Thoughts on Today’s Oral Argument in the Section 122 Tariff Cases

Earlier today, a three-judge panel of the US Court of International Trade (CIT) heard oral arguments in two cases challenging Donald Trump’s massive new Section 122 tariffs – one filed by the Liberty Justice Center (LJC) on behalf of two small businesses harmed by the tariffs, and another filed by 24 state governments. After Trump’s previous International Emergency Economic Powers Act tariffs were invalidated by the Supreme Court, in a case I helped litigate, along with LJC, Trump tried to use Section 122 of the 1974 Trade Act to impose sweeping 10% tariffs on almost all imports (administration officials say they will raise them to 15%).

Section 122 only permits 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.” As explained in an amicus brief I filed on behalf of the Cato Institute and myself, and another filed by numerous prominent economists from across the political spectrum, these problems can only occur in a fixed-exchange rate regime of the kind that existed prior to the collapse of the Bretton Woods system in 1973.

In today’s oral argument, the three judges asked tough questions of both sides, and I am not sure what the outcome is going to be. But several of the issues raised by the judges are potentially devastating for the Trump Administration.

First, in response to questions from Judge Timothy Stanceu, Trump Justice Department lawyer  Brett Shumate repeatedly admitted he cannot say what the balance of payment deficit is right now. He could not even give an estimate. If the Administration does not know what the deficit is, then they have no proof that it is “large and serious,” as required to use Section 122. Second, at least two of the judges suggested that the government’s theory of Section 122  “proves too much” – meaning that under their interpretation of Section 122, the president can invoke Section 122 virtually any time he wants, because there will always be “fundamental international payments problems” that cause “large and serious United States balance-of-payments deficits.” If so, the administration has to lose. As explained in our amicus brief, such a claim to virtually unlimited authority to impose tariffs under Section 122 (subject only to the 15% limit) runs afoul of the major questions doctrine (which requires Congress to speak clearly when delegating vast powers to the executive) and the constitutional nondelegation doctrine, which limits transfer of legislative power to the executive.

At the very least, the major questions doctrine requires a decision against the executive when the latter claims a sweeping delegation of power and there is substantial ambiguity about whether the text of the law actually grants that much authority. And, if there is one thing that today’s nearly three-hour long oral argument proved, it’s that it’s far from clear that Section 122 grants the administration the power it claims. This is another example of the executive claiming that emergency powers intended to be used only in extreme situations are a blank check the President can invoke anytime he wants.

These problems are exacerbated by the Administration’s repeated claims in oral argument that courts are not allowed to review the President’s claims that the requisite “fundamental international payments problems” and “large and serious United States balance-of-payments deficits” actually exist. If all the President has to do to invoke Section 122 is just claim these things exist, whether or not they actually do, then there is virtually no effective limit on his power. For reasons explained in our brief, he could then easily get around the 150-day time limit simply by asserting that a new balance-of-payments problem exists anytime the original time limit expires.

The judges were also rightly skeptical of the government’s claim that trade deficits are enough to trigger Section 122. As one put it in a question to Shumate, “[a]re you really saying that a large trade deficit alone is sufficient?… I don’t think it is, and I think Congress didn’t think it is.”

Shumate also erred in claiming that President Richard Nixon’s 1971 tariffs, which likely helped influence the development of Section 122, were enacted in response to a trade deficit. As Phil Magness of the Independent Institute points out, the US actually had a trade surplus when those tariffs were imposed. Ironically, in the earlier IEEPA litigation, the Trump Administration rightly noted that trade deficits “are conceptually distinct from balance-of-payments deficits,” and thus that Section 122 has no “obvious application” to the President’s efforts to use IEEPA in response to trade deficits.

It is true that, in its ruling against the IEEPA tariffs in the case I helped bring last year, the Court of International Trade indicated that Section 122 can be used to counter trade deficits in at least some circumstances. But, as at least two judges noted today, that statement was dictum, not necessary to the Court’s holding. We made the same point in our amicus brief (pg. 8). Thus, it isn’t any kind of binding precedent. Significantly, neither the Federal Circuit nor the Supreme Court relied on Section 122 when they upheld the CIT’s ruling against the tariffs.

Finally, today’s oral argument featured considerable discussion about the issue of why the Section 122 was enacted in 1974-75, given that the fixed exchange rate regime ended in 1973. The answer – discussed more fully in our amicus brief and that of the economists – is that many thought the fixed exchange regime might be brought back in some form. The uncertainty over that issue did not end until the Jamaica Agreement of 1976. Today we know that Section 122 was obsolete from the day it was enacted. But Congress and the President could not be sure of that at the time.

In sum, we cannot know with any certainty what the CIT will decide. And, whatever decision they make will almost certainly be appealed, perhaps even all the way to the Supreme Court. But I am hopeful both the CIT judges and appellate judges who review their decision will realize that, at the very least, Section 122 does not clearly grant Trump the sweeping tariff authority he claims. In that crucial respect, the Section 122 tariffs are a massive power grab similar to that which courts rejected in the IEEPA litigation.