June 27, 2019

Reforming National Security Tariff Tools: Issues and Recommendations for Policymakers

By Peter Harrell

Introduction

President Trump’s late-May threat to impose tariffs on U.S. imports from Mexico in response to illegal immigration, and ongoing threat of tariffs against U.S. automotive imports, have sparked renewed debate in Congress about the scope of presidential authority over tariffs. While Trump temporarily rescinded his tariff threat against Mexico on June 7 following Mexico’s agreement to provide increased assistance to reduce migration to the United States, bipartisan coalitions in both the Senate and the House are promoting legislation to amend statutes that authorize the president to impose broad tariffs. Senate Finance Committee Chairman Charles Grassley (R-IA), for example, recently said that he plans to move forward with legislation that would curtail a president’s authority to impose tariffs in the name of national security under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), which the Trump administration used as the legal basis for tariffs on imports of steel and aluminum and which would serve as the basis for tariffs on automotive imports. Other proposals in Congress would sweep more broadly, limiting the president’s authority to impose tariffs under other statutes including Section 301 of the Trade Act of 1974 (“Section 301”), which the president has used to impose tariffs on China, and the International Emergency Economic Powers Act (“IEEPA”), which would be the legal basis for tariffs on Mexico.

Legislation to amend these statutes raise significant policy issues. Congress will need to balance reforms to deter or prevent perceived excessive use of tariffs against the need to preserve a president’s authority to respond quickly to fast-moving crises. Congress will also need to ensure that it does not inadvertently impact U.S. sanctions programs and other tools that rely on some of the same authorities. This commentary provides policymakers with background on the statutes that currently authorize the president to impose tariffs on national security grounds, on current legislative proposals to amend that process, and on the complex set of policy considerations that Congress should weigh as it considers potential legislation.

Background: Since the 1990s, Presidents Typically Relied on Narrow, Trade Policy–Focused Tariff Authorities

The very first power that Article I of the U.S. Constitution vests in Congress is the “Power To lay and collect Taxes, Duties, Imposts and Excises,” and Congress’s first significant legislative act following adoption of the Constitution in 1789 was to pass the Tariff Act of 1789. Many contemporary executive branch legal authorities for tariffs date to the 1960s and 1970s, when Congress enacted a series of laws that delegated to the president the authority to impose tariffs and other import restrictions, such as quotas, in response to both foreign trade abuses and national security threats. Presidents regularly relied on these statutes to impose tariffs between the 1960s and early 1990s, but broad tariffs generally fell out of favor in Washington following the 1994 establishment of the World Trade Organization (WTO).

Between the mid-1990s and President Trump’s inauguration in 2017, presidents typically imposed tariffs using a set of narrowly targeted legal authorities that authorize tariffs to address two sets of concerns: the first being unfair foreign subsidies and countries that “dump” below-cost products on international markets; and the second being to provide temporary “safeguards” to a U.S. industry affected by a surge of foreign imports. The U.S. International Trade Commission, which implements these statutes, recommends such tariffs after an extensive fact-finding process to identify whether there has in fact been “dumping” or surges of imports adversely affecting U.S. industry, and presidents of both parties have used these authorities to restrict the import of specific products, such as tariffs on Chinese solar panels in 2014, on Chinese tires in 2009, and on most imports of steel between 2002 and 2003. President Trump has also relied on these targeted authorities as the basis for the temporarily tariffs on washing machines and on solar panels that his administration imposed in early 2018. However, presidents immediately prior to Trump generally refrained from invoking legal authorities that authorize indefinite, broad-based, global tariffs, instead relying on WTO complaints, bilateral diplomatic negotiations, and other forms of pressure to address systemic trade abuses.

President Trump Resurrects Dormant Trade Statutes

President Trump campaigned on a platform escalating U.S. tariffs, and since early 2018 the Trump administration has aggressively imposed tariffs to protect U.S. industry and to challenge foreign trade practices. These include tariffs on most U.S. imports of steel and aluminum and on approximately half of U.S. imports from China. Trump has also threatened tariffs on the other half of U.S. imports from China, on imports of automobiles and automotive parts, and on uranium, among other products. U.S. customs revenues under Trump have already jumped to an annual pace of $75 billion so far in 2019, compared to an annual pace of $30–$40 billion in recent years, and Trump’s threat to impose tariffs on additional U.S. imports will drive those numbers significantly higher. Indeed, the trade-weighted average tariff on all goods imported into the United States—which remains low because many goods imported under trade agreements are subject to zero or near-zero rates—has increased under Trump by more than 50 percent, from 1.5 to 2.6 percent.

