Trump’s Economic Fallacies Are Legally Relevant in His Tariff Case

In April, President Donald Trump announced stiff tariffs on goods from nearly every country on the planet, saying they were necessary to “deal with” a “national emergency” involving an “unusual and extraordinary threat” to “the national security, foreign policy, or economy of the United States.” According to a Supreme Court brief signed by 45 American economists, Trump’s description of that huge, unilateral tax increase was fundamentally mistaken.

That assessment, which reflects what a leading textbook on international trade calls a “virtually complete consensus among economists,” should be of more than passing interest to the justices as they weigh the legality of Trump’s tariffs. It goes to the heart of the powers Trump is asserting under the International Emergency Economic Powers Act (IEEPA).

One question for the Supreme Court is whether IEEPA, a 1977 law that does not mention import taxes and has never before been used to impose them, gives the president any tariff authority at all. Assuming it does, another question is whether the law empowers him to completely rewrite the tariff schedule approved by Congress—a proposition that three lower courts have rejected.

The economists’ brief focuses on a third issue: Does Trump’s use of IEEPA meet the law’s criteria for invoking it? That depends on whether he is right to portray the “large and persistent” gap between U.S. exports and imports of goods as a national emergency.

Trade deficits “have existed consistently over the past fifty years in the United States, for extended periods in the United States in the nineteenth century, and in most countries in most years in recent decades,” the economists note. “They are thus not ‘unusual and extraordinary,’ but rather ordinary and commonplace.”

The brief adds that there is nothing inherently problematic about aggregate or bilateral trade deficits, such that they would constitute a “threat” to the United States. Even the term deficit is misleading in this context, the economists note, since the situation that Trump bemoans necessarily corresponds to a “foreign investment surplus.”

When a country “imports more than it exports,” the brief explains, that means it “receives more foreign investment than it invests abroad.” That is why “the leading explanations of the U.S. trade deficit view it as a sign of U.S. strength, not weakness.”

Trump seems to view foreign investment as a good thing. Yet “absent offsetting adjustments elsewhere,” the brief says, “these investments will increase the U.S. trade deficit.”

In addition to worrying about the overall difference between imports and exports, Trump thinks it is inherently suspicious whenever another country runs a trade surplus with the United States. But because of variations in demand, specialization, and comparative advantage, the economists note, “bilateral trade deficits are a virtual logical certainty.”

It is therefore “odd to economists, to say the least, for the United States government to attempt to rebalance trade on a country-by-country basis,” the brief says. And contrary to Trump’s presumption of unfairness, “foreign tariff rates on US exports do not correlate positively with the size of US trade deficits.”

Nor is it reasonable to expect that Trump’s tariffs will “deal with” this supposed national emergency by shrinking U.S. trade deficits. While “tariffs unambiguously reduce total trade flows,” the economists note, “they generally do so in both directions—both in and out.”

Consequently, “the volume of trade will fall,” but “the level of the trade deficits may remain unchanged.” Consistent with that observation, the U.S. trade deficit in goods rose between January and June, “despite a very large increase in tariffs.”

Although Trump’s tariffs are not working as advertised, the economists note, they will have “a massive impact across the United States,” amounting to trillions of dollars during the next decade. That fact is also legally relevant.

The “major questions” doctrine requires “clear congressional authorization” when executive agencies “claim the power to make decisions of vast economic and political significance.” If Trump’s tariffs do not fall into that category, it is hard to imagine what would.

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