Tariffs, Embargoes, and License Fees

Peter E. Harrell & Jennifer Hillman (Lawfare) had an interesting post yesterday, "Unexpected Questions in Learning Resources v. Trump," with the subtitle "Are IEEPA tariffs permitted as either a lesser form of an embargo or the equivalent of a license fee? In short: no." An excerpt:

The first unexpected issue that merited extensive discussion [at the oral argument in the tariff case] is one of the most intuitively appealing arguments in favor of the government's case: IEEPA clearly authorizes a president to embargo or block all trade, and presidents have used IEEPA with little challenge to impose trade embargoes against countries such as Iran and North Korea. If IEEPA authorizes embargoes, shouldn't the statute include the seemingly lesser power to tariff? Several justices were interested in whether, if IEEPA allowed embargoes but not tariffs, there would be—as Justice Brett Kavanaugh put it—an "odd donut hole in the statute." …

This argument has a certain intuitive appeal. However, it is wrong as a matter of both text and history. As Gutman said when he was pressed on the issue, the lack of a tariff power in IEEPA is "not a donut hole" but, rather, reflects that tariffs are "a different kind of pastry."

First, as a matter of history, Congress has often delegated an embargo power to the president without delegating a subsidiary tariff power. In 1794, for example, Congress delegated to President Washington a broad power to impose or remove an embargo on U.S. trade during the five months that Congress planned to be out of session. This law empowered the president to block or allow effectively all U.S. trade, but it did not empower him to change statutory tariff rates. When Congress initially passed IEEPA's predecessor statute, the Trading with the Enemy Act (TWEA), in late 1917—several months after America's entry into World War I—it both included an expansive prohibition on trade and financial transactions with enemy nationals and authorized the president to suspend certain prohibitions and/or issue licenses authorizing American companies to engage in transactions that would otherwise be prohibited. But TWEA did not authorize President Wilson to set new tariff rates on trade with Germany or any of its allies.

In recent decades, Congress has enacted additional sanctions and other embargoes on countries such as Cuba and Iran but did not empower the president to raise tariffs on those countries. In 2022, following Russia's invasion of Ukraine, President Biden used IEEPA to impose myriad sanctions on Russia, including to embargo imports of various products, such as Russian oil. But it was Congress that in April 2022 voted to repeal Russia's most-favored-nation trading status and to authorize the president to raise tariff rates on Russia. This suggests that neither Congress nor the president viewed IEEPA as providing the authority to raise tariffs without congressional action.

Second, as a matter of textual analysis, there is little support for the government's argument that IEEPA includes a power to tariff as a derivative of an embargo power. In its briefings to the Court, the government cited several dictionary definitions of "regulate," but none of those definitions included words such as "tariff," "tax," or "duty." As the justices drew out at oral argument, the government can identify no other statute in which the power to regulate something—such as the power to regulate pollution or to regulate securities trades—has included the power to tax it, unless the statute explicitly authorized a tax or a fee. And as Justice Barrett noted at oral argument, in IEEPA the power to regulate occurs alongside a set of other powers—such as to "direct" and to "prohibit"—that have discrete meanings, suggesting that "regulate," too, should be read to have a discrete meaning rather than being an open-ended authority for the president to do whatever he sees fit upon invoking IEEPA. This is also consistent with Congress's desire to give the president direct control over stopping trade if a national emergency necessitates such action, whereas the imposition of tariffs cedes that control to U.S. importers, who can decide whether to continue importing and pay the tariffs or not.

There's much more there on that, and on what "licenses" means in IEEPA; read the whole thing if you're interested. My Hoover colleague Philip Zelikow, who cosigned an amicus brief in the case, adds a complementary perspective:

Embargoes are about blocking trade, not taxing it. Licenses are about whether to grant permissions to trade, not whether or how to tax it. Fees are only incidental to the grant of permission.

These are measures that originate in actions the U.S. takes against its enemies (or the analog in designated firms and persons). The legal authority to block trade historically overlapped with wartime measures and war powers.

Laws governing commerce with countries with whom we have normal trade relations are in a fundamentally different category. The President could treat a country as an enemy and block trade with it. But he cannot tax normal commerce on his own authority, or the emergency authorities granted in IEEPA….

Harrell & Hillman's last argument, the one about whether the tariffs can be defended as "regulatory" rather than "revenue-raising," is also well stated. [I] also don't think there is such a creature as a "regulatory" tariff, a tax that becomes lawful, without congressional authorization, if paired with that adjective. But if someone did believe in that, Harrell & Hillman explain why it can't be distinguished from the taxes that raise revenue.