Stanford’s Alan Sykes on the Future of Trump’s Tariffs After the IEEPA Case

Al Sykes: That argument essentially was accepted by a majority of the Court that IEEPA was not an authority for imposing tariffs. The statutory language talks about the president having the power to regulate importation, and the argument was that power to regulate does not include the power to tax, which a tariff, of course, is a tax on imported goods.

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I sometimes think about … there’s this song in West Side Story: “Maria, the most beautiful word I ever heard. Maria, Maria. Maria.” And if it was Donald Trump, it would be “tariffs,” right? Donald Trump says tariffs are his “most favorite word in the entire English language.” I would’ve thought his most favorite word was “I,” but after “I,” or “me,” “tariffs” is his next most favorite word. And shortly after he took office President Trump imposed a bunch of tariffs. He said he was doing it because of the threat of illegal drugs coming in from Canada and Mexico and China, and because we were facing large and persistent trade deficits with virtually every other country in the world. And so he imposed a bunch of tariffs pursuant to something called the International Emergency Economic Powers Act, which is often called IEEPA.

He declared a national emergency and invoked his authority under IEEPA to respond. And he imposed all of these tariffs, and a number of businesses that were subject to these tariffs, because they imported things into the United States, brought suit. And recently the Supreme Court addressed whether the president has the power to impose tariffs or not.

I’m joined today by my colleague Al Sykes, who is the absolute go-to person here at Stanford for all things trade- and international trade- related. Al is a professor of law and he’s the Warren Christopher Professor in the Practice of International Law and Diplomacy. He directs our master’s program in International Economic Law, Business and Policy and he is an expert on American trade law international trade, and similar topics.

So welcome back once again to the show, Al, to talk about tariffs, this time with the Supreme Court’s decision.

Al Sykes: Great to be here.

Pam Karlan: Tell us a little bit about these tariffs and what the challenge was under IEEPA.

Al Sykes: So, the main tariffs … there were two groups of tariffs. One based on the fentanyl trade imposed against China, Mexico, and Canada. But the main focus of the litigation, and the concern about the remedies now, is the so-called reciprocal tariffs, which were originally announced by President Trump on Liberation Day last April and were tariffs that discriminated across countries based on the size of their bilateral trade deficit with the United States.

And they ranged in magnitude from around 15% at the low end, up to 50% or so at the high end. And they’ve … they were put in place and then they’ve been modified, there’ve been exemptions and all sorts of changes over time. President would sometimes raise them if he was upset about some negotiation going on with another country. He would sometimes lower them. He reached some tentative trade deals with certain countries that would bring down some of these tariffs.

So, they’ve been bouncing all over and they were all imposed under the IEEPA statute that you mentioned a moment ago, which is a statute that can be triggered when the president declares a national emergency. The statute gives him powers to address “unusual and extraordinary” threats that originate abroad using measures that deal with the emergency. So that’s what he was purporting to do.

Pam Karlan: So, can you explain what his theory was about how, for example, the importation of fentanyl coming across the border had anything to do with tariffs on things coming from Canada, like maple syrup and the like?

Al Sykes: The administration’s theory in the litigation was that the tariffs were designed to pressure the trading partners affected by them: Canada and Mexico and China, into doing more to interdict fentanyl trade.

So, it was much like the theory behind sanctions that we impose on adversaries to punish them for whatever we want to punish them for—sanctions we’ve had on Cuba, Iran, North Korea, and others through the years. So, there was no notion that these tariffs were directly addressing fentanyl, but rather the idea was that they were going to pressure these countries into helping us out more.

Pam Karlan: And then the other tariffs that you said … and I remember these formulas he came up with for how he was going to impose these tariffs on other countries. And there are a lot of countries in the world that we import stuff from, but we can’t really export very much to them because what we’re importing is raw materials from countries that are really dirt poor.

Al Sykes: That’s true. So, there’s a lot of bilateral trade imbalances. Just as in our own lives. I run a big trade surplus with Stanford. And I buy hardly anything from Stanford, and I run a big trade deficit with the Safeway. And countries are the same way. They sell to the folks around the world who demand what they specialize in and do best in producing, and they buy from the countries that specialize in the things that they need.

And the result is a wide range of bilateral surpluses and deficits, which are perfectly normal. But the president made the claim that bilateral deficits represent unfair treatment of the United States by the foreign countries, that anytime we have a bilateral deficit, it’s because of some lack of reciprocity in our trade relations, which an economist would say is just fallacious, but that was the starting point for the argument that there was a national emergency, that this lack of reciprocity was injuring the manufacturing sector, causing an emergency in the manufacturing sector. That, in turn, these tariffs, based on the size of the bilateral deficit, would somehow ameliorate, without any specifics as to exactly what the emergency was, who was suffering the emergency, or how these tariffs were going to address the emergency. So, it was a troubling exercise from the outset for sure.

