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.

Comments

[ah....Clem]

This shouldn't be this complicated. IEEPA does not grant the administration the ability to impose tariffs, and there is no "emergency" regarding trade deficits.

It's absurd that this has been strung out for so long. The tariffs should have been nuked at the district court level and the appeals denied cert by the circuit and supreme courts.

[SRG2]

I am looking forward to how Thomalito will tie themselves into knots to support Trump's tariffs.

[steve sturm]

While I agree with the paper’s arguments, aren’t they mooted if the Court simply declares that there is no such emergency that triggers whatever presidential power might exist under the IEEPA, in effect kicking the tariff can down the road?

And since the Court supposedly likes more narrow decisions, why wouldn’t they simply take this option?

[Rossami]

That would require stepping into the standards for a declaration of emergency - and on that question, Congress has a long history of being very generous ot presidential discretion.

In other words, while it would allow for a narrower decision if SCOTUS found there was no emergency, it is more likely that SCOTUS would say that the president has the discretion to declare the emergency (at least, until Congress explicitly says otherwise - and they have not), putting us right back to the same place.

[ReaderY]

This court seems to be going out of its way to find ways of saying the Trump administration lacks the legal power to do something without saying that Trump lied. Note their request for briefing in the National Guard case on whether the term “the regular forces” refers to regular military forces.

From a hiding-under-a-rock purely legal viewpoint, this might seem a stronger ruling than saying there is no emergency. But if the court days there is no emergency, it is saying Trump lied, putting itself into direct political confrontation with Trump. It appears to consider that to be effectively the broader decision in these circumstances.

[ReaderY]

That is, deciding cases based on the law rather than the facts would normally be considered a broader ruling. But in current circumstances, if the court focuses strictly on legal interpretation and says “sorry, the law just doesn’t let you do this,” it is being considerably less confrontational than if it delved into facts and said “you’re wrong!” with its implication of “you lied!” One is impersonal; it’s just the way things are. The other is, or could easily be taken as by a person of a certain personality, a very personal affront.

We are in some danger of the judiciary and its processes and orders being completely ignored, totally bypassed. The Court is aware of the danger.

[F.D. Wolf]

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.

I can identify such a statute.

The Sugar Act of 1948 set overall limits and quotas for sugar imports, under which 77% of sugar imports came from Cuba. In 1960, after Castro took over, Congress amended the Sugar Act to allow (but not require) the President to reduce a country's import quota. Upon reducing a quota, the amended statute allowed the President to set conditions for the importation of sugar to offset the reduction.

For the purposes of meeting the requirements of consumers in the United States, the President is thereafter authorized to cause or permit to be brought or imported into or marketed in the United States, at such times and from such sources, including any country whose quota has been so reduced, and subject to such terms and conditions as he deems appropriate under the prevailing circumstances, a quantity of sugar, not in excess of the sum of any reductions in quotas made pursuant to this subsection.

The phrase "subject to such terms and conditions as he deems appropriate" certainly does not "explicitly authorize[] a tax or fee", yet President Eisenhower used it to impose one. Eisenhower reduced the Cuban quota from 77% to zero and imposed an "entry fee" of two cents per pound on replacement sugar imports from the Dominican Republic. (Call it a "fee", "license", or "tariff", it is functionally the same thing.)

A sugar importer sued to recover $6.9 million in said "entry fees" it had paid. The question before the courts was whether the statute had authorized Eisenhower to impose such a fee. The Court of Claims, in a 4-1 decision, held that it had. South Puerto Rico Sugar Co. Trading Corp. v. United States, 334 F.2d 622 (Ct. Cl. 1964), cert. denied, 379 U.S. 964 (1965).

It is suggested, however, that — whatever may have been the foreign-policy gain from the fees and however laudable the objectives — the President could not seek to attain those ends by imposing a monetary exaction on importers. Although it may be otherwise consonant with the basic Congressional directive in the statute, a monetary imposition (it is said) is so close to a tax or a customs duty that it can be levied only by Congress itself, or pursuant to a very explicit Congressional authorization. We think that the Supreme Court has already given the answer. In J. W. Hampton, Jr., & Co. v. United States (1928), involving presidential power to increase or decrease customs duties under the Tariff Act of 1922, the Court said, through Chief Justice Taft:

"It is conceded by counsel that Congress may use executive officers in the application and enforcement of a policy declared in law by Congress and authorize such officers in the application of the congressional declaration to enforce it by regulation equivalent to law. But it is said that this never has been permitted to be done where Congress has exercised the power to levy taxes and fix customs duties. The authorities make no such distinction. The same principle that permits Congress to exercise its rate-making power in interstate commerce by declaring the rule which shall prevail in the legislative fixing of rates, and enables it to remit to a rate-making body created in accordance with its provisions the fixing of such rates, justifies a similar provision for the fixing of customs duties on imported merchandise."

