Stanford’s Alan Sykes on the Future of Trump’s Tariffs After the IEEPA Case

0:00Alan Sykes:That argument essentially was accepted by a majority of the court that IEPA was not an authority for imposing tariffs. The statutory language talks about the president having the power to regulate importation. And the argument was that that power to regulate does not include the power to tax, which a tariff, of course, is a tax on imported goods.

0:29Pamela Karlan:This is Stanford Legal, where we look at the cases, questions, conflicts, and legal stories that affect us all every day. I'm Pam Carlin. Please subscribe or follow this feed on your favorite podcast app. That way you'll have access to all our new episodes as soon as they're available. You know, I sometimes think about, you know, there's this song in West Side Story, Maria, you know, the most beautiful word I ever heard. Maria, Maria, Maria, Maria. And if it was Donald Trump, it would be tariffs. Donald Trump says tariffs are his most favorite word in the entire English language. I would have thought his most favorite word was I.

1:08Pamela Karlan:But after I, I guess, or me, tariffs is his next most favorite word. And shortly after he took office, President Trump imposed a bunch of tariffs. He said he was doing it because of the threat of illegal drugs coming in from Canada and Mexico and China, and because we were facing large and persistent trade deficits with virtually every other country in the world. And so he imposed a bunch of tariffs pursuant to something called the International Emergency Economic Powers Act, which is often called AIIPA. He declared a national emergency and invoked his authority under IEPA to respond. And he imposed all of these tariffs and a number of businesses that were subject to these tariffs because they imported things into the United States brought suit.

1:59Pamela Karlan:And recently, the Supreme Court addressed whether the president has the power to impose tariffs or not. I'm joined today by my colleague Al Sykes, who is the absolute go-to person here at Stanford for all things trade and international trade related. Al is a professor of law and he's the Warren Christopher professor in the practice of international law and diplomacy. He directs our master's program in international economic law, business and policy. And he is an expert on American trade law, international trade and similar topics. So welcome back once again to the show, Al, to talk about tariffs, this time with the Supreme Court's decision.

2:48Alan Sykes:Great to be here.

2:50Pamela Karlan:Yeah. So tell us a little bit about these tariffs and what the challenge was under IEPA.

2:56Alan Sykes:So the main tariffs, there were two groups of tariffs, one based on fentanyl trade imposed against China, Mexico, and Canada. But the main focus of the litigation and the concern about the remedies now is the so-called reciprocal tariffs, which were originally announced by President Trump on Liberation Day last April and were tariffs that discriminated across countries based on the size of their bilateral trade deficit with the United States. and they ranged in magnitude from sort of around 15 % at the low end up to 50 % or so at the high end. And they were put in place and then they've been modified.

3:40Alan Sykes:There have been exemptions and all sorts of changes over time. The president would sometimes raise them if he was upset about some negotiation going on with another country. He would sometimes lower them. He reached some tentative trade deals with certain countries that would bring down some of these tariffs. So they've been bouncing all over and they were all imposed under the IEPA statute that you mentioned a moment ago, which is a statute that it can be triggered when the president declares a national emergency. The statute gives him powers to address unusual and extraordinary threats that originate abroad using measures that deal with the emergency.

4:19Alan Sykes:So that's that's what he was purporting to do.

4:21Pamela Karlan:Yeah, so can you explain what his theory was about how, for example, the importation of fentanyl coming across the border had anything to do with tariffs on things coming from Canada like maple syrup and the like? Right.

4:36Alan Sykes:Well, the administration's theory in the litigation was that the tariffs were designed to pressure the trading partners affected by them, Canada and Mexico and China, into doing more to interdict fentanyl trade. So it's much like the theory behind sanctions that we impose on adversaries to punish them for whatever we want to punish them for, sanctions we've had on Cuba, Iran, North Korea and others through the years. So there was no notion that these tariffs were directly addressing fentanyl, but rather the idea was that they were going to pressure these countries into helping us out more. Yeah.

5:12Pamela Karlan:And then the other tariffs that you said, and I remember these formulas he came up with for how he was going to impose these tariffs on other countries. And there are a lot of countries in the world that we import stuff from, but we can't really export very much to them because what we're importing is raw materials from countries that are really kind of dirt poor.

5:33Alan Sykes:Mm-hmm. That's true. So there's a lot of bilateral trade imbalances. Just as in our own lives, I run a big trade surplus with Stanford, and I buy hardly anything from Stanford, and I run a big trade deficit with the Safeway. And countries are the same way. They sell to the folks around the world who demand what they specialize in and do best in producing, and they buy from the countries that specialize in the things that they need. And the result is a wide range of bilateral surpluses and deficits, which are perfectly normal. But the president made the claim that bilateral deficits represent unfair treatment of the United States by the foreign countries, that anytime we have a bilateral deficit, it's because of some lack of reciprocity in our trade relations, which an economist would say is just fallacious.