Pam Karlan: Yes, and I gather that there was also this real question about whether imposing a bunch of tariffs would actually bring manufacturing back to the United States, especially with the president who kept changing the tariffs day by day and week by week.

Al Sykes: So, if you want new investment in manufacturing, you need certainty. You need a long-term picture that’s consistent with new investment and certainly tariffs spent bouncing all around was not that, so it was unlikely just thinking about it to do much to bring manufacturing back. And indeed, we know from the data that the U.S. manufacturing jobs have actually gone down since Liberation Day. A long-term trend that is mainly driven by improving productivity and manufacturing. It doesn’t have much to do with trade policy.

Pam Karlan: So, these businesses sued and their basic claim was that IEEPA wasn’t a tariff statute at all. It was a statute that was enacted to deal with things like preventing the importation of something altogether, having a trade embargo or the like. And so, when they got to the Supreme Court, what happened?

Al Sykes: That argument essentially was accepted by a majority of the Court that IEEPA was not an authority for imposing tariffs. The statutory language talks about the president having the power to “regulate importation,” and the argument was that power to regulate does not include the power to tax, which a tariff, of course, is a tax on imported goods.

And there were lots of “slippery slope” kinds of arguments made about if the president can impose tariffs to deal with this situation, why couldn’t he impose tariffs to deal with all kinds of other real or imagined supposed emergencies? And you could use the taxing power to really disrupt trade and raise a lot of money without any Congressional participation. And the argument was that Congress never intended to grant that power in IEEPA.

And so the justices said that’s clear on the face of the statute. Others said that even if it might be read to confer tariff power, the Major Questions Doctrine would require that such an important delegation of power to the president be clear and unambiguous, and the statute is not clear and unambiguous. And then of course, there were some dissenters who said that regulating importation does include the power to impose tariffs, because that’s often the way we do limit importation by using tariffs. So, it was a 6-3 split, but the argument that the taxing power could not be found in IEEPA was the one that ultimately carried the day.

Pam Karlan: So, I want to unpack that a little bit. We with… it was 6-3, but there was also a kind of 3-3 division within the majority. The Chief Justice started by essentially saying: We need to start with whose power is the taxing power? And he said, it’s Congress’s power. It appears in Article I of the Constitution.

And in something that I took … I didn’t know whether it was exactly Freudian or not, but he several times called the taxing power “the birthright of Congress,” which made me think he’s also looking forward to the next big case that’s going to be argued at the Supreme Court, which involves birthright citizenship and the president’s attempt to change that. And he said, if Congress was going to delegate this taxing power to the president, you’d expect the word “tax,” or the word “tariff,” or the word “excise,” or the word “duty” to appear in the statute, because those are all nouns that have been used to refer to taxes over time.

And one thing, I think, for some of our listeners, it’s a long opinion, it’s a long set of opinions. It’s 170 pages in total, but it’s worth reading them in part because you get a sense of the history of tariffs in the United States and that was how the federal government raised its revenue for the first a hundred years or so. Certainly, before we had the income tax, it was the major way of raising revenue. And so the court says we would expect …and you just pointed to this Major Questions Doctrine, which is a dozen-year old doctrine … the Supreme Court has says, if the president is going to do, or the president or somebody in the executive branch is going to do something huge and important that’s fundamentally transformative in some ways of the economy, we’d expect to see something explicit in the law that they’re claiming authority from.

And here, I think the Chief must have said like 14 times, “I look in IEEPA, I don’t see the word tariff. I don’t see the word tax.” And so even though we often regulate things, if you think about trying to affect behavior through taxes, this is not something that we think is a tax.

And he actually asked the Solicitor General, I think, in oral argument, “Can you point to any other law that uses, that gives the president the power to regulate something where he’s imposed a tax?” and the Solicitor General really couldn’t. So you have that group and then you had, so that was three of the conservative justices, the Chief Justice joined by Justice Gorsuch and Justice Barrett.

And then you had the three more liberal justices, Justice Sotomayor, Justice Kagan, and Justice Jackson saying they agreed that IEEPA didn’t give the president the power. But then you had an interesting back and forth actually within that group between … among, I guess I should say, Justice Gorsuch, Justice Barrett and the three more liberal justices with a joint opinion by those justices, and then a separate opinion by Justice Jackson. What do you make of the fact that so many justices felt the need to tell us something here?

