President Trump’s Tariffs and the Separation of Powers at the Supreme Court

Michael McConnell: Tariffs are taxes. Taxes on Americans. The tax bill, it goes to my clients. My clients pay the bill. Tariffs are not paid by foreign governments as President Trump sometimes says. Taxes on American citizens is something that is closely guarded by Congress. We actually fought the American Revolution largely on the slogan of no taxation without representation. That is to say you shouldn’t have to pay taxes unless you’re represented in a legislative body that enacts them.

Pam Karlan: This is Stanford Legal where we look at the cases, questions, conflicts, and legal stories that affect us all every day. I’m Pam Karlan along with Diego Zambrano. Please subscribe or follow this feed on your favorite podcast app. That way you’ll have access to all our new episodes as soon as they’re available.

Today we’re going to be talking with our colleague Michael McConnell about something that does affect us all every day if you buy any products other than things at the local farmer’s market—and maybe even there—which is the tariffs that President Trump has imposed on a huge number of nations and a huge number of goods, and the challenge that’s been brought to those tariffs.

It’s great to have Michael back on the show. Michael is the Richard and Frances Mallery Professor of law here at the law school. He’s visiting at NYU for the fall, and he is serving as one of the lawyers in a challenge to the tariffs case. Michael is also, I should say, somebody that William Brennan, who was a justice on the Supreme Court, once said was one of his two smartest clerks. And so having Michael here to talk with us about the tariffs case is especially good because this is actually a really hard and complicated issue. So, thanks so much for coming back to the show, Michael. 

Michael McConnell: Thanks, Pam. Are you sure he didn’t say I was one of his most “smart alecky” clerks? 

Pam Karlan: No. He actually said, and this is actually such a tribute to you, Michael, he said: “My two smartest clerks were Michael McConnell and Richard Posner, and I don’t agree with them about anything.” Now this was, of course, after a couple of martinis in Miami after he’d retired. But I really do think that you bring so many different skills to being a law professor, both having been a former federal judge and being an active litigator, in addition to being a scholar of presidential power, stretching back to the founding. So, it’s just delightful to have you here. 

Michael McConnell: My, I don’t know what to say. That’s the most flattering introduction I’ve ever gotten. 

Pam Karlan: Usually, you have to be dead before people say such nice things about you. But I figured it is worth saying now. 

Michael McConnell: Being at NYU is like being Tom Sawyer at his funeral.

Pam Karlan: Oh, I thought … are you asking people to paint fences? 

Michael McConnell: Actually I do, yes. I get people to give me free help on tariffs because I’ve had to do a whole education in American trade policy. 

Pam Karlan: Yeah. So maybe we should start with what actually the president did. 

Michael McConnell: So, on April 2nd, he issued an executive order, which declared an emergency under the National Emergencies Act, an emergency with respect to what he called “large and persistent trade deficits.” And at the same time also said that they presented an “unusual and extraordinary threat” to various American interests. Those are all buzzwords in a statute called the International Economic Emergency Powers Act, which everybody calls IEEPA. I love that name: IEEPA. And what IEEPA does is it gives the executive a number of authorities having to do with world economic matters that are triggered only upon a declaration of emergency, but also can only be exercised in the case of a “unusual and extraordinary threat” to American interests. IEEPA is a successor statute to something that was called the Trading with the Enemy Act. And the Trading with the Enemy Act was essentially a codification and extension of old common law principles arising out of the law of war. So, when a country declares war, it becomes illegal for their own citizens to engage in trade with the enemy country. It also authorizes the belligerent nation to seize property and do a number of other things.

IEEPA carries over a number of these authorities. None of them historically had anything to do with tariffs. They all had to do with things like embargoes, blockades, asset freezes, that sort of thing. 

Pam Karlan: So, no Cuban cigars. 

Michael McConnell: No, no Cuban cigars. Exactly. The most famous use of IEEPA was in the Iranian hostage crisis when Jimmy Carter, and then joined by Ronald Reagan, negotiated a settlement under which the American hostages were returned to the United States in exchange for setting up a process for getting Iranian assets back into Iranian hands. And this involved suspending certain claims that were pending in U.S. courts against Iranian companies, essentially releasing a whole bunch of billions of dollars was involved and the IEEPA was used to do that. So, this has to do with asset freezes. Again, never taxing. The taxing power is vested in Congress and there’s no doubt that is taxing. That’s imports as well as anything else. This is Article 1, Section 8, Clause 1, the very first clause giving the powers of Congress, gives Congress the power to impose “taxes, imposts and duties.”

