Prior to his inauguration, President Trump threatened companies considering establishing plants outside the U.S. with a 35% tariff on their exports to the U.S. Carrier, Toyota, General Motors, Ford, and BMW have been targets of the threats. Most recently, in an interview with Bild, a German newspaper, he made the following statements: "If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax." (Reuters, January 17, 2017) The U.S. bound tariff on automobiles—the maximum tariff that the U.S. has agreed to charge under WTO law—is 2.5%. Under NAFTA, the U.S. has agreed to charge a tariff of zero on automobiles from Mexico and Canada that comply with the relevant rules of origin—principally those with 62.5% regional value content.
Trump seems to use the terms “tax” and “tariff” interchangeably. It is possible that he was thinking of a border tax adjustment in respect of the Kevin Brady/Paul Ryan "Blueprint" cash flow tax, but it is difficult to tell, the 35% rate seems high compared to the 20% proposed by the Blueprint, and Trump has pithily said "any time I hear border adjustment, I don't love it." I think that means he doesn’t like it. So I assume that he is speaking of a special tariff applied to companies that fail to toe his “no offshoring” line. If it is to be a tax and border tax adjustment package, there are lots of interesting international trade law issues, but it is clear he would need Congress to legislate the tax, so my main point in this post, about pre-existing legislation that may provide presidential authority, would not be relevant.
Then let’s assume that the proposal is a 35% tariff on goods from firms that have located factories outside the U.S. There is no doubt that these tariffs, unless justified by new (and most likely legally unsustainable) interpretations of dumping, subsidies, or safeguards law, would flagrantly violate international law: WTO law and, for Mexican and Canadian products, NAFTA law. Therefore, if these threats were carried out, the U.S. would lose in dispute settlement and be subjected to authorized retaliation. It is possible that President Trump, either alone or with Congressional approval, could withdraw the U.S. from the WTO and NAFTA, and thus end the obligation that forms the basis for the legally authorized retaliation. This does not mean that retaliation would end, but it might allow the U.S. to exert power, and threaten trade war, in a way that might cause others to acquiesce. It might also be that exporting countries would retaliate before waiting for judicial authorization, taking the next escalating step in trade war.
The more interesting legal question, however, is whether under existing U.S. law, the President has the power to single out individual companies for special tariffs. Under the Import-Export Clause (Article I, § 8, clause 1) and Commerce Clause (Article I, § 8, clause 3) of the Constitution, the President has no power to regulate commerce except as may be delegated to him by legislation. So this is a question of whether existing statutes allow 35% tariffs to be applied against selected exporters. (There are also some interesting due process and “bill of attainder” law issues, which I will not address here. The actions of the President are not covered by the Constitutional prohibition on bills of attainder in Article 1, Section 9.) It is also important to say that firms that export and import would likely have standing to challenge tariffs that are not properly authorized, and in such a case the question of authorization itself, as opposed to the finding of predicate facts, is likely not to be considered a non-justiciable political question.
There are hundreds of statutory delegations of emergency or other relevant power to the President. I review some of the likely legislative sources of presidential authority to impose tariffs on individual firms below. I do not address existing legislation addressing currency manipulation, because it contains no authorization for raising tariffs.
To provide a summary first, only three of these likely candidates provide plausible support for the 35% tariff on offshore-produced goods, and in each case the support is highly qualified. First, the International Emergency Economic Powers Act would only provide support if it is stretched quite aggressively. Second, § 338(a) of the Tariff Act of 1930 might provide some authority, but probably not for the 35% level of tariffs. Third, for tariffs against exports from Mexico, § 201(b)(1) of the NAFTA Implementation Act might afford some basis for protection, but only upon a finding that the general level of reciprocity under NAFTA has been disturbed.
Trading with the Enemy Act, § 5(b)(1)(B), 50 USC 4305(b)(1)(B). This authority is, since 1977, available only “in time of war.” The definitions of “the beginning of the war” and “end of the war” contained in § 2, although not directly relevant to the definition of “in time of war,” suggest that TWEA authorization only exists in the case of a declared war.[1] There is no current declaration of war, and declaration of war is a Congressional power. While courts have refused to review threshold factual determinations by the President, violation of a clear legal requirement could be a basis for review.
The TWEA includes authority to “regulate” transactions in foreign-owned property, but not specifically to apply tariffs. In United States v. Yoshida Int'l, Inc., 526 F.2d 560, 567 (Cust. Pat.App. 1975), an importer challenged a 10% surcharge on zippers from Japan (under a prior version of the statute which included emergencies beyond war). The Court of Customs and Patent Appeals held that tariffs could be included in such “regulation.”
