Twenty-Four States Led by Oregon File Lawsuit Challenging Trump's Section 122 Tariffs

The massive new tariffs are illegal, just like the IEEPA tariffs previously invalidated by the Supreme Court.

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Today, 24 states led by the state of Oregon filed the first lawsuit challenging Donald Trump's massive new Section 122 tariffs, which would impose 15% tariffs on most imports from nations around the world. The case is before the US Court of International Trade, which has exclusive jurisdiction over cases challenging tariffs.

I have previously written about why the new tariffs are illegal, much as were the IEEPA tariffs invalidated by the Supreme Court in the case I helped litigate on behalf of the plaintiffs. Here is an excerpt from my recent Boston Globe article explaining why the Section 122 tariffs are illegal:

Section 122 only permits tariffs for up to 150 days in response to "fundamental international payments problems" that cause "large and serious United States balance-of-payments deficits" or "an imminent and significant depreciation of the dollar," or are to cooperate with other countries in addressing an "international balance-of-payments disequilibrium."

As conservative legal commentator Andrew McCarthy explained in National Review, none of these legal preconditions to the use of Section 122 exist….

A balance of payments deficit can only arise in a fixed exchange-rate system, like the one the United States had before 1973, when the federal government took part in the Bretton Woods system of fixed exchange rates backed by US gold reserves. In that situation, the United States could experience a shortage of official currency reserves when demand for dollars at the fixed rate increased, or a shortage of gold arose. Since the introduction of floating exchange rates in 1973, that problem has been eliminated. As Nobel Prize-winning monetary economist Milton Friedman explained in 1967, "a system of floating exchange rates completely eliminates the balance-of-payments problem. The [currency] price may fluctuate but there cannot be a deficit or a surplus threatening an exchange crisis." When Section 122 was enacted in 1974, it was not yet clear whether the flexible exchange rate system would continue indefinitely. Since it did, Section 122 has never been used until now….

The three conservative justices in the majority in [the IEEPA] decision cited…. the "major questions doctrine," which requires Congress to "speak clearly" when authorizing the executive branch to make "decisions of vast economic and political significance."

They concluded that IEEPA did not clearly grant the president sweeping tariff authority. But the same is true of Section 122. At the very least, it is far from clear that it authorizes the president to impose 15 percent tariffs on goods from virtually every nation in the world, in a situation vastly different from that which inspired the law. And the effects of Trump's Section 122 tariffs would be large enough to qualify as a "major question." Within 150 days, the tariffs would impose some $30 billion in taxes on American businesses and inflict serious damage on the economy by raising prices and disrupting production in industries that depend on imports.

That figure would be much greater if Trump can extend the tariffs after the deadline expires. And if he can claim that "fundamental international payments problems" and a balance of payments deficit exist even when they obviously do not, he could likely reimpose the tariffs indefinitely, simply by issuing a new proclamation soon after the prior one expires.

Elsewhere in the article, I also explain why these tariffs violate the nondelegation doctrine.

I am far from alone in concluding that the Section 122 tariffs are illegal. As noted above, Andrew McCarthy takes the same view. See also these more extensive analyses by Phil Magness and Marc Wheat  in National Review and and Stan Veuger and Clark Packard in Foreign Policy, among others.

Oregon also led the state lawsuit challenging the earlier IEEPA tariffs, which was eventually consolidated with our own. I commend Oregon Attorney General Dan Rayfield and Solicitor General Ben Gutman for their leadership in this important cause.

I will almost certainly have more to say about this case later. It is also likely this will not be the only lawsuit challenging the new tariffs.

Comments

[ReaderY]

I agree that there currently isn’t a fundamental imbalance of payments. However, ai disagree with part of Professor Somin’s argument. I think a fundamental imbalance of payments remains possible, under unusual circumstances, in a system of floating exchange rates. So I think the statute is still a meaningful and potentially relevant one.

Let me give a scenario where it could happen. Two conditions are featured in this scenario:

1. The dollar is no longer the world’s reserve currency, and a different currency, let’s say the Yuan, has come to replace it. Trade partners no longer consider the dollar a hard currency. Instead, they demand payment in Yuan. Dollars just aren’t acceptable anymore. Under this scenario, the Yuan occupies a niche analogous to the onw gold had in the Bretton Woods system, as the hard currency that the dollar is valued in relation to. U.S. folks obviously hope this condition will never occur. But it could.

2. A speculation sell-off arises in which the dollar drops well below its fundamental value. This could also happen. Speculation bubbles and depressions disconnected from economic fundamentals happen from time to time. The internet and social media may well make them easier and more likely to occur.

In this case, an imbalance of payments could arise. Importers have to pay in very expensive Yuan, while exporters get a lot fewer Yuan for their goods. And while economic theory predicts that the dollar ought to float to a level that balances out this difference, and perhaps it eventually will, speculative turbulence means that in the here and now, as is often the case where economic theory is concerned, what economic theory predicts simply is not happening.

And viola! A payments imbalance.

[ReaderY]

Moreover, if under Professor Somin’s definition a payments imbalance could NEVER happen, I see that as evidence that Professor Somin’s definition is wong and should be rejected. Courts should always prefer an interpretation that renders a statute meaningful and potentially relevant over one that renders it meaningless. If I misunderstand Professor Somin’s definition and under his definition an imbalance of payments could truly never happen under the post-Bretton Woods system that was in place when Congress passed the statute, that simply shows that Congress had something other than Professor Somin’s definition in mind.

[Sarcastr0]

It prefers an interpretation
1) that was meaningful *at the time of passage*, and
2) only *if there is ambiguity*.

My recent and spotty understanding is that imbalance of payments is a term of art. And that the issue it's dealing with is no longer a thing thanks to us going off the gold standard.

[AmosArch]

It could be very nice if we could go back to the classic tariff and consumption tax funded federal government like Trump is valiantly trying to achieve with the meager tools and time available. But unfortunately the vast majority of people probably don't even know how the government used to be funded let alone comprehend what the Administration is trying to do. Not to mention the so called 'libertarians' who want the government to continue to steal our money through income tax.

[SRG2]

It would also be very nice if you understood why no advanced country just uses tariffs and consumption taxes to fund the government. You could go the full moron and advocate for the gold standard as well, of course.

FWIW as people have to spend money to survive, to single out income tax as theft is slightly odd.