Trump's Rationale for His New Tariffs Contradicts the Position He Took Before His Supreme Court Defeat
The president is relying on a provision that the government's lawyers said had no "obvious application" to his goal of reducing the trade deficit.
Shortly after the Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not empower the president to impose tariffs, the Trump administration invoked one of several statutes that do explicitly authorize import taxes: Section 122 of the Trade Act of 1974. In a proclamation issued on Friday, President Donald Trump relied on that provision to impose "a temporary import surcharge of 10 percent." In a Truth Social post the next day, he raised that "surcharge" to 15 percent, the maximum rate allowed by Section 122.
The official rationale for this use of Section 122 contradicts the position that the government's lawyers took while defending Trump's interpretation of IEEPA. Before the Supreme Court rejected his reading of that law in Learning Resources v. Trump, the administration argued that Section 122 was an inadequate substitute because it addressed just one aspect of the concerns that led Trump to declare a "national emergency" involving the supposedly "unusual and extraordinary threat" posed by the longstanding U.S. trade deficit in goods. Now the White House has recharacterized those concerns to justify Trump's invocation of Section 122.
That provision authorizes tariffs to address "large and serious United States balance-of-payments deficits" that present "fundamental international payments problems." According to a White House "fact sheet," that language fits Trump purposes because the newly announced tariffs "can stem the outflow of [U.S.] dollars to foreign producers and incentivize the return of domestic production." And "by increasing its domestic production," the White House adds, "the United States can correct its balance-of-payments deficit, while also creating good paying jobs."
In other words, the goal of boosting U.S. manufacturing—the main rationale for the "reciprocal" tariffs that the Supreme Court said were illegal—is perfectly consistent with the goal of addressing "fundamental international payments problems." But the government's lawyers were singing a different tune when they defended Trump's claim that IEEPA gave him "the power to impose tariffs on practically any products he wants, from any countries he chooses, in any amounts he selects," as Justice Neil Gorsuch put it in his Learning Resources concurrence.
That case was combined with Trump v. VOS Selections, another challenge to the president's interpretation of IEEPA. After the U.S. Court of International Trade (CIT) ruled against Trump in that case, Assistant Attorney General Brett Shumate urged the U.S. Court of Appeals for the Federal Circuit to overrule the CIT's decision and reject the lower court's take on Section 122.
"Congress's enactment of Section 122 indicates that even 'large and serious United States balance-of-payments deficits' do not necessitate the use of emergency powers and justify only the President's imposition of limited remedies subject to enumerated procedural constraints," the CIT had said. "Section 122 removes the President's power to impose remedies in response to balance-of-payments deficits, and specifically trade deficits, from the broader powers granted to a president during a national emergency under IEEPA by establishing an explicit non-emergency statute with greater limitations."
Not so, Shumate and his colleagues argued. Section 122 "cannot be read to narrow the President's IEEPA authority," they told the Federal Circuit. "Section 122 authorizes measures to address non-emergency balance-of-payments concerns. And IEEPA supplies a distinct, complementary authority to address balance-of-payments concerns and other issues when they constitute emergencies." In fact, the brief said, Section 122 does not have "any obvious application here, where the concerns the President identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of- payments deficits."
Neal Katyal, the attorney representing the U.S. businesses that challenged Trump's tariffs in VOS Selections, questioned that distinction during oral argument on July 31. "I don't think that there's a difference between balance of payments and trade deficits," he said. "The largest component of the balance of payments is the trade deficit."
Katyal noted that the Commerce Department had been tracking the balance of payments since 1922. "The first entry in that ledger is the export of the debits, and that's the imports coming into the country," he said. "And then the first entry on the other side is the exports," which are "the biggest component of it."
After the oral argument, trade policy experts Marc L. Busch and Daniel Trefler likewise noted that "goods trade is the dominant component of the current account, which is at the heart of the balance of payments." The upshot, they said, is that "more than 90 percent of the balance of payments is the trade deficit."
By contrast, Judge Richard Taranto, who ended up dissenting from the Federal Circuit's decision against Trump, thought the government's lawyers had raised a valid point. During oral argument, Taranto noted that Trump's executive order announcing "reciprocal" tariffs aimed at reducing the trade deficit "doesn't mention balance of payments," which he thought "should be obviously one reason that [Section] 122 might not apply." Instead, Taranto said, Trump described "severe deficiencies in our manufacturing capacity" that he attributed to the trade deficit.
