Within hours of the Supreme Court’s decision striking down his massive IEEPA tariffs in our case challenging them, Donald Trump issued an executive proclamation invoking Section 122 of the Trade Act of 1974 to impose 10% global tariffs, and then upped the rate to 15%. Prominent conservative legal commentator Andrew McCarthy has an insightful National Review article explaining why these new tariffs are also illegal. McCarthy and I differ over many issues. But we agree on this one. Here’s an excerpt:
These new tariffs are even more clearly illegal than Trump’s IEEPA tariffs…..
In Section 122, Congress endowed the president with narrow, temporary authority to impose tariffs “to deal with large and serious United States balance-of-payments deficits” (emphasis added). What Trump is complaining about — something he insists is a crisis but is not — is the balance of trade, not of payments. The United States does not have an overall balance of payments deficit, much less a large and serious one.
A trade deficit between the U.S. and a foreign nation occurs, mainly in connection with goods (which is just one aspect of international commerce), when imports are greater than exports. This is not really a problem for a variety of reasons — e.g., a trade deficit results in an investment surplus, the U.S. is a major services economy and often runs exported services surpluses that mitigate the imports deficit in goods, etc.
The balance of payments is a broader concept than the balance of trade. It accounts for all the economic transactions that take place between the United States and the rest of the world. Even without getting into every kind of transaction that entails, suffice it to say that foreign investment in the United States, coupled with the advantages our nation accrues because the dollar is the world’s reserve currency, more than make up for the longstanding trade deficit in goods.
Our overall payments are in balance. There is no crisis.
It’s vital to understand why Section 122 was enacted. There was a financial crisis in the late 60s and early 70s under the Bretton Woods system, when the dollar was tied to gold. Foreign countries that held dollar reserves could exchange them for gold at a fixed rate. Meanwhile, our government was spending at a high clip due to the Vietnam War and Great Society programs. This and the obligation to pay out gold put enormous pressure on the dollar…
Now, over a half century later, these conditions no longer obtain. The dollar floats and the government does not concern itself with gold parity. The dollar is the global reserve currency, so demand for dollars by foreign nations is robust. We have strong capital inflows and our highly liquid financial markets are the envy of the world. Notwithstanding trade deficits, there is no balance of payments problem.
Nor is it necessary, as Section 122 puts it, to impose temporary tariffs in order “to prevent an imminent and significant depreciation of the dollar in foreign exchange markets[.]”
There is no rationale under Section 122 to impose tariffs. Because President Trump has no unilateral authority to order tariffs, he must meet the preconditions of Section 122 to justify levying them. He cannot. Not even close.
I agree. And I think there are additional reasons why the new Section 122 tariffs are illegal. I will have more to say about them in the coming days.
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