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Evaluating Trump’s trade policies

Author(s): Gary Hufbauer, Euijin Jung

Donald Trump has consistently made headlines with unusual and potentially dangerous economic policy proposals, including threatening to pull out of the WTO, renegotiating trade agreements, and imposing tariffs on imports from Mexico and China. This column explores the legal and economic dimensions of these proposals. Old and modern legal statutes could allow a US president to implement such policies, and the repercussions for the US economy could be severely negative. 

From VoxEU:

It would be a grave mistake for American voters to underestimate the power of the US presidency – or to exaggerate the ability of checks and balances to rein in radical policies.

Republican nominee Donald J Trump has made headlines threatening to pull out of the WTO (Mount 2016), renegotiate the North-American Free Trade Agreement (NAFTA) (Needham 2016), and impose 35% and 45% tariffs on imports from Mexico and China respectively (Johnson 2016). Would Trump have the powers to carry out these threats without Congressional consent? Would the courts stop him?

The simple answers are that, as president, Trump would have such powers, and he is not likely to be derailed by the judiciary (Hufbauer 2016). Over the past century, Congress has delegated to the president enormous authority to restrict trade and other forms of international commerce. To be sure, the five most pertinent statutes (summarised in Table 1) were enacted with different objectives in mind. But the laws remain on the books for any president to use. As Justice Scalia taught, the foremost guide to statutory interpretation is the language of the law itself, not the historical context or legislative deliberations.  

If turned into actions, Trump’s trade threats would attract numerous legal challenges by business firms and even states, but his actions would likely survive court challenges. Moreover, Congressional protests would have little effect unless super-majorities amended the statutes over Trump’s veto.

Statutes do not die of old age, and the granddaddy law, now nearly a century old, is the Trading with the Enemy Act of 1917. TWEA enables the president to restrict all international trade and financial flows, and to freeze or seize any foreign assets, during time of war. The powers are breath-taking – actions are not limited to the military enemy.1 If invoked, the TWEA puts all foreign commerce at risk.

Moreover, since the WWII, for the purposes of TWEA, the US has been at war almost continuously, through Congressional declarations and resolutions.2 If peace should intrude, the International Emergency Economic Powers Act of 1977 allows the president to restrict trade and finance during a national emergency. Presidential declarations of national emergency are simply not questioned by the courts. Presidents customarily use IEEPA to impose economic sanctions for foreign policy purposes, but nothing would prevent President Trump from using the statute for his commercial goals.

Table 1. Summary of statutes available for presidential control of foreign commerce

Notes: FTA = free trade agreement; MFN = most favoured nation; NAFTA = North American Free Trade Agreement
Source: Hufbauer (2016).                                                                     

NAFTA contains a provision that would enable Trump to withdraw from the agreement after giving six month’s written notice to Canada and Mexico. He could then hit Mexico with 35% tariffs, following consultations with Congress, claiming insufficient reciprocity – or he could invoke IEEPA, after declaring a national emergency, with the same result. President Trump could similarly discard other free trade agreements. Most cataclysmic, he could withdraw from the WTO and allow US most-favoured nation tariffs to revert to their Smoot-Hawley levels, last seen in the Great Depression.  

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