In implementing new tariffs, Trump has resurrected several statutes that authorize tariffs in a broad range of circumstances in addition to relying on the targeted authorities that other recent presidents have used. The resurrected statutes have enabled Trump to impose a broader range of tariffs and to keep them in place for an indefinite period of time. The Trump administration has dusted off two statutes that had been dormant since the early 1990s: Section 232 of the Trade Expansion Act of 1962 and Section 301 and of the Trade Act of 1974. In addition, Trump has threatened to impose tariffs under the International Emergency Economic Powers Act (IEEPA). Each of these statutes is described in detail below.

Section 232 of the Trade Expansion Act of 1962 (“Section 232”): Section 232 of the Trade Expansion Act of 1962 authorizes the president to impose tariffs or quotas on imports of any product after the Secretary of Commerce determines that imports of the product “threaten to impair the national security” of the United States. President Trump has used Section 232 to impose tariffs on U.S. imports of steel and aluminum, and Section 232 would be the basis for tariffs on U.S. automotive imports. In addition, Trump’s Commerce Department is currently conducting investigations under Section 232 on U.S. imports of uranium and of titanium sponge.

Section 232 does not specifically define the nature of the “national security” threats that a president can invoke to impose tariffs, but does instruct the administration to “give consideration to domestic production needed for projected national defense requirements” while also recognizing “the close relation of the economic welfare of the Nation to our national security, and … the impact of foreign competition on the economic welfare of individual domestic industries,” among other factors.

The Trump administration has launched five investigations under Section 232, which represents a significant increase compared to recent presidents: the Clinton administration completed two Section 232 investigations, the George W. Bush administration completed one, and the Obama administration completed none. Since the law was enacted in 1962, the Commerce Department has conducted a total of 31 Section 232 investigations, 12 of which concluded that imports of specific goods did impair U.S. national security. Of the 12 Section 232 investigations that found imports of specific products did impair U.S. national security, eight of the investigations involved imports of crude oil or petroleum products and three of the investigations (steel, aluminum, and automotive imports) occurred under the Trump administration.

Section 301 of the Trade Act of 1974: Section 301 of the Trade Act of 1974 authorizes the U.S. Trade Representative (USTR) to impose tariffs or quotas on imports from a country if USTR finds that an “act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts United States commerce.”

USTR has conducted more than 120 investigations under Section 301 since its enactment, with the strong majority of investigations occurring between the 1970s and mid-1990s before declining sharply after the WTO was established in 1994. However, in March 2018, as part of President Trump’s commitment to cracking down on foreign trade abuses and the Trump administration’s shift toward viewing China as a strategic competitor of the United States, USTR found that China’s “acts, policies, and practices related to technology transfer, intellectual property, and innovation” violated Section 301. USTR subsequently relied on Section 301 as the legal basis for the tariffs that President Trump has imposed on approximately half of U.S. imports from China. Section 301 would also serve as the legal basis for the tariffs that Trump has announced he plans to impose on effectively all other U.S. imports from China unless Trump and Chinese President Xi Jinping are able to reach an agreement on trade issues.

The International Emergency Economic Powers Act (IEEPA): IEEPA has never been used to impose tariffs on imports to the United States, but Trump cited the statute as the legal basis for his May threat to impose tariffs on imports from Mexico in response to illegal immigration. Congress enacted IEEPA in 1977 as part of a package of reforms to presidential emergency powers. IEEPA authorizes the president to regulate or prohibit a variety of financial transactions, to freeze assets, and to block, regulate, or prohibit imports and exports of foreign property (including goods) to deal with an “unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.”

Since IEEPA’s passage in 1977, presidents of both parties going back to President Carter have regularly used to impose economic sanctions on foreign adversaries. The Obama administration, for example, used IEEPA as the legal basis for sanctions against Russia in 2014, while the George W. Bush administration used the statute to impose sanctions on terrorist groups following the 9/11 terrorist attacks. President Trump has used IEEPA to impose sanctions on Venezuela and other foreign targets.

