On Friday, the Supreme Court struck down President Trump’s use of an international emergency powers statute to impose broad tariffs on imports from across the world.
He immediately announced that he was relying on a different statute — the Trade Act of 1974 — to impose new, near-universal 10 percent tariffs, which he then raised to 15 percent.
These new tariffs are illegal, too. They are just another attempt by the president to ignore the law and dare the courts to stop him.
Courts should put a halt to the new tariffs — before they disrupt global trade and the domestic economy.
The never-used provision the White House is relying on, Section 122, says that the president shall impose tariffs or import restrictions, for up to 150 days, whenever “fundamental international payments problems require” restricting imports to deal with, among other things, “large and serious United States balance-of-payments deficits.” Mr. Trump has seized on this language, pointing primarily to America’s substantial and persistent trade deficit (around $900 billion last year).
But the president misreads the statute. The provision is not about trade imbalances. Other parts of the statute address those. It is about financial imbalances — in particular ones that threaten financial stability.
The text and context of the law is clear: A Section 122 “payments problem” involves a flight from the U.S. dollar. At the moment, no such problem exists.
The president’s own lawyers essentially admitted as much months ago. In a filing in the earlier case, the Justice Department acknowledged that trade deficits are “conceptually distinct from balance-of-payments deficits,” citing the congressional history. And it suggested that Section 122 did not give the president the authority to impose tariffs to address trade deficits. (Section 122 does not “have any obvious application” where the concerns “arise from trade deficits,” the Justice Department’s lawyers wrote.)
To further appreciate how badly the president is misreading the law, it is necessary to place this particular statute in the context of the early 1970s. At that time, the United States was still engaged in a postwar effort to manage currency flows between countries. Under the Bretton Woods agreement, reached in 1944, the U.S. dollar was fixed to gold, at $35 per ounce, and other major currencies were convertible to it at fixed exchange rates.
Throughout the 1960s, the United States faced a “balance-of-payments deficit”: Too many overseas holders of dollars sought to convert them into gold. As the government’s official gold reserves were depleted, these dynamics accelerated, making it harder to keep the currency peg in place.
In 1971, an acute increase in this deficit caused a payments problem. The Bretton Woods system unraveled. President Richard Nixon closed the so-called gold window that enabled conversion of dollars to gold. The value of the dollar plummeted. To prevent a further collapse, Nixon imposed a temporary 10 percent import surcharge on goods entering the United States. The idea was that reducing imports could help stanch one source of short-term dollar outflows.
The tariff was litigated, and the courts initially held it illegal. In response, Congress drafted a law to provide explicit, narrow authority to impose such import restrictions and surcharges in response to immediate negative shocks to the foreign exchange market: Section 122. Even though Bretton Woods was in shambles, the United States was still nominally bound by the old international agreements. And many policymakers thought that the country might return to a system of fixed or flexible exchange rates. Authority like Section 122 was seen as needed to keep such a system stable.
Lawmakers were also concerned about a new international payments problem that had just emerged. In 1973 and 1974, the price of oil skyrocketed. Oil-producing states accumulated enormous wealth denominated in American currency. They parked these so-called petrodollars in bank accounts in Europe, outside U.S. regulators’ control. Just six months before the Trade Act was passed, one highly leveraged German bank collapsed, inciting fears of an international payments-based financial crisis.
These concerns are reflected in the text of Section 122. Alongside the “balance-of-payments deficits,” lawmakers listed “imminent and significant depreciation of the dollar in foreign exchange markets” and “an international balance-of-payments disequilibrium.” And lawmakers explicitly distinguished between trade imbalances and payments problems, such as the rapid movement of petrodollars.
The rest of the provision makes clear that Mr. Trump’s reading is untenable. Section 122 actually requires the president to implement tariffs or quotas — or else to notify and consult with congressional leaders — when there are “fundamental international payments problems.” If the current circumstances meet this definition of a fundamental problem, why didn’t Mr. Trump notify congressional leaders already? Shouldn’t he have told them that we were facing a payments crisis and explained why he was not implementing tariffs under Section 122?
While the statute does not expressly define a “fundamental international payments problem,” under Mr. Trump’s interpretation (including his gesturing at the volume of U.S. financial assets held abroad), we have had such a problem for decades. Given the structure of Section 122, that cannot be right.
As the Supreme Court noted in its opinion last week, the framers gave Congress “alone … access to the pockets of the people.” They did not vest “any part of the taxing power in the executive branch.”
The president needs legal authority to impose his new tariffs, and Section 122 offers him none. This is a clear case — even more so than the case decided last week.
When affected parties challenge the new levies in the coming days, the courts should step in and put a halt to the levies. The president has replaced one set of illegal tariffs with another.
Lev Menand is an associate professor of law at Columbia Law School and the author of “The Fed Unbound: Central Banking in a Time of Crisis.” Joel Michaels is an academic fellow in public economic law at Columbia Law School and previously served as a senior adviser in the U.S. Department of the Treasury.
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