Imposts and duties: those are just synonyms for tariffs. In the early years of the Republic, tariffs amounted to the vast majority of federal revenues, often more than 90% of federal revenues. They were the leading tax. And so when people speak of the Congress having the power to tax, and power of the purse in the early years of the Republic, that really meant control over tariffs. And it has only been recently that presidents have had any authority at all. And we say that the president has to stick with the specific statutes that talk about tariffs, that give him authority with respect to tariffs. And he can’t reach out to IEEPA, which doesn’t even mention tariffs. And by the way, no president has ever used it for tariffs in the past.

Diego Zambrano: Before we get into the weeds of the tariff arguments in the case that you’re litigating, I want to again ask the broader question of emergency powers in general. So, you’ve mentioned the history and the framers, and it seems like there’s this enormous web of emergency powers in general. Do you see those as a monstrous deviation of the original design of the Constitution, or are emergency powers appropriate and you happen to disagree with the one here?

Michael McConnell: So, the President has no emergency powers vested by the Constitution. But if Congress chooses to give him defined emergency powers, I don’t think there’s anything wrong with that. And indeed, I think there are circumstances in which somebody has to be able to move quite quickly in the event of an emergency. You can’t always bring Congress together and get something passed. 

I do think that there is a problem with the National Emergencies Act in that it is extremely broad and it unlocks powers under, I think, 180 different statutes. And when the Emergencies Act was originally passed, Congress had a one-house veto, or it may have been a two-house veto, but had a legislative veto so that if the president declared an emergency and Congress didn’t agree, they could immediately shut it down. 

About 10 years later, the Supreme Court held that legislative vetoes in general—not specifically about the Emergencies Act—but legislative vetoes in general are unconstitutional. And yet the Emergencies Act is still out there.

Congress felt free to write a very broad statute because it would hold the reins, and now we’re stuck with an unusually broad statute without the check that Congress originally …

Pam Karlan: If I can follow up on what Diego was saying: Diego, I’d love for your reaction to this as well. There’re two different issues here in a way. One is: can Congress give these emergency powers to the president and did it? And the second is: what counts as an emergency. Also there’s not a really great definition of an emergency is there?

Michael McConnell: There’s no definition at all in the Emergencies Act.

Pam Karlan: And we have a president who seems to think everything is a five-alarm fire.

Michael McConnell: Yes, this is true. Although we have to acknowledge that previous presidents were free to declare emergencies as well. There are quite a few emergencies on the books about any number of things. Very rarely do they pertain to a massive domestic policy like a tax. This is, I think, the most far-reaching presidential act justified on an emergency basis. 

Diego Zambrano: Maybe a related question, before we get into the weeds of the case, and I do want to do that: The question of congressional inaction. You mentioned this system might make sense where Congress can’t act and therefore it delegates to the president emergency powers to act as quickly as the president can. But now you have a situation where Congress could act, is just paralyzed by for different reasons. It seems, again, this is a corruption of the way the system is supposed to work. 

Michael McConnell: This is a broader problem than just the emergencies. In recent years, presidents have tended sometimes to take the view that if Congress won’t do what they want, then Congress isn’t doing their job, and we’ll just do it ourselves.

President Obama was famous for saying something like, “I have a phone and a pen,” and so he was just going to do it. As you say, this really is a departure because if there’s a power that is vested in Congress and Congress does not act with that power, it means that there is no authority in the executive to execute.

Pam Karlan: Do you want to turn now to the tariffs case itself, including a little bit about how this case came about and the claim you’re making? 

Michael McConnell: There are actually three cases that are consolidated. I am involved in one of them, which I think is the most important, maybe because I’m involved, but also because it has real plaintiffs with real stakes in the action. There’s no question of standing. Our clients are five small businesses that have paid tariffs and are suing for a refund. They’re also affected by the tariffs in other ways in that their input costs have gone up. In many cases, that’s enough to drive them out of business, though fortunately they haven’t gone out of business yet. The other two cases: one was brought by 12 states, all of them with Democratic attorneys general. And then there’s a third case which was also brought by individual businesses, but not brought in … This is really getting into the weeds, but our case was brought in the Court of International Trade. There’s a statute that provides that any litigation about the enforcement of tariff laws must be brought in the Court of International Trade and nowhere else. And this other group, the leading plaintiffs called Learning Resources, brought suit in an ordinary federal district court.

And so there’s a [unintelligible] question as to where the case should have been brought. The Supreme Court allowed Learning Resources to intervene in this … or to be consolidated, and to be part of the same action so that no matter where jurisdiction is, the Supreme Court’s going to be able to decide this case.

Pam Karlan: And they put it on a super-fast track for them, which is they set it for the November sitting, the first week of the November sitting. 

