As President, Trump Can Shackle Trade. But Will He?

January 5, 2017 3:30 PM

The US Constitution gives Congress the power “to regulate Commerce with Foreign Nations, and among the several States, and with the Indian tribes” (article I, section 8). So it’s not surprising that Senators and Representatives commonly believe that Congress has the first and last word on all measures affecting international trade. They are right about the last word. But thanks to successive statutes stretching back a full century, prior congresses have given presidents ample power to restrict trade. Eight of these statutes are summarized in the table below, along with the termination and reciprocity clauses in the North American Free Trade Agreement (NAFTA, common to other trade agreements).

To be sure, Congress is parsimonious when it comes to liberalizing trade. Liberalization requires a specific time-limited delegation of power enabling the president to negotiate trade agreements (such as the Trade Promotion Authority of 2015), and the president’s handiwork must then be endorsed by congressional ratification of implementing legislation.

But a president who wants to restrict trade enjoys almost carte blanche authority. Before President-elect Donald Trump, the only recent president with such intentions was Herbert Hoover, more than 80 years ago. And Hoover did not push tariffs sky-high by himself: Congress launched the dirty work with the infamous Smoot-Hawley Act of 1930. Today, statutes enacted since the Second World War allow Trump to impose Smoot-Hawley–style tariffs without so much as a Congressional nod.    

During the campaign, Trump variously proclaimed that he would “rip up” existing trade agreements, renegotiate NAFTA, impose a 35 percent tariff on imports from Mexico and a 45 percent tariff on imports from China, and punish US companies that outsource jobs with a 35 percent tariff on their imports into the United States. If the World Trade Organization (WTO) presents an obstacle, he promised to negotiate new terms or pull out—because the WTO is a “disaster.” 

Just because Trump will possess the power to carry out these declarations does not mean that a trade war is around the corner. Indeed, since the election, Trump has practically gone off the airwaves with respect to trade. His most prominent action was cajoling Carrier Corporation to reverse course, keeping jobs in Indiana.

The Carrier case could serve as a model for Trump’s tactics with other large firms: use a combination of threats and subsidies to elicit corporate promises of new plants and jobs. Such tactics bear a resemblance to crony capitalism rather than good policy, but they are far from the full-fledged trade war previewed in the campaign. In fact, two prominent advisers now designated for high office in the Trump administration, Wilbur Ross (Commerce) and Peter Navarro (White House National Trade Council), insist that campaign trade threats were mere negotiating tactics.

Equally important are congressional considerations. In order of importance, Trump’s legislative priorities appear to be: repeal Obamacare, enact tax reform, and launch a massive infrastructure program. Such landmark measures can only be passed using the budget reconciliation process for the 2017 and 2018 budgets, thereby requiring just 51 Senate votes, not the 60 needed to overcome a filibuster by naysaying Democrats. Why would Trump muddy his priority agenda by starting a trade war, thereby infringing on congressional sensibilities, risking a global recession, and possibly losing the votes of traditional Republicans?

Even targeted trade restrictions will attract vigorous court challenges by affected US business firms and possibly some states. Most of Trump’s actions would likely survive these challenges, both because he would have the constitutional foreign affairs powers of the presidency on his side and because he could cite the multiple statutes listed in the table below.

But foreign countries will not patiently wait for US court proceedings or litigation in the WTO to vindicate their trading rights. Targeted retaliation is almost certain, and would be carefully crafted to hurt states, companies, and communities that count themselves as Trump supporters. That prospect should bring qualms to Wilbur Ross and Peter Navarro. Meanwhile, the larger the battlefield of trade conflict, the greater the opening handed to China to lead the world trading system. This should not be a welcome outlook for Trump’s diplomatic and security advisers. 

Trump will surely open aggressive NAFTA negotiations with Mexico and Canada, and put multiple demands on Beijing. He will dump the Trans-Pacific Partnership, and shelve the Transatlantic Trade and Investment Partnership. These actions bring no joy to free traders, like myself. Great opportunities for reviving the world economy and lifting American living standards will be lost. At the same time, if Trump limits his actions to these measures, they will not unleash the thunderbolts in his ample arsenal nor bring the United States to the brink of a global trade war.

Summary of statutes available for presidential control of foreign commerce

Name of statute

Authorization trigger

Presidential powers

Trade agreements

NAFTA Implementation Act of 1993

Proclamation of tariffs

Proclaim return to MFN tariffs on imports from Canada and Mexico

NAFTA Implementation Act of 1993

Maintain general level of reciprocal concessions with Mexico and Canada

Proclaim additional duties following consultations with Congress

Limited statutes

Tariff Act of 1930, Section 338

Countries that discriminate in law or fact against US commerce

Impose additional tariffs up to 50 percent ad valorem

Trade Expansion Act of 1962, Section 232(b)

Finding of an adverse impact on national security from imports

Impose tariffs or quotas as needed to offset the adverse impact

Trade Act of 1974, Section 122

Large and serious US balance of payments deficit

Impose tariffs up to 15 percent, or quantitative restrictions, or both for up to 150 days against one or more countries with large balance of payments surpluses

Trade Act of 1974, Section 301

Foreign country denies the United States its FTA rights or carries out practices that are unjustifiable, unreasonable, or discriminatory

Retaliatory actions, at presidential discretion, including tariffs and quotas

 

Anti-Drug Abuse Act of 1986, as amended, 19 USC Section 2492

 

Uncooperative major drug producing or transit country

 

Deny GSP benefits; impose additional tariffs up to 50 percent ad valorem; curtail air traffic

Almost unlimited statutes

Trading with the Enemy Act of 1917

During time of war

All forms of international commerce, plus the power to freeze and seize foreign-owned assets of all kinds

International Emergency Economic Powers Act of 1977

National emergency

All forms of international commerce, plus the power to freeze foreign-owned assets of all kinds

FTA = free trade agreement; GSP = Generalized System of Preferences; MFN = most favored nation; NAFTA = North American Free Trade Agreement

Source: Hufbauer (2016).

Comments

Jj

Another instance where Congress gave up its control was the Trade Agreements Act of 1934. In the hundred years before 1934 the United States was the most tariff protected nation on earth. Tariffs when up and down as Republicans pushed them up and Democrats pushed them down. Franklin Roosevelt's Secretary of Commerce sough a way to lower tariffs in such a way that Republicans could not reverse them upward when and if they got control of Congress. His solution was to put tariff reduction in a treaty so on Congress could change the level of tariffs.

Add new comment