The President is back in the news again with tariffs and a high school student, who had participated in my high school model UN on our campus last year, just sent me an email that ended with a good question. He said that from what he had read in the Constitution that only Congress has authority over commerce and taxes. The student then asked the question, “When we watch the news it is all about President Trump and his tariff policies. The president changes tariff levels unilaterally, almost on a whim. How does this square with the Constitution?” It is a great question and I thought it deserved an answer.
The Constitution unambiguously gives Congress, not the President, authority over domestic and foreign commerce and taxes. Tariffs are taxes on commerce that crosses borders. In fact, until 1934 Congress completely dominated tariff policy, just as the Founders wanted. Almost every year from the end of the Civil War to 1934, Congress voted on new tariffs and the President played little to no role in this process. These higher tariffs were both placed on individual products and sometimes across the board. It was observed that during this period Congress was almost incapable of lowering tariffs. In other words, higher tariffs were the rule; lower tariffs were the exception to the rule. The dominant trade policy narrative or explanation that all believed focused on import politics and the negative effects of foreign competition. In other words, members of Congress used higher tariffs to protect specific American companies in their districts from foreign competition. Yet, the Smoot Hawley Tariff of 1930 was the last major across the board increase in tariffs by Congress in US history. So, what happened?
The Great Depression changed not only the trade policy narrative but also which branch of government dominated tariff policy. Congress passed the Smoot Hawley Tariff with the traditional narrative of protecting American companies and jobs from foreign competition. Subsequent across the board tariff retaliations by other countries created a global trade war. This was one of the major mechanisms, another being retaliatory currency devaluations, that caused the depression in the US to become global.
The lesson learned by the Roosevelt administration and those that followed was that higher tariffs were simply bad economic policy. Tariffs invite retaliation, which lead to further retaliations, and trade comes to a standstill, which leads to recession/depression. Everyone loses. Roosevelt believed that future wealth and job creation in the US and the world were dependent upon the reduction of tariffs globally. The political narrative of trade policy now focused on export politics and the benefits of lower tariffs. Lower tariffs or freer trade opens markets abroad and creates more exports and jobs at home. Lower tariffs became the rule, while higher tariffs are the exceptions to the rule.
Members of Congress agreed but politically it was impossible for the majority of them to vote to reduce tariffs for fear that it would lead to greater economic competition for many factories and companies in their districts. Those companies and their workers threatened by foreign competition would simply vote against the representative if he/she voted to allow foreign competition by lowering tariffs. There was an agreement that lowering tariffs was the best policy but the tariff policy making process had to change to allow the executive branch, not the Congress, to take the lead in negotiating reciprocal tariff reductions with other countries. Only the executive branch could change the trade policy narrative.
The Congress passed the Reciprocal Trade Act of 1934. The executive branch, representing the entire country rather than small districts or particular states, was given the authority to negotiate reciprocal tariff reductions directly with other countries. If the reductions were 50% or less than the Smoot Hawley tariff, these reductions did not require Congressional approval (in effect they were executive agreements). If the reductions were more than 50% then the executive branch was required to submit them to Congress while only requiring a majority vote in both the House and the Senate (note that treaties require a two-thirds vote in the Senate) to approve the tariff reductions. Negating the tariff reductions required a two-thirds vote of both the House and the Senate. Since then the executive branch has been granted even more authority and discretion over tariff policies. In particular, I refer to the 1962 Trade Expansion Act (especially section 232) and the 1974 Trade Act (especially section 301). President Trump has also used the 1977 International Emergency Economic Powers Act to raise tariffs, although most observers, including myself, argue that this is an overly broad use of this act.
Thus, the President or executive branch came to dominate tariff policy. Lower tariffs became the rule with higher tariffs being the exception to the rule. In other words, the trade policy narrative now focused on export politics and the benefits of lower tariffs in expanding markets globally. Any company in the US that wanted protection via higher tariffs had to apply to the executive branch for an exception to the rule via the trade adjustment assistance program and others. This removed the tremendous political pressure to increase tariffs that the members of Congress had faced prior to 1934. Another way to look at this is that the only participants in tariff policy prior to 1934 were US companies who desired protection and did not want to compete with foreign companies. After 1934, US companies who wanted to open up global markets by reducing tariffs were now involved in the decision making process and this group was favored by the executive branch which now had the power to set US trade policy.
Every President since FDR has promoted this trade policy narrative regardless of political party until Trump. After WWII, the US took the lead to create global institutions and processes such as most favored nation status, which would make it easier to reduce tariffs. This was the primary reason for the creation of the General Agreement on Tariffs and Trade in 1947 and the World Trade Organization in 1995. By any measure, tariffs have been reduced tremendously since then because of the lead taken by the executive branch, the change in the trade narrative, and global trade institutions. These changes ultimately created the truly global, integrated economy that we see today.
This tariff decision making system with the executive branch taking the lead works well as long as the President and the Congress agree that lower tariffs are the rule and higher tariffs are the exception. This changed with the election of President Trump who is a supporter of higher tariffs and the use of tariffs as a negotiating tool. The Trump practices of raising tariffs and using tariffs as a negotiating tool violate the post-WWII practices, norms, principles, and international law that the US, as the global hegemonic power, has created since 1947. Despite the tariff policies of the Trump administration, most Democrats and Republicans in the House and Senate support lower tariffs as the rule and higher tariffs as the exception to the rule.
So, the quick answer to this very bright high school student’s question is that Congress simply “gave” the President power to take the lead on and to set international economic policies such as tariffs with relatively few checks and balances built into the decision making processes.
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