Michael McConnell: That’s right. They could hardly have acted any quicker. But note that this is not one of those emergency so-called shadow docket cases where they decide important questions, provisionally, without there having been a full decision. There’s an actual decision by the Court of International Trade on the merits, full opinion. There was full consideration by the appellate court with a decision on the merits. There’s full briefing. There will be argument. This is a normal case. It’s just that they’re doing it quickly.

Pam Karlan: Which I think is so much better than what they’ve been doing with the shadow docket because the parties do have a full opportunity to present their arguments, both in writing and orally. 

Michael McConnell: I don’t think it’s the Supreme Court’s fault, but these cases where they have to grapple with difficult issues, often for the first time, where there hasn’t even been a decision below, is a problem. But our case is not like that.

Diego Zambrano: Let’s talk about the reasoning of this decision in the Federal Circuit. In broad terms, the court held that “regulate importation” doesn’t authorize these tariffs. The president issued—and there are a bunch of tariffs and it is important to untangle which tariffs we’re talking about because they may be authorized by different statutes. But the main one here, IEEPA, doesn’t authorize this. Now, this was a seven-four majority decision, and there were four dissenters who wrote a compelling dissent on why they think that IEEPA does authorize these tariffs. So, what do you think is the biggest disagreement there? Maybe start by discussing the statutory texts. 

Michael McConnell: Yes. The big disagreement is over the meaning of this phrase, in IEEPA, namely the president, that in the event of the unusual and extraordinary circumstances and an emergency, in that event, the president has the authority to engage, do certain things, and one of them is to “regulate importation or exportation,” 

It was the opinion of the majority that does not include taxation, that regulation is a separate kind of power than the power to tax. But even if it did that, IEEPA, if there’s any taxing power at all, thatI EPA has to be limited in some way –it can’t just be an unbounded power for the president to be able to do whatever he wants.

A great deal of this has to do with the history of how IEEPA came about in the 1970s, and that’s really where it may get into the weeds, but I think that’s where the real meat of the legal argument in the case is. 

Diego Zambrano: Absolutely. And I just think we should just say briefly that the text “regulate importation” doesn’t include the word “tariff” or “customs.” It doesn’t … 

Pam Karlan: Or “duty.” Or “tax.”

Diego Zambrano: Duty, tax, et cetera. And so you could argue just on a textual basis, that this isn’t covered. The president doesn’t have this power. 

Michael McConnell: You could and we do. The government argues, quite strenuously, that the term “regulate” might … sometimes … it doesn’t preclude taxation and sometimes it includes a taxation.

You could imagine, for example, a statute that says something like the FDA may regulate cigarettes by imposing taxes. That is not an incoherent idea, but our position is without some sort of special context or words of that sort, you don’t just read into the word, the bare word “regulate,” this very different power of taxation.

Diego Zambrano: And especially when you do have other statutes that more explicitly say things like “taxes,” et cetera. However, Michael, I do want to…. 

Michael McConnell: So, that’s a very important point, Diego, because Congress has passed a series of statutes giving the president explicit powers to impose tariffs under specific circumstances. For example, where a type of import endangers national security—an import or export. So, for example, this might involve the export of militarily significant technology. The president is able to block that under that statute. Another statute provides that when another trading partner is engaged in dumping or other unfair trade practices that the president can respond with a tariff, but through a rather elaborate process that has to be… 

Pam Karlan: And those statutes have a lot of process and then they also have a lot of substantive restrictions on how much the tariff can be in some cases, or for how long it’s imposed or the like. And if the president can proceed under IEEPA, presumably his claim is he has unlimited authority to decide how big the tariff is and for how long?

Michael McConnell: Yes. And the most pertinent such statute was just passed in the Congress before IEEPA, and this is Section 122 of the Trade Act of 1974. It is in the case of law of large and serious trade deficits that the president can act, but he cannot increase tariffs by more than 15%, and it only lasts for 150 days.

Most of President Trump’s tariffs, or at least a great many of them, depending on whether … they keep changing almost every day. On and on, again, off again, but many of his tariffs are in excess of 15%. 57% on Brazil, for example. 30% on India. China seems to change every day.

So they’re in excess of that limit. And also they’re perpetual. They’re not limited to 150 days. Our position is when Congress enacts a specific statute, allowing a certain power, but limited in a particular way, it makes no sense to say that another statute that doesn’t even mention tariffs, just allows the president to do whatever he wants.

Diego Zambrano: And I do want to talk about the history, but I will say the government has this argument that the statute does say the president can prohibit the importation, and it would be maybe nonsensical to say that you can prohibit the importation, but you cannot tax it, right? The greater power to prohibit includes the lesser power of taxing.

