The Court of International Trade on Friday sought to channel lawmakers’ thinking in the 1970s, when Congress delegated congressional tariff powers to the president to address balance-of-payments issues.
During a hearing Friday, a three-judge panel weighed a request from a group of plaintiffs to swiftly strike down President Donald Trump’s 10% global tariff imposed in February.
After the Supreme Court invalidated tariffs imposed by emergency powers last year, the Trump administration moved quickly to replicate some of the duties. In the hours following the decision, Trump unveiled the 10% duty under Section 122 of a 1974 trade law – becoming the first president to use the statute to justify tariffs.
The law only allows tariffs for 150 days, but lawyers for 24 mostly Democratic-led states and two small businesses are pushing for the court to ax the duties immediately.
They argue that a balance-of-payments issue, which the tariffs were designed to remedy, cannot happen under modern floating exchange rate regimes.
Jeffrey Schwab, director of litigation at the Liberty Justice Center, told the court that “when Congress was looking at this problem in 1973-1974,” it was in the context of balance-of-payments crises that had required the U.S. to draw down its gold reserves and foreign exchange holdings to stabilize the currency.
The kind of balance-of-payments crisis that President Richard Nixon faced in 1971, which ultimately led to the U.S. abandoning the gold standard amid intense pressure on its currency, cannot happen under a floating exchange rate system where the price of the dollar fluctuates freely, he argued.
A group of almost 50 economists and former officials, including former Treasury Secretary Janet Yellen and two previous winners of the Nobel Prize in Economics, made a similar argument in a legal filing this week.
“Section 122 specifically is meant to address a very narrow problem," said Schwab, who is representing the two small businesses in the case. “It wasn't clear when Congress was debating [the 1974 law] that we would be on a floating exchange rate system for the next 50 years."
Court of International Trade Judge Mark Bennett questioned Schwab’s assertion that Congress was not thinking about trade deficits. He pointed out that a Senate report that accompanied the bill raised concerns about the country’s evaporating trade surplus.
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“The payments, that is, balance-of-payments on a liquidity basis, had grown from a bearable $2.9 billion to an intolerable $13.9 billion,” Bennett said, reading from the report. “Aren't they linking here trade deficits and balance-of-payments deficits?”
The three judges, however, were just as skeptical of some of Justice Department attorney Brett Shumate’s claims for the administration.
President Donald Trump, in his proclamation imposing the tariff, argued that the country’s $1.2 trillion goods trade deficit “contributes to fundamental international payments problems facing the United States.” The president also highlighted a number of other metrics that are driving a balance-of-payments deficit, including a large and growing spending deficit.
Shumate, however, opened his argument by suggesting that the administration invoked Section 122 “to address large and serious trade deficits,” at which point the judges peppered him with questions.
“The proclamation doesn't say that,” Bennett asserted, noting that the president had said the trade deficit is merely an indicator of – or contributor to – international payments problems that the tariffs were designed to address,
“Are you really saying that a large trade deficit is alone sufficient under 122? Because I don't think it is, and I think the Congress didn't think it is.”
Shumate retorted that Congress provided the president with broad “discretion” on how to measure balance-of-payments issues.
“Where we [and the plaintiffs] disagree is in calculating a balance-of-payments deficit. What do you look at?” he said. “Congress left it to the president to decide which of the subaccounts to look to to decide whether there is a deficit within the balance of payments.”
Judge Timothy Stanceu, the lead judge in the case, pushed back on this interpretation of the statute, pointing out that if a deficit in any of the contributing metrics that make up a balance-of-payments deficit – like the trade deficit – would justify tariffs, there would be nothing to prevent a president from picking and choosing from a slate of metrics to justify tariffs under the statute.
The judges also grappled with whether some of the states suing the administration over the tariffs have the legal standing to do so. The administration concedes that anyone who has paid the tariffs – also known as the importer of record – could have legal standing to challenge them in court.
Judge Claire Kelly noted that many of the states themselves have not paid the tariffs and, therefore, may not be entitled to bring a legal case against the administration.
State of Oregon lawyer Brian Marshall argued, however, that anyone who has been adversely affected by the duties should be able to mount a case.
Under such an argument, Kelly said, “Everyone will have standing for everything, no?”
Marshall acknowledged that the pool of potential litigants under such an interpretation would include nearly everyone in the United States, including consumers who may have faced price hikes as a result of tariffs, but did not pay the tariff directly.
The states face larger impacts than most potential litigants, however, he argued.
In the case of Kentucky, which hires subcontractors for projects, he said, “it's a straight pass-through from the vendor – who is the importer of record – back to the commonwealth.”
“They are mechanically just paying more by virtue of the tariffs,” he added. Some vendors may have provisions in their contracts to pass along those duties, he continued, while others will raise their prices.
“An injunction is the only realistic remedy that is going to be available to those who are indirect purchasers,” he concluded.
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