The president has not come close to showing a balance-of-payments crisis, the statutorily required precondition for imposing tariffs under Section 122.
President Trump’s attacks on the Supreme Court are an unmitigated disgrace. The Court tried in good faith — and, for what it’s worth, successfully in my view — to uphold the law. By now, the president has to know that the fallout of his ravings will be harassment of the justices by elements of his base that are as deranged as he is. Is the plan to ignite a riot on the Supreme Court steps this time, while he can still pardon the rabble-rousers as he did the Capitol rioters?
Moreover, what value is there in an oath to execute the laws faithfully from a man who either has no regard for the law or delusionally sees the law as what he personally wants — with what he doesn’t want seen not merely as illegal but treasonous?
Those are first-order challenges. Because congressional Republicans are derelict — because they’ve demonstrated that they care about the rule of law only when Democrats are in the White House — there is no point right now in dwelling on questions about fitness for office. Tapping Congress’s robust arsenal for dealing with executive abuses of power requires bipartisan consensus as well as courage, and both are in short supply.
Let’s move, then, to something more mundane but nonetheless important. In his pique after the Court’s correct and easily foreseeable 6-3 decision in Learning Resources v. Trump, invalidating the tariffs he unilaterally, haphazardly imposed in purported reliance on the 1977 International Emergency Economics Act (IEEPA), the president announced that he is imposing tariffs in purported reliance on the 1974 Trade Act. Specifically, he is decreeing what are called “Section 122” tariffs, a provision of the Trade Act codified at Section 2132 of Title 19, U.S. Code. They are to take effect come Tuesday.
These new tariffs are even more clearly illegal than Trump’s IEEPA tariffs.
I can’t improve on our editorial’s explication of Learning Resources, in particular of the bedrock separation of powers principles by which the Constitution vests in Congress, not the president, the power to tax — and tariffs are taxes (in this instance, massive taxes, overwhelmingly paid by Americans, not foreign regimes). The president has no inherent tariff authority; he has only the statutory authority Congress gives him.
In Section 122, Congress endowed the president with narrow, temporary authority to impose tariffs “to deal with large and serious United States balance-of-payments deficits” (emphasis added). What Trump is complaining about — something he insists is a crisis but is not — is the balance of trade, not of payments. The United States does not have an overall balance of payments deficit, much less a large and serious one.
A trade deficit between the U.S. and a foreign nation occurs, mainly in connection with goods (which is just one aspect of international commerce), when imports are greater than exports. This is not really a problem for a variety of reasons — e.g., a trade deficit results in an investment surplus, the U.S. is a major services economy and often runs exported services surpluses that mitigate the imports deficit in goods, etc.
The balance of payments is a broader concept than the balance of trade. It accounts for all the economic transactions that take place between the United States and the rest of the world. Even without getting into every kind of transaction that entails, suffice it to say that 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.
Our overall payments are in balance. There is no crisis.
It’s vital to understand why Section 122 was enacted. There was a financial crisis in the late 60s and early 70s under the Bretton Woods system, when the dollar was tied to gold. Foreign countries that held dollar reserves could exchange them for gold at a fixed rate. Meanwhile, our government was spending at a high clip due to the Vietnam War and Great Society programs. This and the obligation to pay out gold put enormous pressure on the dollar. In response, in 1971, President Nixon severed the dollar’s tie to gold and — as several justices recounted in Friday’s Learning Resources opinions — imposed a temporary 10 percent import surcharge (a tariff) to stabilize the economy.
In the years immediately after the end of Bretton Woods, with the dollar now floating rather than anchored to gold and the nation still concerned about the quantum of its gold reserves, Congress continued to fear instability. Section 122 was enacted to enable the president, with significant restrictions (tariffs of no more than 15 percent for no more than 150 days), to address potential balance of payments crises.
Now, over a half century later, these conditions no longer obtain. The dollar floats and the government does not concern itself with gold parity. The dollar is the global reserve currency, so demand for dollars by foreign nations is robust. We have strong capital inflows and our highly liquid financial markets are the envy of the world. Notwithstanding trade deficits, there is no balance of payments problem.
Nor is it necessary, as Section 122 puts it, to impose temporary tariffs in order “to prevent an imminent and significant depreciation of the dollar in foreign exchange markets[.]”
There is no rationale under Section 122 to impose tariffs. Because President Trump has no unilateral authority to order tariffs, he must meet the preconditions of Section 122 to justify levying them. He cannot. Not even close.