The authority under the TWEA to regulate applies to “any property in which any foreign country or a national thereof has any interest.” This formulation raises the question of whether the President may restrict imports of goods that have already been transferred to U.S. persons. Under both TWEA and IEEPA (discussed below), the President has power to “regulate” “any property in which any foreign country or a national thereof has any interest.” The type of “interest” required has been interpreted broadly, including to cover interests other than legally enforceable interests.[2] U.S. Treasury Office of Foreign Asset Control (OFAC) regulations define the statutory term "interest" in property as "an interest of any nature whatsoever, direct or indirect." 31 CFR 500.312. It therefore may arguably extend to goods already sold to a U.S. national.
The Court of Customs and Patent Appeals in Yoshida found that the TWEA delegation relied on by the President in that case was a limited delegation—not a full delegation of tariff-setting authority. It stated that
A standard inherently applicable to the exercise of delegated emergency powers is the extent to which the action taken bears a reasonable relation to the power delegated and to the emergency giving rise to the action. Though courts will not normally review the essentially political questions surrounding the declaration or continuance of a national emergency, they will not hesitate to review the actions taken in response thereto or in reliance thereon. 526 F.2d 578-579.
It is impossible to imagine, given the current TWEA trigger of “time of war,” that even were it satisfied, there could be a reasonable relation between whatever “war” is used as the predicate for action and the imposition of a 35% tariff on BMWs. There is no relationship at all. The relationship would be attenuated further by the fact that the U.S. is not at war with Mexico, China, or any of the other likely targets. The Yoshida court concluded its determination that the Presidential action in that case did not exceed delegated authority by recognizing the limits of that delegation: “the declaration of a national emergency [at the time, a national emergency was a triggering event under TWEA] is not a talisman enabling the President to rewrite the tariff schedules, as it was not in this case.” 526 F.2d 583.
Thus, it is unlikely that the TWEA would serve as a basis for the proposed action.
International Emergency Economic Powers Act of 1977, § 203(a)(1)(B), 50 USC § 1701. IEEPA authorizes responses to declared “unusual or extraordinary threats,” including those to the economy of the U.S. It was legislated at the same time that the scope of the TWEA was limited to “time of war.” The authority delegated to the President is similar to that under the TWEA, including the power to regulate transactions in property of a foreign country or national. Presumably the Yoshida determination that “regulate” includes application of tariffs would also apply here.
However, the combination of a broad understanding of “interest,” plus a broad understanding of “regulate,” as discussed above in connection with the TWEA, combined with the broad understanding of “unusual or extraordinary threats” that would be required to use IEEPA to apply a 35% tariff on a specific company’s products, might cause a court to question the actual intended scope of authority delegated under IEEPA, and whether such a broad delegation, covering much of the tariff power, is consistent with Congressional intent. Furthermore, an excessively broad delegation could begin to run afoul of the U.S. administrative law “nondelegation doctrine,”[3] requiring an “intelligible principle” in delegation of legislative authority to the President. That principle requires “meaningful constraint” on the discretion of the President.[4]
Trade Act of 1974, § 301, 19 USC 2411. Discretionary action is triggered by a violation of a trade agreement or “an act, policy, or practice of a foreign country that is unreasonable or discriminatory and burdens or restricts United States commerce,” providing a non-exclusive list of unreasonable acts. Under § 303, if the matter involves a trade agreement, such as the WTO or NAFTA, the USTR is required to commence dispute settlement proceedings under that trade agreement.
This authority requires an act of a foreign country as a trigger for action, so an investment by BMW in Mexico would not be a proper basis for action. Furthermore, under § 301(3)(c), this authority seems to anticipate that all goods of a particular type from a target country would be subject to action, not goods of selected manufacturers. Finally, any action under this authority shall “affect goods or services of the foreign country in an amount that is equivalent in value to the burden or restriction being imposed by that country on United States commerce.” Thus, this provision would not authorize a 35% tariff on specific goods from specific manufacturers.
Trade Expansion Act of 1962, § 232(b)-(c), 19 USC 1862(b)-(c). The trigger for action under this provision is a finding by the Department of Commerce that an article is being imported in such quantities or under such circumstances as to impair national security. No definition of “national security” is provided in the statute, and the relevant regulations are ambiguous as to the relationship between national security and economic security. However, it seems clear from the history and use of this authority that it has never been understood as addressing economic injury alone. In fact, the primary determination made by the Department of Commerce under this statute has historically been whether the U.S. has sufficient productive capacity for the relevant type of article. Again, BMWs do not seem to fit the picture—it does not look like the U.S. is in danger any time soon of losing productive capacity in automobiles. While U.S. courts have avoided reviewing executive determinations regarding national security, the term can only be stretched so far before deference becomes dereliction of duty.