6:28Alan Sykes:But that was the sort of starting point for the argument that there was a national emergency, that this lack of reciprocity was injuring the manufacturing sector, causing an emergency in the manufacturing sector, that in turn, these tariffs based on the size of the bilateral deficit would somehow ameliorate without any specifics as to exactly what the emergency was, who was suffering the emergency, or how these tariffs were going to address the emergency. So it was a troubling exercise from the outset, for sure.

6:59Pamela Karlan:Yeah, and I gather that there was also this real question about whether imposing a bunch of tariffs would actually bring manufacturing back to the United States, especially with the president who kept changing the tariffs day by day and week by week.

7:15Alan Sykes:Right, right. So if you want new investment in manufacturing, you need kind of certainty, You need kind of a long-term picture that's consistent with new investment. And certainly, tariffs bouncing all around was not that. So it was unlikely, just sort of just thinking about it, to do much to bring manufacturing back. And indeed, we know from the data that the U.S. manufacturing jobs have actually gone down since Liberation Day, a long-term trend that is mainly driven by improving productivity in manufacturing. It doesn't have much to do with trade policy.

7:53Pamela Karlan:Yeah. So these businesses sued, and their basic claim was that IEPA wasn't a tariff statute at all. It was a statute that was enacted to deal with things like preventing the importation of something altogether, having a trade embargo or the like. And so when they got to the Supreme Court, what happened?

8:17Alan Sykes:Well, that argument essentially was accepted by a majority of the court that IEPA was not an authority for imposing tariffs. The statutory language talks about the president having the power to regulate importation. And the argument was that that power to regulate does not include the power to tax, which a tariff, of course, is a tax on imported goods. And, you know, there were lots of sort of slippery slope kinds of arguments made about if the president can impose tariffs to deal with this situation, why couldn't he impose tariffs to deal with all kinds of other real or imagined supposed emergencies?

8:55Alan Sykes:And you could use the taxing power to really disrupt trade and raise a lot of money without any congressional participation. And the argument was that Congress never, never intended to grant that power in IEPA. and so the justices said that's clear on the face of the statute. Others said that even if it might be read to confer tariff power, the major questions doctrine would require that such an important delegation of power to the president be clear and unambiguous and the statute is not clear and unambiguous. And then, of course, there were some dissenters who said that regulating importation does include the power to impose tariffs because that's often the way we do limit importation by using tariffs.

9:42Alan Sykes:So there was a 6-3 split, but the argument that the taxing power could not be found in IEPA was the one that ultimately carried the day.

9:51Pamela Karlan:Yeah, so I want to unpack that a little bit. I mean, we start with, you know, it was 6-3, but there was also a kind of 3-3 division within the majority. The Chief Justice started by essentially saying, you know, we need to start with whose power is the taxing power. And he said, it's Congress's power. I mean, it appears in Article One of the Constitution. And in something that I took as, I didn't know whether it was exactly Freudian or not, but he several times called the taxing power the birth right of Congress, which made me think he's also looking forward to the next big case that's going to be argued at the Supreme Court, which involves birthright citizenship.

10:33Pamela Karlan:And the president's attempt to change that. And he said, you know, if Congress was going to delegate this taxing power to the president, you'd expect the word tax or the word tariff or the word excise or the word duty to appear in the statute, because those are all nouns that have been used to refer to taxes over time. And one thing I mean, I think, you know, for some of our listeners, it's a long opinion. It's a long set of opinions. It's 170 pages in total. But it's worth reading them in part because you get a sense of the history of tariffs in the United States a little bit. And that was how the federal government raised its revenue for the first hundred years or so.

11:14Pamela Karlan:I mean, certainly before we had the income tax, it was the major way of raising revenue. And so the court says, well, we would expect, and you just pointed to this major questions doctrine, which is a kind of dozen-year-old doctrine that the Supreme Court has that says, you know, if the president is going to or the president or somebody in the executive branch is going to do something huge and important that's fundamentally transformative in some ways of the economy, we'd expect to see something explicit in the law that they're claiming authority from. And here, you know, I think the chief must have said like 14 times, I look in AIPA, I don't see the word tariff, I don't see the word tax.

11:54Pamela Karlan:And so even though, you know, we often regulate things, if you think about, you know, trying to affect behavior through taxes. This is not something that we think is a tax. And he actually asked the Solicitor General, I think in oral argument, you know, can you point to any other law that gives the president the power to regulate something where he's imposed a tax? And the Solicitor General really couldn't. So you have that group. And then you had, so that was three of the conservative justices, the chief justice joined by Justice Gorsuch and Justice Barrett. And then you had the three more liberal justices, Justice Sotomayor, Justice Kagan, and Justice Jackson, saying they agreed that AIPA didn't give the president the power.

12:38Pamela Karlan:But then you had an interesting back and forth, actually, within that group between, among, I guess I should say, Justice Gorsuch, Justice Barrett, and the three more liberal justices, with a joint opinion by those justices, and then a separate opinion by Justice Jackson, What do you make of the fact that so many justices felt the need to tell us something here?