Al Sykes: This is an area you know much more about than I do. Constitutional law and statutory construction are not my forte. But it seems to me that the core battle here might have been over the sort of scope and future of the Major Questions Doctrine. Seems to me that the … as you called the liberal justices were not fans of the decisions that went against the Biden administration under Major Questions on the EPA power to regulate greenhouse gases by forcing utilities to shift to away from coal and the student loan forgiveness program.

And so, I think maybe … this is speculation on my part, maybe they felt in order to be consistent in their sort of looking down their nose at the Major Questions Doctrine, they wanted to decide this on pure statutory construction grounds without the need for Major Questions necessarily.

Whereas I think Roberts and that group were prepared to concede that the phrase “regulate importation” could be understood, potentially, to include a power to use tariffs, since we do regulate imports through tariffs historically. And so they thought maybe the additional weight of the Major Questions Doctrine was important to bring to bear here.

And then there was a little bit of the split between Justice Barrett and Justice Gorsuch on exactly what the Major Questions Doctrine means. Is it just a matter of common sense or is it something more? And on that kind of question, I would defer to you as the much more knowledgeable party here.

Pam Karlan: Go figure on the Major Questions … The three dissenters were all big proponents of the Major Questions Doctrine during the Biden administration and during the Obama administration, which is when the Major Questions Doctrine first got really invented. But they said the Major Questions Doctrine shouldn’t apply here.

Al Sykes: One theory as to why is because the, at least as I read both the first part of the Kavanaugh opinion and maybe the Thomas opinion they thought it was clear that regulating importation does include tariffs so that there’s no need for clarifying an ambiguity. And then of course, the Kavanaugh view that Major Questions shouldn’t appeal apply to foreign affairs matters where the president has more inherent power, which I understood that was something that people thought Kavanaugh might think based on his prior writings. Though I guess I have to say I’m sympathetic to the view that this is not, even if you thought that there should be some greater deference in foreign affairs area, this is primarily domestic tax on American consumers. That’s what the data show to be the incidence of this tariff process. About 90% is borne by Americans at some point in the chain of distribution, so…

Pam Karlan: And also the emergency here with Canada, Mexico, and China was fentanyl deaths in the United States. Which, it’s hard to say that’s a question of foreign affairs. Wherever the fentanyl is coming from, the incidence there is 100%, it’s not even your 90% with regard to the payment of the of the tariffs themselves.

Al Sykes: Yes. So even if you did have some sort of foreign affairs limitation, it seemed to me that the majority opinions, or the folks on the majority side of the case, had the better of the argument as to whether or not this was really a foreign affairs issue.

Pam Karlan: I want to ask you now: Two questions going forward. The first of which is, what happens to all the money that was paid in by importers and the like during the period of time when these tariffs were in effect? What happens to all that money?

Al Sykes: The court of course didn’t say there’s nothing in the opinion about…

Pam Karlan: That’s why I figured I’d ask you…

Al Sykes: As I understand it the, so … I have to define a concept of term of art from customs law called “liquidation.” When you bring goods into the country, you make a preliminary assessment of the tariff liability and file paperwork with the custom service where you make a judgment about what tariff classification the goods are under, what the value of the goods is, because the tariffs are usually ad valorem tariffs, a percentage of value, and sometimes it matters what country the goods came from, but you make preliminary judgements on all of that. And then you have an estimated tariff, and you pay a deposit equal to that estimated tariff. And then the paperwork goes into the customs service and they can review it and think about it and decide whether any mistakes were made or whether any new developments warrant a change in the tariff that was determined.

And then at some point they will wave their hands and say, “we’ve we finally determined this is your definitive tariff liability,” and that’s called liquidation. And that typically takes several months after the goods come into the country. And if the customs service hasn’t gotten around to it after 314 days, then the goods are deemed to be liquidated.

So the process of what happens to the duties that you were asking about—if the entries are not yet liquidated, the importer who brought them in can file a form saying the original determination of the tariff was wrong because it included IEEPA tariffs and please correct it before liquidation and then refund us all of the excess.

If their entries have been liquidated, which would be true for some of them for sure, then the importer has to file a different form, called a protest form, saying that you made a mistake and we want a refund because the tariffs for IEEPA purposes, were not legal, and that form has to be filed within 180 days of liquidation. So, there could be some people who missed out because their entries were liquidated more than 180 days ago, and they didn’t file any sort of protective protest form in anticipation.

And then the third possible answer to your question is that companies can go to the Court of International Trade and ask the court to order the customs service to reliquidate or not to liquidate the entries and refund all of the overage. And that process apparently is uncertain as to how the court will react to all that. They, there were some suits filed last year.

