Trump invokes emergency powers for new tariffs (Tariffs Part 2)

“The Constitution forbids it,” said Republican Sen. Rand Paul on use of emergency powers to set tariffs. And a lawsuit has been filed challenging it.

In his April 2 executive order on tariffs and previous orders announcing tariffs on Chinese, Canadian, and Mexican imports, President Trump used the National Emergencies Act of 1976 (NEA) and the International Emergency Economic Powers Act (IEEPA) of 1977.

This raises two important questions: Do the National Emergencies Act and IEEPA allow the President to set tariffs, and is the current economic state actually an emergency? We’ll also cover some history below.

(This is our second article on the tariff executive order. See here for our first article on the projected impact, Trump’s rationale, and Congress’s response.)

Emergency and I: Who has the power to levy tariffs

Congress — not the President — has the authority under Article I, Section 8 of the Constitution to create taxes including tariffs (“imposts”) and the power to regulate trade with foreign countries. Over the 20th Century, however, Congress delegated considerable authority to set trade agreements to the President. But Trump didn’t use these authorities: He used powers granted to by Congress under national emergency law to set the April 2 tariffs.

The National Emergencies Act created a formal process for the President to declare a national emergency, and IEEPA allows Executive Branch departments broad authority to sanction and freeze assets of foreign actors once an emergency is declared.

How trade policy fits under IEEPA is questionable. It actually was designed to limit presidential power in the wake of the Vietnam War and Watergate, the law does not mention tariffs, and no other president has used the act to impose tariffs, even as declarations of national emergencies under IEEPA have grown over recent decades. Critics of the action argue that the only instance in case law that would support interpreting presidential tariff power under the act involved a temporary action taken by the Nixon Administration under the law IEEPA replaced.

“The Constitution forbids it,” said Republican Sen. Rand Paul on emergency powers to set tariffs. And a lawsuit has been filed challenging it. (Also of note, a Senate bill to limit the President’s power to set tariffs now has seven Republican cosponsors, making it likely to pass the Senate, but it may be dead-on-arrival in the House.)

Trump has used other trade powers previously. For example, Section 232 of the Trade Expansion Act of 1962 authorizes the President to raise tariff rates on goods the Department of Commerce determines are being imported in ways that threaten national security. Section 301 of the 1974 Trade Act allows the President to raise tariffs on goods the U.S. International Trade Commission finds are being imported at levels that harm domestic industry. It also allows the U.S. Trade Representative to impose tariffs on countries that harm U.S. commerce in "unjustifiable," "unreasonable," or "discriminatory" ways like failing to protect American firms’ intellectual property or using child labor. The Trump Administration has cited these mechanisms in its rollout of several tariffs: It justified tariffs of 25% on autos and auto parts from Canada and Mexico on March 26 under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.

What exactly is the emergency?

The April 2 executive order includes its basis for declaring a national emergency:

“Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; inhibited our ability to scale advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries. . . . These conditions have given rise to the national emergency that this order is intended to abate and resolve.”

The trade deficit is the amount the United States imports minus what it exports, and it has been growing steadily for 30 years, and especially since the COVID-19 pandemic began in Trump’s first term. In other words, the United States imports far more goods than it exports. (A trade deficit in goods, which excludes the U.S.’s export of services, isn’t necessarily a bad thing.)

Congress passed the National Emergencies Act and IEEPA to enable the President to respond quickly to swift-moving international crises potentially impacting national security. Compare that with the executive order’s language that calls the trade deficit “persistent” 10 times (and “persistent decline in U.S. manufacturing output” once).

A 1977 House committee report on IEEPA stated any declared “emergency should be terminated in a timely manner when the factual state of emergency is over and not continued in effect for use in other circumstances.” But despite the law’s intentions, that’s not how the law has been used in the past. As this Congressional Research Service report notes, national emergencies can last indefinitely and the courts have rejected most challenges to the presidential authority under IEEPA:

“As of January 15, 2024, Presidents had declared 69 national emergencies invoking IEEPA, 39 of which are ongoing. History shows that national emergencies invoking IEEPA often last nearly a decade, although some have lasted significantly longer—the first state of emergency declared under the NEA and IEEPA, which was declared in response to the taking of U.S. embassy staff as hostages by Iran in 1979, is in its fifth decade.”

