US Court of International Trade Rules Against Trump’s Section 122 Tariffs

Today, the US Court of International Trade issued an important ruling striking down Donald Trump’s massive Section 122 tariffs, imposing 10% tariffs on a vast range of imports from countries around the world. The ruling is a crucial decision protecting the constitutional separation of powers and blocking an extremely harmful policy. The ruling addressed two consolidated lawsuits challenging the tariffs – one  filed by the Liberty Justice Center  (the same public interest group that I worked with on the earlier case that led to the invalidation of Trump’s  IEEPA tariffs by the Supreme Court) on behalf of two importers, and one brought by 24 state governments led by the state of Oregon.

Section 122 of the Trade Act of 1974 authorizes the president to impose up to 15% tariffs for up to 150 days in response to “fundamental international payments problems” that cause “large and serious United States balance-of-payments deficits” or “an imminent and significant depreciation of the dollar,” or create a need to cooperate with other countries in addressing an “international balance-of-payments disequilibrium.” Today’s 2-1 decision rests primarily on the ground that the government failed to prove that there is any balance-of-payment deficit of the kind required by the statute:

Rather than identifying “balance-of-payments deficits” as that term was intended
in 1974, the [President’s] Proclamation relies upon current account deficits, and a discussion of “a large and serious trade deficit.” Proclamation No. 11012 ¶ 6; see also id. ¶ 7 (referring to deficits concerning the balance of goods and services as well as the balances on primary income and secondary income, all of which are part of the current account); id. ¶ 8 (noting the trade deficit). Although the current account (and the balance of trade as a component of the current account) are relevant to balance-of-payments deficits, they are distinct, and the statute recognizes the distinction.

As the majority opinion explains, the term “balance of payments deficit” was understood in the Act to cover the kinds of imbalances that occurred under the Bretton Woods fixed exchange rate system that existed up until 1973, under which the United States committed to exchanging gold for dollars at a fixed rate, and other nations committed to exchanging their currencies for dollars (also at fixed rates). More specifically, “[t]he legislative history of the Trade Act of 1974 reveals that Congress understood balance-of-payments deficits to refer, at the time, to deficits in (1) liquidity, (2) official settlements, or (3) basic balance.” As the court notes, at the time the law was enacted, there was a great deal of uncertainty about whether the US might return to some form of fixed-exchange rate system, and this law intended to provide a safeguard in the event of that happening.

The Trump administration argued that the president should get broad discretion in determining what qualifies as a “balance of payments deficit.” As the court explains, that would give him virtually unlimited power to impose tariffs under Section 122, and would thereby create a constitutional nondelegation problem:

Despite acknowledging differences in the 1974 measures of the balance of
payments as compared to modern measures… the Government seeks to defend the Proclamation by arguing that “balance-of-payments deficits” is a malleable
phrase… However, the Government’s suggestion that what constitutes “balance-of-payments deficits” may change proves too much…. [I]f the President has the ability to select among the sub-accounts to identify a balance-of-payments deficit, unless every sub-account is balanced, the President would always be able to identify a balance-of-payments deficit…..

Such an expansive reading of the statute would raise a non-delegation issue, which in turn would prompt a constitutional question…. “[T]he canon of constitutional avoidance” provides that, when one of two statutory interpretations would raise a constitutional question, “the other should prevail.” Clark v. Martinez, 543 U.S. 371, 380–81 (2005); see also Mistretta v. United States, 488 U.S. 361, 373 n.7 (1989) (stating that the Court employs the nondelegation principle to interpret statutory text and give “narrow constructions to statutory delegations that might otherwise be thought to be unconstitutional”); Indus. Union Dept., AFL-CIO v. Am. Petroleum Inst., 448 U.S. 607, 646 (1980) (stating that “[a] construction of the statute that avoids [an] open-ended grant” of authority that would implicate the non-delegation doctrine “should certainly be favored”); … The Government’s preferred interpretation of the statute must therefore be disfavored. See N.L.R.B. v. Jones & Laughlin Steel Corp., 301 U.S. 1, 30 (1937) (“[A]s between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid, our plain duty is to adopt that which will save the act. Even to avoid a serious doubt the rule is the same.”)…..

Nondelegation and its relevance to constitutional avoidance are a major focus of the amicus brief I submitted in this case on behalf of the Cato Institute and myself. As explained in the brief, the government’s interpretation of Section 122 would essentially give the president the power to use Section 122 to impose up to 15% tariffs at at virtually any time. We also argued that this violates the major questions doctrine (an issue today’s ruling does not address).

While the majority correctly ruled that the Section 122 tariffs are illegal, it does not completely block their collection. Rather it imposes an injunction that covers only the two importers represented by the Liberty Justice Center, and the state of Washington (a plaintiff state that directly imports goods subject to the tariffs). The court ruled that the other 23 states lack standing, because they had not presented evidence to show they too import covered products directly. If this ruling on standing holds up, further litigation will be needed to block collection of Section 122 tariffs from other importers subject to them. But I suspect that many, if not all, of these other states do in fact import goods covered by the tariffs. If so, I hope they can present evidence to that effect, as the litigation goes on.

The dissenting opinion by Judge Timothy Stanceu argues at great length that the the majority’s interpretation of the legislative history is wrong, and that the president deserves great deference in making Section 122 determinations. Significantly, he has no answer to the nondelegation and constitutional avoidance points covered above. Broad deference to the president would give him nearly unlimited power to impose Section 122 tariffs at any time, thereby creating a serious constitutional problem. In addition, for reasons I outlined in this article, it is a mistake for courts to give the executive sweeping deference when it comes to invocations of emergency powers that are supposed to be wielded only in extreme exceptional circumstances, thereby turning these authorities into a blank check the president can use at any time.

This litigation is likely to continue on appeal in the US Court of Appeals for the Federal Circuit and possibly the Supreme Court. I will likely have more to say about it in future posts.

For now, I am happy to see that the Court of International Trade got this right, and I congratulate my friends at the Liberty Justice Center on this important victory.