Growing Controversy Sparks Proposals for Reform

Trump’s resurrection of Section 232 and Section 301, and threat of tariffs on Mexico under IEEPA, has provoked a sharp debate in Washington and given rise to a number of proposals to limit presidential tariff authority. Criticism of Trump’s tariffs has focused on the cost of the tariffs, with the New York Federal Reserve estimating that the U.S. tariffs on imports from China alone have the potential to cost U.S. consumers more than $800 per person per year, as well as on the impacts of foreign retaliation: foreign governments have imposed retaliatory tariffs on more than $100 billion of U.S. exports, with American agriculture being particularly hard-hit. Allied governments and some members of Congress have also singled out Trump’s use of Section 232 as problematic as it has deemed imports from event allied countries such as Germany and Canada as threats to U.S. national security.

Multiple groups of Senators and Representatives have introduced legislation over the past year to amend one or more of the statutes that Trump has relied on to impose broad-based tariffs. These proposals can generally be divided into three categories, though many pieces of legislation include proposals from multiple categories.

Procedural reforms to increase Congress’s role: The first category involves procedural reforms that would either authorize Congress to overturn tariffs or require congressional authorization before tariffs could come into effect. Senator Pat Toomey (R-PA) and Senator Mark Warner’s (D-VA) Bicameral Congressional Trade Authority Act (BCTAA) for example, would amend Section 232 to require Congress to affirmatively vote in favor of tariffs before they could come into effect. The Trade Security Act of 2019, which was introduced by bipartisan groups of legislators in both the Senate and the House and would expand Section 232’s existing process for congressional disapproval—currently it only applies to Section 232 actions impacting petroleum imports—to authorize Congress to disapprove any Section 232 action (though the president could veto a resolution of disapproval). Senator Grassley, who chairs the Senate committee that would be responsible for marking up any legislation reforming Section 232, is working on legislation that would amend Section 232 to allow the president to impose tariffs temporarily, but would require Congress to approve any continuation of the tariffs beyond an initial period. Several proposals would also require the administration to consult with Congress regularly during any Section 232 investigation. The Global Trade Accountability Act of 2019 would require Congress to approve new tariffs under Section 232, Section 301, IEEPA, and multiple other statutes.

Amending the executive branch process for imposing tariffs: The second category of proposals would ament the process of imposing tariffs under one or more of the statutes. Both the BCTAA and the Trade Security Act would shift responsibility for determining whether an import threatens to impair U.S. national security under Section 232 from the secretary of commerce to the secretary of defense. BCTAA would also require the establishment of a formal process for individual U.S. importers to obtain a firm-specific exclusion from Section 232 tariffs under specific circumstances.

Limiting the circumstances in which tariffs can be applied: Finally, the third category of reforms involves restricting presidential authority to impose tariffs by limiting the types of threats and circumstances that a president can cite as the basis for imposing tariffs. BCTAA, for example, would define “national security” for the purposes of Section 232 as “the protection of the United States from foreign aggression” and would exclude from the definition the “protection of the general welfare of the United States,” except for defense from foreign aggression. BCTAA would also authorize the president to impose tariffs under Section 232 only on items “related to the development, maintenance, or protection of military equipment, energy resources, or critical infrastructure essential to national security.”

In addition to legislative proposals, plaintiffs have brought a court challenge arguing that President Trump’s use of Section 232 to impose tariffs on steel imports is unconstitutional. Lower courts have upheld the steel tariffs and the Supreme Court recently declined to take the case on an expedited basis, though the case remains on appeal. Business groups would likely also bring a court challenge against a move by the Trump administration to impose tariffs under IEEPA, and there is some legal debate about whether IEEPA actually authorizes a president to impose tariffs.

Issues & Recommendations for Policymakers

As Congress considers amending the president’s tariff authorities, it needs to balance enhancing appropriate congressional oversight while preserving presidential discretion to act quickly in response to emerging crises and national security threats. In pursing legislation, policymakers should bear the following recommendations in mind.