13:01Alan Sykes:Well, this is an area you know much more about than I do, as constitutional law and statutory construction is not my forte. But it seems to me that the core battle here might have been over the sort of scope and future of the major questions doctrine. It seems to me that the, as you called the liberal justices, were not fans of the decisions that went against the Biden administration under major questions on the EPA power to regulate greenhouse gases by forcing utilities to shift away from coal and the student loan forgiveness program. And so I think maybe this is speculation on my part, maybe they felt in order to be consistent in their sort of looking down their nose at the major questions doctrine, and they wanted to decide this on just pure statutory construction grounds without the need for major questions necessarily.

13:56Alan Sykes:Whereas I think Roberts and that group were prepared to sort of concede that the phrase regulate importation could be understood potentially to include a power to use tariff since we do regulate imports through tariffs historically. And so they thought maybe the additional weight of the major questions doctrine was important to bring to bear here. And then there was a little bit of the split between Justice Barrett and Justice Gorsuch on exactly what the major questions doctrine means. Is it just a matter of common sense or is it something more? And on that kind of question, I would defer to you as the much more knowledgeable party here.

14:36Pamela Karlan:Go figure on the major questions. And then the three dissenters were all big proponents of the major question doctrine during the Biden administration. and during the Obama administration, which is when the major questions doctrine first got really invented. But they said the major questions doctrine shouldn't apply here.

15:00Alan Sykes:Well, I guess one theory as to why is because, at least as I read both the first part of the Kavanaugh opinion and maybe the Thomas opinion, they thought it was kind of clear that regulating importation does include tariffs so that there's no need for clarifying an ambiguity. And then, of course, the Kavanaugh view that major questions shouldn't apply to foreign affairs matters, where the president has more inherent power, which I understood that that was something people thought Kavanaugh might think based on his prior writings. I guess I have to say I'm sympathetic to the view that this is not, even if you thought that there should be some greater deference in the foreign affairs area, This is primarily a domestic tax on American consumers.

15:49Alan Sykes:It's what the data show to be the incidence of this tariff process. About 90 % is borne by Americans at some point in the chain of distribution.

16:01Pamela Karlan:Well, and also the emergency here with Canada, Mexico, and China was fentanyl deaths in the United States, right? Which it's hard to say that that's a question of foreign affairs. I mean, wherever the fentanyl is coming from, the incidence there is 100 percent. It's not even your 90 percent with regard to the payment of the tariffs themselves.

16:22Alan Sykes:Right, right. Yeah, so even if you did have some sort of foreign affairs limitation, it seemed to me that the majority opinions or the folks on the majority side of the case had the better of the argument as to whether or not this was really a foreign affairs issue.

16:38Pamela Karlan:So I want to ask you now, I guess, two questions going forward. The first of which is, what happens to all the money that was paid in by importers and the like during the period of time when these tariffs were in effect? What happens to all that money?

16:56Alan Sykes:Well, the court, of course, didn't say. There's nothing in the opinion.

17:00Pamela Karlan:Yeah, that's why I figured I'd ask you.

17:02Alan Sykes:Yeah. So as I understand it, I have to define a concept, a term of art from customs law called liquidation. When you bring goods into the country, you make a preliminary assessment of the tariff liability in the file paperwork with the custom service where you make a judgment about what tariff classification the goods are under, what the value of the goods is, because the tariffs are usually ad valorem tariffs, a percentage of value. and sometimes it matters what country the goods came from, but you make preliminary judgments on all of that. And then you have an estimated tariff and you pay a deposit equal to that estimated tariff.

17:47Alan Sykes:And then the paperwork goes into the customs service and they can review it and think about it and decide whether any mistakes were made or whether any new developments warrant a change in the tariff that was determined. And then at some point they will sort of wave their hands and say, we've finally determined this is your definitive tariff liability, and that's called liquidation. And that typically takes several months after the goods come into the country. And if the Customs Service hasn't gotten around to it after 314 days, then the goods are deemed to be liquidated. So the process of what happens to the duties that you were asking about, if the entries are not yet liquidated, the importer who brought them in can file a form saying the original determination of the tariff was wrong because it included IEPA tariffs and please correct it before liquidation and then refund us all of the excess.

18:42Alan Sykes:If the entries have been liquidated, which would be true for some of them for sure, then the importer has to file a different form called a protest form saying that you made a mistake and we want to refund because the tariffs for IEPA purposes were not legal. And that form has to be filed within 180 days of liquidation. So there could be some people who missed out because their entries were liquidated more than 180 days ago, and they didn't file any sort of protective protest form in anticipation. And then the third possible answer to your question is that companies can go to the Court of International Tate and asked the court to order the customs service to re-liquidate or not to liquidate the entries and refund all of the overage.

19:31Alan Sykes:And that process apparently is kind of uncertain as to how the court will react to all that. There were some suits filed last year.

19:38Pamela Karlan:Yeah, I was going to say, I think there were a bunch of lawsuits, kind of protective lawsuits filed by people who thought I need to be in the process when the Supreme Court rules.