The presidential definition of crisis also has broadened in recent years to include investment in Chinese industry and the international drug trade. President Trump threatened to invoke IEEPA to levy tariffs on Mexico because of illegal immigration during his first term.

Tariff power in history

This sweeping change to national economic policy reverses the preference for free trade that the United States made a cornerstone of the post-World War II international order.

Because of their importance to federal revenues and the national economy, Congress held its authority to set tariffs closely through the first century and a quarter of the nation’s history. Before the Civil War, tariffs were the primary method Congress raised federal revenues. Tariffs generated about 90 percent of federal income before the Civil War. From the end of the war to the introduction of the income tax in 1913, tariffs accounted for half of the government’s revenue.

As their region industrialized, tariffs also became a method for members from northern states to protect manufacturing from foreign competition. The northern delegation first tried protectionist policy for their industrial base with the Tariff Act of 1828, which set significant duties on iron, steel, woolen and cotton fabrics mostly imported from England. Southern members, whose region relied on exporting cotton to English mills, revolted to the point of full-blown sectional crisis, forcing duties lower in 1833 even though the tariffs had boosted gross domestic product more than 20%. After the Civil War, this sectional dynamic became central to the intense partisan competition of the Gilded Age, for which tariffs were a central issue as northern Republicans supported higher tariffs to protect domestic manufacturing competition and southern Democrats preferred lower rates.

The President first garnered some control over import duties in 1890, when Senate allies of President Benjamin Harrison inserted language in Rep. William McKinley’s tariff bill that granted him with the authority to suspend duty-free importation of sugar, molasses, coffee, tea, and hides from countries he found were taxing American goods at “reciprocally unequal and unreasonable” levels and allowed him to sign agreements to open foreign markets without congressional approval. McKinley opposed the language and the public quickly soured on the act that bore his name, but the Supreme Court upheld this provision two years later.

Authority over tariffs shifted significantly beginning in the 1930s. The Trade Act of 1930, also known as the Smoot-Hawley Tariff, directed the president to impose tariffs on goods from countries that discriminate against U.S. imports through additional duties, regulations, or prohibitions not imposed on other countries. As part of the Hoover Administration’s response to the collapsing agricultural economy, the Smoot-Hawley Tariff’s massive duties on agricultural imports created a global trade war that deepened the Great Depression. Burned by the experience, Congress ceded significant trade policy authority to the President with the Reciprocal Trade Agreements Act of 1934 (RTAA). It authorized the President to negotiate bilateral trade agreements and adjust some tariff rates without congressional approval.

The negotiator-in-chief

After World War II, the U.S. and its allies reset the international financial and trade system, seeking lasting peace through a more interconnected and cooperative view of economic relations between nations. With many of the world’s industrial powers in ruin and Western colonies seeking national independence, the U.S. also stood to benefit economically from the opening of new markets. As the goal of trade policy shifted from protecting the domestic economy to growing American access to foreign markets around the world, the Executive Branch became the prime actor through its ability to strike agreements with foreign governments. Drawing on the authority granted in the RTAA, the Truman Administration signed onto the General Agreement on Tariffs and Trade of 1947, which established equal bilateral arrangements between two dozen nations.

Congress expanded presidential power to negotiate trade agreements several more times in the postwar era. At the behest of the Kennedy Administration, Congress updated RTAA with the Trade Expansion Act in 1962, which allowed the President to negotiate multilateral agreements on tariff rates with the European Economic Community, the precursor of the European Union. Congress delegated negotiating the removal of non-tariff barriers like domestic subsidies, labor and product safety regulations that disadvantaged U.S. goods to the President in the Trade Act of 1974.

The global, rules-based trade system that developed over the next 50 years greatly reduced duties on foreign goods coming into the U.S. About 70% of imports were duty free at the start of the Trump Administration.

Corrections

During the editing process Josh messed up the paragraph explaining what a trade deficit is. The first version said, “In other words, the United States exports far more goods than it imports.” That was backwards. Apologies.