U.S. President Donald Trump doubled down on tariffs over the weekend, despite an adverse ruling by the Supreme Court on Friday, the lack of domestic political support for his trade policies, and the absence of positive economic outcomes from his trade policy so far.
After the Supreme Court struck down the main authority that Trump had used to levy tariffs, the administration turned to a never-before-used provision of a 1974 law as a temporary measure to maintain higher taxes on U.S. businesses and consumers. That measure will expire in five months, but the administration hopes to buy time to prepare sturdier and more sweeping tariff authorities later in the year.
U.S. President Donald Trump doubled down on tariffs over the weekend, despite an adverse ruling by the Supreme Court on Friday, the lack of domestic political support for his trade policies, and the absence of positive economic outcomes from his trade policy so far.
After the Supreme Court struck down the main authority that Trump had used to levy tariffs, the administration turned to a never-before-used provision of a 1974 law as a temporary measure to maintain higher taxes on U.S. businesses and consumers. That measure will expire in five months, but the administration hopes to buy time to prepare sturdier and more sweeping tariff authorities later in the year.
The immediate reimposition of tariffs under a novel authority raises several questions. How do countries that negotiated trade accords with the Trump administration under the threat of now-illegal tariffs view all this? Is the Trump administration’s plan B for tariffs even legal? Are its plans C and D? Will all of this spur Congress into reclaiming its traditional control over trade policy? Why is a counterproductive policy being pursued with such vigor and so little public debate?
For starters, countries that reached accommodation on trade with the Trump administration are wondering if they bought a false bill of goods. The irony is that some U.S. allies (such as Britain) now stand to face higher export barriers than they did a week ago, while nominal economic rivals (such as China) now face lower barriers.
The European Union, for instance, negotiated (but has yet to ratify) a trade truce with the United States that would leave U.S. duties on European goods at the high level of 15 percent but lower European duties on U.S. exports. But that was then. Under the recently announced U.S. tariff rates, the EU could actually face higher rates than negotiated. The EU insists that a “deal is a deal” and demands that there be “no increases in tariffs.” Bernd Lange, the European Parliament’s trade chief, suggested the bait-and-switch on tariffs could be a breach of the original deal.
The United Kingdom, which thought it had secured a sweetheart deal of only 10 percent duties on its exports, now faces higher barriers for its goods and is anxious for clarity over the fate of its own trade accord with the Trump administration.
Countries in Asia, including Vietnam, Malaysia, Japan, and South Korea, also scrambled to reach deals with the Trump administration under the threat of punitive levies that turned out to be illegal, and they are now questioning the commitments they have made.
The other big question is about the Trump administration’s fallback to maintain tariffs: Section 122 of the 1974 Trade Act. The administration immediately responded to the Supreme Court’s ruling by announcing a global 10 percent tariff (later raised to 15 percent) on every country. Section 122 allows for tariffs of up to 15 percent for five months, after which Congress must approve the tariffs if they are to continue. (It is not clear if the administration can simply roll them over again with a fresh executive order.)
But the real puzzler is whether these backup tariffs are legal or, like those struck down last Friday, unlawful. Section 122 tariffs are explicitly meant to address a balance-of-payments crisis. That was something the United States grappled with in the 1960s and 1970s, when it was still on the gold standard. Since then, the United States has had a free-floating currency, which theoretically means that a balance-of-payments crisis is impossible, and thus that the new tariffs are also illegal. Gina Gopinath, former chief economist at the International Monetary Fund, does not believe that the world’s largest and most liquid economy faces a balance-of-payments crisis.
But not everyone agrees. Brad Setser, a respected former U.S. Treasury official who is now at the Council on Foreign Relations, made the case that the United States’ current account situation essentially meets the conditions stipulated by the 1974 legislation.
Also worth noting: The Trump administration argued in briefs to the Supreme Court that Section 122 tariffs were inapplicable in current circumstances, which was why it had to turn to the unprecedented use of Carter-era legislation to slap bigger tariffs on every country.
While the new tariffs will almost certainly invite legal challenges, they probably won’t matter or even be heard in the near term. (They will matter if the courts ultimately show deference to the executive branch with its expansive new tariff notions.) The new tariffs will expire in late July, unless Congress decides to renew them.
By then, the Trump administration hopes to have readied plans C and D. Those include additional uses of Section 301 of the 1974 Trade Act, a more clear-cut trade remedy that the administration has used repeatedly to slap tariffs on China for “discriminatory” behavior. There are fewer legal questions surrounding Section 301 tariffs, but they take longer to implement. The office of the U.S. Trade Representative is working overtime on those.
Other potential measures include additional uses of the “national security” tariffs under Section 232 of the 1962 Trade Expansion Act; the U.S. Commerce Department already has a dozen investigations underway to use tariffs to protect the national security of sectors such as lumber and heavy truck parts. A different option could be yet another novel use of the 1930 Smoot-Hawley Tariff Act (yes, that Smoot-Hawley) that would invite further legal challenges.
When it comes to legal challenges, the immediate action will involve the refunds of $130 billion to $175 billion in taxes that the U.S. government collected from importers, which turned out to be illegal. Throughout the legal fight last year, the U.S. government said that refunds would be easy and automatic. But when it lost the case at the Supreme Court, it said refunds could not be done or it would be “corporate welfare.” Thousands of companies have already filed for relief. Consumers who paid higher prices from more expensive imports won’t see any refunds regardless, but some well-lawyered firms might.
A bigger question, and one raised by Supreme Court Justice Neil Gorsuch in his concurrence with Friday’s ruling, is whether Congress will, after nearly a century, reclaim its role as the architect and arbiter of U.S. trade and tariff policy. There have only been a handful of timid, ill-starred efforts to wrest trade authority back from the executive branch during Trump’s second term so far.
An even bigger question is whether the Supreme Court’s rebuke, and the Trump administration’s desperate reach for another untested way to levy taxes on imports, will spark a broader political debate over the utility of disrupting the trade flows that helped drive an unprecedented increase in prosperity over the last half century and more.
Trump’s tariffs have not achieved his goals of reducing the U.S. trade deficit or rebuilding manufacturing, but they have succeeded in raising costs for companies and consumers, as well as driving the rest of the world’s economies to rethink who they do business with. Given the strong political support for freer trade, the Supreme Court’s big ruling and the administration’s scramble may represent an opportunity to rethink a policy that has been a bridge to nowhere.