Now maybe just briefly address that, but then I want to talk about the Nixon precedent because I think a lot of the case hinges on that. 

Michael McConnell: So I’d be happy to address the greater includes the lesser argument. There’s both a historical and a logical problem with that argument. The historical argument is that IEEPA comes from the trading with the Enemy Act and the Trading with the Enemy Act was essentially a codification of the old law of war, which prohibited imports and exports when you’re at war with another country. It didn’t allow taxation and it was never used for taxation. So, the prohibition taxation line is embedded in the very history of these powers.

Logically speaking, though, there’s some reasons why their taxing power is really not a lesser power. For one thing, taxation yields revenue. And President Trump is proud of saying how many, hundreds of billions of dollars his tariffs are going to bring in. That’s a real temptation. Embargoes, prohibitions don’t bring in any money and bringing in money is always a very tempting thing. And it makes sense to treat these two things as quite different because the politics of them, the practical consequences are so different. The second thing is that these prohibitions are prohibitions on foreigners importing into the United States. Tariffs are taxes. Taxes on Americans. The tax bill, it goes to my clients. My clients pay the bill. Tariffs are not paid by foreign governments, as President Trump sometimes says. Taxes on American citizens is something that is closely guarded by Congress. We actually fought the American Revolution largely on the slogan of “no taxation without representation.” That is to say that you shouldn’t have to pay taxes unless you’re represented in a legislative body that enacts them. So, the idea that that regulation is “greater” and it includes the “lesser,” just seems like a category error. 

Pam Karlan: I’ve always thought the two are orthogonal to each other. One is not smaller than the other in the way that “assault” is less than “assault with a deadly weapon.” It’s not like that. And you raised one point … I just want to say one thing about and then turn back over to Diego: The president keeps saying, as you noted, that foreign governments are paying these tariffs and that, at the end of the day, is just not true. At some point the cost of those tariffs gets passed on not just to your clients who are American businesses, but to the customers of those businesses who are going to have to pay. And one of the things that’s so extraordinary to me about the government’s arguments is not just the quality of some of them, but also …  You were an assistant in the Solicitor General’s office for many years before you became a professor, and then a judge, and then a professor and some of the statements the Solicitor General has made in his filings with both the Federal Circuit and with the Supreme Court are just unlike anything I’ve ever seen from the government before. There was a letter saying that without the tariffs, America was a dead nation. And I just think it’s worth noting how unusual that all is. 

Michael McConnell: Pam, you’re a professor of law and you can point things out like that as one of the lawyers in the case. I think I’m going to pass on commenting on the other sides briefs. 

Pam Karlan: That’s why I thought I’d say a little bit about it, but back to you, Diego. 

Diego Zambrano: There’s this question that we’ve been mentioning several times in the history of how the statute was enacted, and there’s this argument that under the previous statute before IEEPA, the Trading with the Enemies Act, President Nixon actually imposed a 10% global duty.

And the argument is twofold. One that Nixon used the same exact language in that previous statute to regulate importation and that same language was preserved in IEEPA. Two, is that there is precedent for a president doing this, and that affects a second question in the case of the major questions doctrine. The idea that we should read statutes such that the president or administrative agencies don’t have the power to impose major, unprecedented regulation that has an effect on the economy, et cetera. We’re gonna get into that, but talk to us about the Nixon case and the meaning of it. 

Michael McConnell: This is really important to the legal detail of the case because the government’s argument, which is this language regulating importation or exportation is the same as language in the Trading with the Enemy Act. The Trading with the Enemy Act was originally passed during World War I. It was never used for tariffs until 1971. When, for one time only, a president did use it for tariffs, and this was Richard Nixon at a time of an undoubted emergency.

What happened is that the old monetary system, the gold standard, broke down and very quickly, there was a real problem and President Nixon imposed a 10% surcharge. That’s respecting all of Congress’s set rates, but changing them by 10%, and it was temporary lasting less than five months. 

Congress actually didn’t disagree with the economics of what Nixon did, it was probably one of Nixon’s smartest moves, but they were very concerned about the assumption of power, and so there were hearings on the Trading with the Enemy Act, in which witness after witness came in and said, this is a dangerous power. Even the administration at the time testified that maybe this needs to be cut back. And so they did several things. The first thing was they passed a specific statute to give the president explicitly the power that Nixon had exercised.

They explicitly say in the case of large and serious trade imbalances, the president can impose tariffs, but with only 15% limitation and only for 150 days. If IEEPA, Trading with the Enemy Act at the time, really did provide this authority there’d be no need for this statute. So what they did is, after Nixon acted they ratified his decision, but with a very narrow and specific statute. 