History furnishes both the detailed support for, and the content of, this proposition. As we have already indicated, in the foreign field the President can utilize a general statutory authorization to take steps which, in the domestic area, might call for specific legislative action or perhaps a narrower delegation from Congress. Under broad grants, the President has imposed and lifted embargoes, prohibited and allowed exports, suspended and resumed commercial intercourse with foreign countries.

Id. at 633 (citations omitted).

[Lee Moore]

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.

Which is a straw man. The question is whether tariffs are a form of regulation, not whether a tariff can only be a means of raising revenue that doesn’t regulate, or a means of regulating that raises no revenue. Obviously it can do both at the same time, and the fact that it raises revenue does not prevent it being a regulation of trade.

H and H make some good policy arguments against conceding that tariffs are a form of regulation. Other taxes could be raised on the back of other forms of regulation and we wouldn’t want that. But such policy considerations are legally irrelevant.

But they also make some feeble arguments, such as the idea that since tariffs are not to be found in dictionary definitions of “regulate” they can’t be regulation. But regulation is a concept whose members are legion. Here’s the constitution :

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes

That little sentence encompasses probably the majority of the US Code, and those parts of the Code contain countless examples of regulation that never get a mention in the dictionary.

[David Nieporent]

Which is a straw man. The question is whether tariffs are a form of regulation, not whether a tariff can only be a means of raising revenue that doesn’t regulate, or a means of regulating that raises no revenue. Obviously it can do both at the same time, and the fact that it raises revenue does not prevent it being a regulation of trade.

The fact that it raises revenue makes it a tax. The administration's position is that if something is intended to regulate, it isn't a tax.

[Lee Moore]

This claim would be stronger if it were true. But in fact it is not. This, from the government's own brief, refutes it :

In the context of commerce or trade, that
self-evidently encompasses the imposition of monetary
exactions, such as taxes or tariffs, to adjust or control
the trade. “The laying of a duty on imports, although
an exercise of the taxing power, is also an exercise of
the power to regulate foreign commerce.” McGoldrick
v. Gulf Oil Corp., 309 U.S. 414, 428 (1940).

[Stephen Lathrop]

Lee Moore — Sure, for meanings of, "refute," limited to typical right-wing discourse, where self-serving ipse dixit denials pass as, "refutations." It has not, by the way, been hard to discern why that distortion has become a commonplace favorite among right wingers

To put your misunderstanding into a less vulnerable context, it is a problem to call a tariff a regulation of foreign commerce, because a tariff does not act primarily on foreign commerce. It acts primarily to tax American consumers.

Trump/MAGA thinks a tariff ought to be styled, "regulatory," only because that hands Trump a lever never endorsed by Congress to extort foreign governments, over any issue at all. Those include everything not related to commerce, taxation, revenue, or regulation. Really, everything, without limit.

A notable problem with that—much on display in Trump's case—is that it invites foreign powers to parry with bribery of the President—or his family members—in response. While still doing nothing to change the character of the tariff as tax on Americans.

The result? You posit a legitimate tax on Americans which can be used to empower Trump to demand bribes from foreign nations to enrich his daughter, or himself. Maybe rethink that.

And note too, that extortionate power is not limited to foreigners. It can be exercised readily over rich Americans who have foreign interests to protect.

[Lee Moore]

You're such a doofus 🙂

Nieporent's comment and my reply to it aren't even about the question of whether tariffs are regulations of foreign commerce.

They're about whether the government, in its argument before the Supreme Court, claimed that a tariff isn't a tax if it is intended to regulate.

[Stephen Lathrop]

In government, loose money makes all power fungible. Loose money also opens opportunities for political office holders who ought to be constrained to instead compete for sovereign power.

There can be no historical argument against the notion that American constitutionalism was structured to use the power of the purse as the ultimate and most-powerful constraint on executive overreach. Thus, any argument that a tariff exercised as a means to increase executive regulatory power could exist is contrary to American constitutionalism.

With a *regulatory* tariff in place, whatever a president could regulate, he could also exploit as a source of money to bypass the power of the purse. Every rich American with a foreign interest to protect would be subject to shakedown, or, alternatively, offered a choice for largesse at the expense of victimized rivals. Rich foreigners and potentates would be likewise vulnerable. But ultimately, the most vulnerable would be ordinary Americans, who found themselves taxed to support misrule by despots they had become powerless to control.