Based on the findings from the Department of Commerce, the President is authorized to take action “to adjust the imports of the article.” Section 232(b) has only been applied to limit imports of particular types of articles, and has not been applied to particular foreign firms. Indeed, to do so would seem inconsistent with its broad purpose of protecting U.S. productive capacity for national security.
While Nixon Administration lawyers argued that the 10% across-the-board surcharge imposed by the U.S. in 1971 was supported by § 232(b), the U.S. motion for summary judgment in the Yoshida case, addressing the surcharge, did not list § 232(b), although it did list § 255(b) of the Trade Expansion Act of 1962, as a basis for the President’s authority. In any event, the Yoshida litigation did not address § 232(b).
As with the TWEA, there is a significant question of the “reasonable relation” between the triggering facts, on the one hand, and the President’s response, on the other hand. Section 232 does not seem to be a “talisman enabling the President to rewrite the tariff schedules.”
To summarize on § 232(b), it is unclear that the trigger would be satisfied, it is unclear that punishment of a single firm or country is permitted, and it is unclear whether there would be a reasonable relation between the trigger and the response of imposing a 35% duty on a single firm’s products.
Tariff Act of 1930, § 338(a), 19 USC 1338(a). Based on a finding of discrimination against U.S. products by a foreign government, this provision allows the President to proclaim new or additional duties on articles of any foreign country. This long-dormant chestnut might be a basis for the threatened duty, with two caveats. First, it requires a predicate finding of discrimination. Perhaps the finding of discrimination would be the assertion that, as the Republicans point out in the Blueprint, VAT countries have a kind of isomorphic bias—they don’t inappropriately tax goods coming from other VAT countries, but they structurally impose an additive burden on goods coming from income tax countries like the U.S. Second, the amount of the response is required to be proportionate to the burden imposed by the foreign discrimination; this would not justify a uniform 35% response. § 338(c) and (d) seem to allow for selectivity of application. There is no recent experience of use of this authority. For a history, see this post by John Veroneau and Catherine Gibson.
Trade Act of 1974, § 122, 19 USC 2132. The trigger for this authority is large and serious balance-of-payments deficits, imminent and significant depreciation, or the need to cooperate with other countries in correcting an international balance-of-payments disequilibrium. If these factual predicates are met, the President is authorized to impose a temporary import surcharge up to 150 days and up to 15% “on articles imported into the United States.” The import surcharge would seem to apply to articles generally, not specific ones. Under § 122(d), measures must be applied “consistently with the principle of nondiscriminatory treatment.” Thus, this provision would not authorize a 35% tariff on specific goods from specific manufacturers.
NAFTA Implementation Act, § 201(a)(1), 19 USC 331(a)(1). This provision delegates authority to the President to proclaim modifications of duties as the President determines are necessary or appropriate to carry out or apply specific articles of NAFTA. It could not support a tariff that violates NAFTA, and so would not provide authority for a 35% tariff on imports from offshored plants.
NAFTA Implementation Act, § 201(b)(1), 19 USC 331(b)(1). This provision delegates authority to the President to proclaim modifications of duties as the President determines are necessary or appropriate to maintain the general level of reciprocity and mutually advantageous concessions. This provision could serve as authority for a 35% tariff on exports from Mexico only if there were a plausible factual basis for the claim that the general level of reciprocity has been disturbed.
URAA § 111(a), 19 USC 3521(a). This provision delegates authority to the President to proclaim modifications of duties as the President determines are necessary or appropriate to carry out or apply specific articles of the WTO. It could not support a tariff that violates WTO obligations, and so would not provide authority for a 35% tariff on imports from offshored plants.
[1] See Holy Land Found. for Relief & Dev. v. Ashcroft, 219 F.Supp.2d 57 (D.D.C.2002), assuming in dictum that a declaration of war is necessary to invoke TWEA.
[2] Holy Land Foundation for Relief and Development v. Ashcroft, 333 F.3d 156 (D.C. Cir. 2003), cert. denied, 540 U.S. 1218, 124 S. Ct. 1506, 158 L. Ed. 2d 153 (2004).
[3] Dames & Moore v. Regan, 453 U.S. 654, 675, 101 S.Ct. 2972, 2984, 69 L.Ed.2d 918 (1981); U.S. v. Arch Trading Co., 987 F.2d 1087 (4th Cir. 1993).
[4] Touby v. United States, 500 U.S. 160, 111 S.Ct. 1752, 114 L.Ed.2d 219 (1991)
