On March 7th, President Trumptweetedwhat was in essence a prophecy of American and Chinese trade policy: “China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States. Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!”Just this past Thursday, March 22nd, Trump made another impactful statement on this very issue, but this time with a presidential memorandum rather than social media dissemination. What did heannounce? Most notably, a tariff and a WTO (World Trade Organization) dispute. At the beginning of the month, Trump was vehemently defending the steel and aluminum industries against what heconsidered“unfair trade.” Today, the Internet and other news sources are flooded with concerns over a potential “trade war.”Those familiar with the U.S. Constitution may remember that it is not the executive branch that possesses the power to enact a tariff, but the legislative branch—the Congress. Article 1, Section 8 literally says that it is Congress that holds the power to enact “imposts,” which led to the Tariff of 1789, the first institution of an impost. So, how is it that President Trump is able to issue a tariff? The answer to this question is found in history.In the middle of World War I, the U.S. Congress passed the Trading with the Enemy Act of 1917, which, thanks to the loosely worded text, authorizes the president to enact a tariff for national defense purposes. Congress passed the Trade Act of 1974, which allows the president to issue tariffs on imports that could potentially threaten national security. Finally, the International Emergency Economic Powers Act of 1977 was enacted to give the president similar privileges as the other tariff-related laws, all for the sake of protecting the nation.Not surprisingly, Trump’s policies are likewise in line with the economic theory of “protectionism,” which is usually contrasted with the philosophy of “free trade.” What makes this rather interesting is that trade philosophy isn’t necessarily split along partisan lines, which does give the members of Congress an opportunity to exert some of their own influence on trade policy with China, despite the recent Trump memorandum.There are currently some bills being considered in Congress that relate to tariffs. Several Republican state lawmakers from Maryland, for example, have been pushingHB1631, the Commercial Solar Facilities – Vicinity Tariff. On the other side of the political aisle, however, multiple Democrats from Hawaii, with some Republican backing, have been pushingHB2110, a tariff bill related to renewable energy. Nothing, however, really focuses on Chinese trade.While Senate Minority LeaderChuck Schumerhas been far from Donald Trump’s political ally in D.C., hesaidupon the president’s recent push for a crackdown on Chinese trade policies, “I don’t agree with President Trump on a whole lot, but today I want to give him a big pat on the back. He is doing the right thing when it comes to China.” Ironically, it’s been Republicans such asBen Sasse,Orrin Hatch, andPat Toomeythat have beencriticalof the president on this matter.Perhaps this memorandum will indeed lead to a better trade relationship with China—thetariffdoes specify that the Trade Representative “shall consider whether such action should include increased tariffs on goods from China.” Critics, meanwhile, worry that these recent decisions will propel the U.S. into a trade war, harming the economies of both nations.Trump has long boasted of his deal-making abilities. Thus, the outcome of this economic policy will soon prove whether or not Trump’s wisdom on tariffs is comparable to a work of art or a wild accident.
Ask us anything! We are happy to talk through any questions or thoughts you may have.