Pam Karlan: Yeah, I was going to say, I think there were a bunch of lawsuits, kind of protective lawsuits filed by people who thought, “I need to be in the process when the Supreme Court rules.”

Al Sykes: Exactly. So for example, Costco filed suit last year and they didn’t seek a refund at the time, but they wanted to preserve their rights and the remedy they sought was an order from the court telling the custom service not to liquidate any entries pending the outcome of the case. And that would’ve made it a simpler process to just file the form asking the customs service to back out the IEEPA tariffs before liquidation.

The Court of International Trade denied that relief after the Justice Department said, “don’t worry, the plaintiffs in this case, we will not contest their right to a refund down the road.”

So that’s where that all stands.

Pam Karlan: I’ll believe that when I actually see it.

Al Sykes: Yes. And then it’s possible that there will be new lawsuits before the Court of International Trade, where people who didn’t protect their rights but are nevertheless trying to somehow argue that they should get a refund. And all of that remains to be sorted out in due course.

Pam Karlan: So a second thing I was hoping you might help us sort out is a number of foreign countries got hit with these tariffs, and so they tried to make side deals with the Trump administration: “We’ll do this and this, if you’ll reduce our tariff to, 12% instead of 48% or whatever.” What happens to all those deals? It’s a weird thing because they made the deals in the shadow of tariffs that now turn out to be invalid, but does that help them or are they just out of luck because they made a deal?

Al Sykes: Of course … you know once we get into the domain of these international deals there’s not really an enforcement mechanism either side can always renege. It’s a question of whether these foreign countries think that they want to say that now that your ability to whack us over the head if we don’t do what you want has been taken away to some extent, we’re not going to honor the deal. So, the European Parliament decided to pause the approval process on the deal that it had reached with the Trump administration. I heard that yesterday, I think. And it may be that other countries do the same, although Mr. Trump has threatened that he will look very dimly on any country that doesn’t honor the deal it made after the tariff ruling. And so we’ll just have to, that’ll be a diplomatic battle rather than a legal battle.

Pam Karlan: Yeah, and then there’s a third big “what’s gonna happen next,” which is, I don’t know, within 17 minutes of the Supreme Court coming down with its decision, first the president denounced the Supreme Court, told several of the justices their families should be ashamed of them, referred to other justices as “patsies” and the like, and under the thumb of foreign influences.

It was a very strange performance by any president really other than Donald Trump. You wouldn’t have expected this. And I’m waiting to see what he says at the State of the Union about these folks when he has them right in front of him, if assuming that as they often do, they show up. But he’s announced he’s going to do tariffs anyway.

So, what’s his backup plan? I thought he said with regard to some of these tariffs that he couldn’t … he couldn’t … at the Supreme Court, he said I can’t use these other ways of doing the tariffs, but then he’s now going to do them. So what are his other options for imposing a bunch of tariffs?

Al Sykes: Yes, I think that’s several. So the, he’s already imposed a 15% across the board tariff on a non-discriminatory basis.

Pam Karlan: So that’s like literally every good coming into the country.

Al Sykes: And that’s under section 122 of the Trade Act of 1974, which allows that level of tariff, up to 15% for up to 150 days in response to severe balance of payments problems.

And so he’s…

Pam Karlan: … do we have severe balance of payments problems?

Al Sykes: No. That’s a factual issue, I suppose, rather than a legal issue. But I think any economist would say, we don’t have a balance of payments problem. Balance of payments problems refers to a situation where your exchange rate is deteriorating and you’re worried about the macroeconomic consequences of that, and you don’t have the foreign exchange reserves to go into the exchange market and intervene by buying your currency and propping up the value.

Pam Karlan: So that’s a totally different thing than a trade deficit.

Al Sykes: Absolutely. Completely different. If you read an econ textbook, they’ll describe … they’ll tell you the balance of payments is always in balance, but when people use the term “balance of payments deficit,” what they mean is the government needs to intervene to prop up the value of its own currency, but doesn’t have the foreign currency that it needs to do that.

That’s when you start borrowing from the IMF or you might use a tariff. So, one way to help your exchange rate is to reduce the amount of imports you’re buying, so that reduces the demand for foreign currency and foreign currency depreciates relative to your currency. So that’s what Section 122 is about, but he’s invoked that is if we did have a balance of payments problem.

Pam Karlan: And that allows them to only go up to 15% instead of like the 100% he was doing on some of these things before. And it only lasts for 150 days because I guess the idea is by then you can stabilize your currency?