Congress should allow the president to impose temporary tariffs without congressional approval under Section 232 and Section 301, but should require congressional approval for longer-term tariffs: Tariffs are a core congressional authority and broad-based tariffs can have widespread strategic and economic impacts on both the U.S. and allies. However, Congress also needs ensure that presidents have sufficient discretion to take temporary measures that impose tariffs in response to genuine threats, such ensuring military preparedness and responding to emerging pervasive trade abuses. Congress should balance those needs by amending Section 232 and Section 301 to allow the president to impose tariffs for an initial period of six months or one year but to require a congressional resolution of approval to retain the tariffs beyond that initial period.

A resolution of approval process offers a significantly stronger role for congressional oversight than a resolution of disapproval process. When Congress last amended Section 232 in 1980 to strengthen congressional oversight of Section 232’s use regarding petroleum imports, Congress opted for a resolution of disapproval process, allowing Congress to overturn Section 232 actions regarding petroleum but not requiring affirmative congressional approval for a president to act. At the time, Congress assessed that a resolution of disapproval process struck an appropriate balance between executive discretion and congressional oversight. But Section 232’s “petroleum amendment” was adopted prior to the Supreme Court’s 1983 ruling that congressional resolutions of disapproval are unconstitutional unless presented to the president for a signature or a veto—and since 1983, resolutions of disapproval have rarely been enacted into law, suggesting that a resolution of disapproval process would provide only a weak check on executive branch action.

Congress should treat IEEPA separately from the other statutes: Unlike Section 232 and Section 301, which were used infrequently in the two decades prior to Trump’s presidency, presidents of both parties, including Trump, have regularly used IEEPA to respond to a range of U.S. national security threats. The U.S currently maintains more than 25 sanctions programs that could be affected by amendments to IEEPA, and presidents frequently have legitimate interests in using IEEPA to respond to a rapidly moving international crisis. In addition, IEEPA already includes a provision authorizing Congress to vote to disapprove a president’s declaration of an emergency under IEEPA, which would overturn any action the president imposed under the statute. While Congress should consider sensible reforms to IEEPA to strengthen the statute for U.S. sanctions programs, and could delineate whether and under what circumstances IEEPA can be used to impose tariffs, any amendments to IEEPA need to be carefully evaluated to avoid unintended adverse impacts on U.S. national security.

Congress should carefully weigh any changes to the definitions in Section 232 and Section 301: While requiring a resolution of approval to continue tariffs under Section 232 and Section 301 would provide effective oversight of enduring broad-based tariffs, Congress should exercise caution in amending the definitions of the circumstances in which a president could impose tariffs for an initial period. Limiting Section 232 to only goods directly involved in military preparedness, for example, could inadvertently foreclose a president’s ability to use Section 232 tariffs or other import restrictions to limit imports in advance of a potential military conflict or to ensure military preparedness if U.S. production of a key material is in rapid decline. Similarly, trying to amend the broad definition of an unfair trade practice in Section 301 would create incentives for foreign governments to try to avoid U.S. tariffs by engineering unfair trade practices around a particular definition in U.S. law, rather than refraining from unfair trade practices. While Congress may wish to consider targeted ways to amend definitions to signal that authorities should only be used sparingly, as a general matter procedural checks are more likely to effectively balance increased congressional oversight with preserving executive branch discretion to act against emerging or unexpected challenges

Conclusion

President Trump’s aggressive use of broad tariff authorities that had largely laid dormant since the mid-1990s has succeeded in generating leverage for trade negotiations: Faced with the prospect of tariffs, Mexico agreed to provide additional assistance in slowing migration to the U.S. The prospect of relief from tariffs on steel and aluminum likely also contributed to Mexico and Canada’s agreement to renegotiate NAFTA and to enter into the U.S.-Mexico-Canada Trade Agreement. Tariffs on China have also prompted China to negotiate over significant changes to China’s trade policies, though it remains unclear whether Trump and Chinese President Xi Jinping will be able to reach a trade deal.

But the Trump administration’s broad use of tariffs also has increased costs for U.S. consumers, promoted retaliation against U.S. exports, and caused diplomatic rifts between the U.S. and allies. Given the broad impacts, it is appropriate for Congress to amend the underlying statutes to play a larger role in their use. But in doing so, Congress needs to preserve sufficient flexibility for rapid executive branch action in response to crises and emerging threats and avoid adverse unintended consequences.