Congress Should Reform This Trade Law Before It’s Too Late
Fortunately, after a week of negotiations the White House reached an agreement with Mexican officials that averted last spring’s threatened tariff hikes. Setting aside the questionable logic of raising taxes on Americans to influence international migration flows, the president’s reversion to tariffs as a catch-all solution to problems is a troubling trend. While Congress would be wise to curb the Executive Branch’s unilateral tariff authorities under a number of overly broad statutes, it should not lose sight of the need to reform the International Emergency Economic Powers Act (IEEPA), which underpinned the Mexico tariff threat. Little-noticed progress has already been made on this front: Last July, the Senate Homeland Security Committee passed by voice vote—as part of a broader bill—legislation that would prohibit using the IEEPA to impose tariffs or quotas. The language passed is identical to a standalone bill introduced by Senators Tom Carper (D-Del.) and Pat Toomey (R-Pa.), the Trade Certainty Act (S. 2413).
Although most laws that delegate congressional responsibilities to the executive are arguably too expansive, the IEEPA’s language is especially sweeping. Embedded within the act’s laundry list of permissible presidential authorities is the ability to “regulate […] the importation or exportation of […] any property in which any foreign country or a national thereof” has “any” interest. The Carper-Toomey proposal simply enumerates, consistent with the thrust of a 1977 update of the IEEPA, that the law was never intended as a mechanism for imposing unilateral tariffs. The bill excludes the IEEPA from being used to levy tariffs, quotas or tariff-rate quotas, and clarifies that “absolute” quotas—i.e., embargoes—are still permissible.
Passing this straightforward, commonsense reform would have numerous benefits and virtually zero costs. First, the IEEPA has yet to be used by the Trump administration to impose tariffs, which means the law may be politically easier to reform than Section 232 or Section 301—shorthand for the trade statutes that have been used to justify tariffs on steel and aluminum, goods from China and potentially foreign automobiles. To be clear, Congress should consider amending these other statues as well, particularly Section 232, in a manner that increases Congress’s constitutional responsibility over trade policy. But the IEEPA should not be ignored in the process.
Second, unlike Sections 232 or 301, the IEEPA was never envisioned as an executive authority to impose tariffs; rather, it was written to give the president power to rapidly impose financial sanctions in the face of an “unusual and extraordinary threat.” This is because the IEEPA is one of 124 emergency powers the president may invoke pursuant to the National Emergencies Act (NEA). The IEEPA has been invoked 54 times under the NEA, but only once in history to impose tariffs, when, in 1971, President Nixon invoked IEEPA’s predecessor statute, the Trading With the Enemy Act (TWEA), to proclaim a 10 percent blanket tariff on all dutiable goods entering the United States (approximately 52 percent of all imports). The purpose of the tariff—part of a package of monetary measures now known as the “Nixon shock”—was to address an international balance of payments issue and compel foreign countries to devalue their currencies against the dollar. When the tariffs were legally challenged, the U.S. Court of Customs and Patent Appeals conceded that the statue’s language was broad enough to empower the president to “regulate importation,” but only “during war or during national emergency.” The Court also cautioned that the selected remedy under the IEEPA should match the diagnosis, and emphasized that its decision to uphold the legality of Nixon’s import surcharge did not rubber stamp future tariff actions where the action was “not reasonably related to the emergency declared”—see Yoshida International v. U.S. (1975).
Finally, narrowing the scope of the IEEPA to exclude tariffs and quotas would inject a much-needed dose of certainty into the international trade ecosystem. There is no doubt that the unprecedented tariff hikes of the past two years have had a deleterious impact on the United States. In August 2019, the nonpartisan Congressional Budget Office (CBO) noted that the United States had levied new tariffs on 11 percent of all imported goods as of January 2018, which in turn provoked retaliation against 7 percent of American exports. The CBO projected that these trade barriers would reduce both real output and real household income: By 2020, GDP would be reduced 0.3 percent and annual household income would decline $580 in real dollars. Other well-regarded studies have similarly concluded that recent trade tensions have had a negative impact on economic growth.
For many trade policy watchers, the IEEPA has become a proverbial elephant in the room—a vaguely-worded, wide-ranging delegation of economic powers that the White House has yet to dispatch in pursuit of increased trade protectionism. In addition to using IEEPA as an immigration policy tool, there is reason to suspect that the White House may try to use IEEPA authorities as part of the ongoing trade war with China—especially if China fails to meet unrealistic purchase agreement commitments under the latest deal. In August 2019, President Trump tweeted that American companies were “ordered to immediately start looking for an alternative to China”—presumably as a source of manufacturing labor—and claimed that the IEEPA permitted him to make such a proclamation. Although restricting the IEEPA’s applicability to tariffs would not necessarily resolve these China-specific threats, it would at the very least signal that Congress is willing to reassert its constitutional responsibilities to regulate international trade.
Waiting for President Trump—or a future President Sanders—to rediscover the IEEPA is to play a risky game of tariff roulette. Congress should instead act preemptively and, consistent with the original intent of IEEPA, clarify that the law is not a unilateral delegation of tariff powers to the Executive Branch. After all, trade is fundamentally a Congressional power.
Image credit: Avigator Fortuner