Secondly, they then repeal the Trading with the Enemy Act, except in the case of declared war. And then third, they enacted IEEPA. And by this time, they now think that the tariff issue has already been dealt with so they don’t even mention tariffs. There’s nothing about tariffs in legislative history, nobody talks about tariffs. And the reason for that is they had already dealt with the tariff question in the Trade Act.

So Nixon does his tariffs, his 10% surcharge, they’re immediately challenged in customs court, the predecessor court to the court of international trade, says Nixon didn’t have the power to do that. Trading with the Enemy Act and regulating importation does not mean that.

That’s when Congress enacts Section 122 of the Trade Act, giving the president this very limited authority. By this time, the tariffs are over, all that’s at stake in the litigation is whether the people who had paid the tariffs are entitled to a refund. The appellate court reverses the customs court and they say the Trading with the Enemy Act is broad enough to encompass Nixon’s tariffs.

The reason that was okay is that Nixon’s tariffs were limited. They were temporary and the way Nixon did them is under the congressionally authorized rates. So Congress had authorized tariffs at a pretty high level, and then over the years, given the President’s authority to negotiate with trading partners to bring them down.

What Nixon did was go up by 10%, but only countermanding decreases that had been by presidential decision, not congressional decision, so he completely stayed within the legal structure of what Congress had previously enacted. 

Diego Zambrano: Although Michael, this doesn’t rebut the idea that the language regulated importation could include a tariff.

You are giving us a lot of other detail. 

Michael McConnell: But if the only reason one might think that is because a court said so, then you want to look at what the court actually said. And what the court said is that we’re approving very narrow, limited tariffs.

They go on to say, we are not interpreting this to give the president unbounded tariff authority. They say it would be unconstitutional, it would be contrary to the whole history of trade regulation and the government now wants to say that means unbounded authority.

Diego Zambrano: A lot of this hinges on how we interpret that original Nixon global duty of 10%, the Yoshida case in between and then what Congress did in IEEPA. There are lots of arguments about that and the dissent at least buys the government’s arguments and a lot of the Supreme Court case will revolve around that.

I want to ask you a final question here on the major questions doctrine. Over the last ten, fifteen, twenty years or so, the Supreme Court has increasingly used this doctrine to limit the power of agencies, but also the president to at least issue regulations that have vast economic and political significance.

And the court has said, we’re not gonna interpret a statute to confer that power unless Congress is very clear. The argument here is that we should read the statute as not conferring this authority on the president because it would be of vast economic and political significance.

Talk about how you think that’s going to go in front of the Supreme Court. 

Michael McConnell: Some observers have said that’s really going to be key to this because if you look at this history of the 1970s and the fact that Congress did continue to use language from the Trading with the Enemy Act, maybe that opens up a possibility, but it isn’t clear.

Congress did not make itself clear and didn’t use any language that refers to tariffs. There’s nothing in the legislative history that supports this, so it is not clear. If the Congress has to express itself clearly then what President Trump did can’t possibly be sustained. There’s also a political dynamic here because this doctrine has become used very frequently in recent times, but that meant recent times were democratic presidents. The Supreme Court wielded this doctrine to strike down a number of President Biden’s actions, like for example, the eviction moratorium under COVID, the forgiveness of student loans, the vaccination mandate, and various set of climate regulations under the Clean Air Act. All of these were invalidated on the ground that the statutes invoked by the executive did not clearly give this power.

You would expect there’d be some clear indication that Congress had intended to give such vast discretion to the president. That’s been used a lot by this court to strike down actions of the Biden administration. And, it may raise some eyebrows when it comes to the Trump administration that they don’t act the same way.

Diego Zambrano: I’ll just end by noting briefly that we were really focused on identifying areas of disagreement and how the case is likely to go in front of the Supreme Court. We started with the structural fact that Congress is paralyzed and that causes a lot of these problems. That gives the president more of an excuse to act under these emergency statutes.

Then we have this vast expansion of presidential power. But we really moved into the statutory interpretation question of whether this statute regulating importation, allows tariffs or not. And then President Nixon. 

Pam Karlan: And we will see in about a month, the arguments in the case. As Nina Totenberg always likes to say, “A decision is expected by June.” Although I would expect that the Supreme Court might try and get this out a little faster than that. I want to thank Michael McConnell again for joining us. 

This is Stanford Legal. If you’re enjoying the show, please tell a friend or leave us a rating or review on your favorite podcast app. Your feedback improves the show and helps new listeners to discover it. I’m Pam Karlan, along with Diego Zimbrano. See you next time.