Al Sykes: I think that’s right, although one wonders how often you could declare a new balance of payments crisis and do it all over again, but…

Pam Karlan: … yeah, I guess it’s 150 days, 150 times.

Al Sykes: Yes, who knows? But there’s other statutes that in fact give the president flexibility to do discriminatory tariffs against different countries and to … and that are not time limited in the way that this 150-day limit we see is.

Pam Karlan: But discriminatory tariffs, you just mean different rates to different countries. It’s not like discrimination when we talk about somebody who was discriminated against in a job,

Al Sykes: Yeah. No tariff discrimination refers to you charging different tariffs on the same good, depending on what country it comes from.

That’s his reciprocal tariffs did that because it was, they were based on the size of the bilateral deficits, which varied all, all over the…

Pam Karlan: So, bananas from one country were facing a different tariff than bananas from another country.

Al Sykes: Exactly. So, these other statutes allow him to impose country-specific tariffs. The most important one, probably going forward is Section 301 of the 1974 Act, which allows the president, after a finding by USTR, the U.S. Trade Representative, that a foreign government is engaged in a practice that is unjustifiable and burdens U.S. commerce to basically do whatever he wants. He can impose tariffs, quotas, all sorts of other things. There’s no ceiling on the tariff. The limitation …. he can impose a tariff for as long as it takes to coerce the other country into stopping doing whatever they’re doing that we deem to be unfair. And we have an annual report from USTR called the National Trade Estimates Report, which lists every major trading partner of the U.S. and for each of them, there’s a laundry list of things that we consider unfair. So, all you have to do is pull that out, dust it off and say that you’re taking a Section 301 action against Country X because they don’t treat our financial services providers fairly or whatever. So I think that’s the big…

Pam Karlan: … so let me ask you something about that given that. Given the way you’re describing that one, it would’ve given the president an awful lot of power. Why did he use IEEPA which never mentions tariffs at all?

Al Sykes: The 301 requires an investigation by the USTR. It requires findings to be set forth and so there’s this a requirement of specificity in the sense that you have to identify what the practice is that you’re countering through your…

Pam Karlan: Right, but you just said that we have this laundry list already.

Al Sykes: Yes, we do. I think the thing with IEEPA is you could, you just declare the national emergency and then his interpretation of the statute is I can immediately do any tariff I want without any investigation. No agency has to come up with any findings. I don’t have to publish the details of what the emergency is. I don’t have to tell you what firms are affected. I just have to say there’s an emergency and I need tariffs to deal with it. So it was just the most expeditious way to impose all these tariffs. But if he’s really determined, I think he can probably replicate a lot of what he did using…

Pam Karlan: It’s like measure once, measure twice, cut once instead of his kind of cut once, measure twice way of thinking about this. Do you think that we’re in for another three years of tariff yo-yo?

Al Sykes: When we did one of these little podcasts some time ago I think I said to you something like, the only thing that will deter Mr. Trump from doing tariffs is politics.” The question is, will he conclude that the affordability issue that’s surfacing for the midterms and the general public disapproval of tariffs, which I think is like 60% disapproval or something like that. Maybe the hope of the folks that were doing the litigation was that if the Court ruled against him here, that would be a kind of a political off ramp to back down. But if he’s really determined to maintain the tariffs I think he’s got the statutory instruments that, after a few hoops, would allow him to largely do what he’s been doing.

Pam Karlan: And the effect of having a 15% tariff on everything is … at some point, the importers are not going to eat the cost, right?

Al Sykes: They’ll have to, they’ll have to raise their prices if they…

Pam Karlan: yeah, that’s what I mean is, in the short run, an importer might decide, I’m not going to raise the price of the things I’m selling, I’ll eat the cost of the tariff, but they’re not going to do that forever.

Al Sykes: I think that’s right. And the 15% tariff is not I think, actually only a little bit lower on average than the tariffs we had under IEEPA. So the so for the typical importer, the change from IEEPA to Section 122 probably doesn’t make a whole lot of difference. But then, you know what comes down the road under 301 or under a national security statute could make quite a bit of difference depending on the product in the country.

Pam Karlan: Al, I just want to thank you for coming in and explaining this once again, and I’m sure in another couple of months you’ll be back here to explain the next lawsuit in this saga of Donald Trump’s favorite word and favorite policy tool.

So, I want to thank Al Sykes for joining us today on Stanford Legal. If you’re enjoying the show, please tell a friend and leave us a rating or review on your favorite podcast app. Your feedback improves the show and helps new listeners to discover us. I’m Pam Karlan. See you next time.