While part of the administration's argument is "a linguistic point about balance of payments and balance of trade," Taranto said, "part of it is a more substantive point. If there's going to be a threat to the economy, you have to say what the concrete problem there is."
Section 122 is "all about…monetary problems, exchange rates, reserves," Taranto said. But Trump's executive order "is not about that at all," he continued. "It's about a different set of problems, never mind the label, namely manufacturing deficiencies. [Section] 122 doesn't address that at all."
Katyal offered several responses. "First, it doesn't make sense to think currency is different," he said. "The trade deficits lead to currency depreciation, and so they're part of the same problem. Second, the legislative history of [Section] 122 says that Congress [was] worried about trade deficits, and the oil trade in particular….Third, Section 122 has a separate provision to deal with the currency problems you're talking about. The balance of payments occurs in a totally separate provision, so I think it would be wrong to read Section 122 as only about currency."
In the end, the Federal Circuit's decision did not hinge on the argument that Section 122 itself, by specifying the president's authority to address trade deficits, precluded Trump's use of IEEPA. But the appeals court did cite Section 122, along with other statutes authorizing tariffs, to support its observation that "whenever Congress intends to delegate to the President the authority to impose tariffs, it does so explicitly, either by using unequivocal terms like tariff and duty, or via an overall structure which makes clear that Congress is referring to tariffs." The appeals court thought it "unlikely that Congress intended, in enacting IEEPA, to depart from its past practice and grant the President unlimited authority to impose tariffs," noting that "the statute neither mentions tariffs (or any of its synonyms) nor has procedural safeguards that contain clear limits on the President's power to impose tariffs."
The Supreme Court's reasoning was similar. "When Congress grants the power to impose tariffs, it does so clearly and with careful constraints," Chief Justice John Roberts noted in Learning Resources. "It did neither here."
Under Section 122, those "careful constraints" include a 15 percent cap on tariff rates and a 150-day time limit, which can be extended only with congressional approval. Reason's Eric Boehm suggests that Trump could try to evade the latter limit by letting the tariffs lapse and reimposing them based on supposedly new or persistent balance-of-payments problems. But Trump clearly preferred the unconstrained authority he claimed to find in IEEPA.
Now Trump has switched gears. Instead of insisting that the balance of payments addressed by Section 122 is "conceptually distinct" from the trade deficit and the threat it allegedly poses to U.S. manufacturers, he says the two concerns are pretty much synonymous. And instead of saying Section 122 has no "obvious application" to the supposed problem he wants to solve, he says the provision is clearly relevant. Will that fly?
One difficulty for Trump: The problem addressed by Section 122 does not really exist anymore. "The United States does not have an international payments problem, fundamental or otherwise," notes Bryan Riley, director of the Free Trade Initiative at the National Taxpayers Union, "and has not had one since we adopted a floating exchange rate more than five decades ago."
National Review legal analyst Andrew McCarthy concurs. "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," he writes. "Our overall payments are in balance. There is no crisis."
The contrast between positions on Section 122 before and after the Supreme Court's ruling cuts both ways, however. In the litigation leading up to that decision, Katyal and other opponents of Trump's tariffs argued that the trade deficit and the balance of payments were essentially the same thing, making Section 122 the clear source of authority to address the former. Will tariff opponents now switch to arguing that Section 122 does not actually authorize import taxes aimed at reducing the trade deficit?
Trump, in any case, can rely on other statutes to pursue his protectionist agenda, including laws aimed at protecting "national security," countering allegedly discriminatory trade practices, and helping domestic manufacturers "adjust" to foreign competition. But like Section 122, all of those laws restrict presidential action by specifying acceptable rationales, requiring agency investigations, or limiting the size, scope, or duration of tariff hikes.
Trump sought to evade those "careful constraints" by asserting a previously unnoticed yet sweeping and essentially unreviewable tariff authority under a 1977 law that does not even mention import taxes and had never before been used to impose them. By rejecting that claim, the Supreme Court complicated Trump's trade war. More important, it upheld the rule of law and the separation of powers, much to the president's dismay.
