’t say. I wish I could feel more confident, but we have a Congress that seems to have largely checked out of its role in the constitutional order, and maybe this will be the pinch point that gets it back in the business of legislating. But I wouldn’t bet on it.
Laura Bondank-Harmon: Ilya, any final thoughts from you?
Ilya Somin: There’s much that both the courts and Congress could do to reduce this problem. The simplest solution, as Clark already suggested, is for Congress to just repeal or significantly narrow all these statutes that delegate tariff authority to the president, because even when they’re used as intended, as opposed to in a highly abusive way like Trump has done, they’re still harmful. If they don’t want to repeal it completely, they could at least make the conditions for using these tariffs tighter, and make clear that courts can engage in non-deferential judicial review of whether those conditions have actually been met.
Courts can also do a better job in this area. One thing they can do is, when they rule against tariffs, enforce that decision immediately, rather than staying it until all appellate litigation is concluded. In our case last year with the IEEPA tariffs, we got a fairly quick decision from the U.S. Court of International Trade, which imposed an injunction blocking the tariffs — but then the federal circuit, the appellate court, stayed that injunction until all appellate litigation was concluded. That took almost another year, during which something like $166 billion in illegal tariffs was collected, and grave damage was done to the U.S. and world economy. So my hope is that courts can learn from that mistake — we’ll see.
I also think that if courts continue to firmly rule that the president cannot have sweeping, nearly unlimited tariff power, investors, consumers, and foreign trading partners will know that when presidents engage in tariff power grabs, they’ll almost certainly and hopefully quickly be struck down by courts, and so they won’t structure their expectations around those tariffs persisting. So courts can do a better job in this area. Congress can do a better job too, but it remains to be seen whether they will.
Clark Neily: I want to add one thing, Ilya, and correct me if my memory is mistaken — one of the reasons the injunctions were stayed by the courts of appeals was the representation from the Trump administration that we don’t need these injunctions, because we’ll just refund any tariffs we collect if it turns out the tariff is struck down. It didn’t turn out that way exactly, did it?
Ilya Somin: Yeah. So they did say that, but it’s now been, I think, more than five months since the Supreme Court decision, and many of the tariffs that were collected still haven’t been refunded — I think anywhere from a third to a half haven’t been refunded. There are now refunds going out at a pretty significant clip, finally. But even if every single dollar gets refunded, with interest, there’s damage that can’t be dealt with that way. For instance, many consumers — probably including most of the listeners of this podcast — have probably paid higher prices as a result of those tariffs. Guess what: there’s no legal mechanism for giving you a refund for that, or compensating you in any way. There’s not even a way to calculate how much you, as an individual, paid in higher prices. Many businesses lost sales, because higher prices reduce sales — there’s no way to compensate for that. There’s no way to fix the reduced economic growth, or the various other kinds of damage that can’t be undone. All of these are reasons why it’s good to enjoin illegal tariffs quickly, and not stay the injunction until appellate litigation is over.
Laura Bondank-Harmon: Well, let’s hope future courts take note of all that. And while tariff refunds are a little outside the scope of this episode, I know that Cato’s Trade Policy team has written extensively on the issue, so for anyone interested in learning more, you can visit our Trade Policy team’s work at Cato.org.
I want to thank you both for joining us today, and thank you for listening to today’s episode of the Cato Podcast. If you’ve enjoyed today’s discussion, please subscribe and leave a review wherever you get your podcasts. To learn more about the ideas and research discussed in this episode, visit Cato.org. The Cato Podcast is a production of the Cato Institute, dedicated to advancing individual liberty, limited government, free markets, and peace. Join us next time for more insights and conversations on the issues shaping our world.
