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Tweetstorm on Trade

May 31, 2019

By Todd Tucker

It has been a big day for NAFTA 2.0, and not in good way.


Here’s more—adapted from a twitter thread—on developments of the last 24 hours – including Pence’s Canadian visit, Lighthizer’s submission of NAFTA text to Congress, and Trump’s impetuous launching of a trade offensive against Mexico…

Pence’s Canada trip seemed like a desperate move to reignite momentum – given what Democrats are demanding (e.g. rolling back protections for Big Pharma), the Republicans don’t want to give.

As I told Naomi Powell when we spoke early yesterday, “if you’re running a campaign with targets who won’t talk to you, what do you do? You go to Ottawa, fill the time.”

Of course, Trudeau was always ill-advised to move forward with ratification until it was clear that there was a deal with Democrats to be had – likely in the text of a renegotiated agreement that Parliament would have to re-approve.

It seemed especially silly since almost all of what Democrats want would be disproportionately to Canada’s benefit. More here.

Lighthizer (inside) and Wallach (outside) are among the few grownups with an idea of the glide path to successful ratification. But it was going to demand a lot of Trump, which he doesn’t have the political ability or inclination to deliver.

So what’s the second best outcome to replacing the “worst trade deal ever”?

Poison pills that make Democrats and Mexicans the problem.

As Daniel Dale reports, the “break-stuff-and blame-the-other side” caucus won.

This starts the Fast Track clock, allowing the administration to drop implementing legislation as soon as June 29. Under normal times, this would mean Congress would vote on it by September 27.

 

But these aren’t normal times. Speaker Nancy Pelosi immediately responded with this, calling the move “not a positive step. It indicates a lack of knowledge on the part of the Administration on the policy and process to pass a trade agreement.”

In her words, “We all agree that we must replace NAFTA, but without real enforcement mechanisms we would be locking American workers into another bad deal. A new trade agreement without enforcement is not progress for the American worker, just a press release for the President.” The last time an embattled Republican president tried to jam Pelosi on a trade agreement opposed by her Caucus, it did not end well for said president. Read more.

Overhauling NAFTA was his campaign promise and something he would like to campaign on in 2020. Indeed, it’s one of his few accomplishments that would have played with the traditional Democratic base.

To recap, since Trump’s own party won’t let him deliver, he’s setting up a dynamic to blame Pelosi and blame Mexico. The submitting of the statement of administrative action without first getting Pelosi’s consent is an own goal in policy terms, though maybe a win politically.

Meanwhile, the announcement of new tariffs on Mexico – to be ratcheted up or down at Trump’s personal discretion of how well AMLO is going on restraining immigration – will make ratification there impossible. More here.

While Trump describes this as a security crisis, it’s also clear he has an industrial policy of sorts in mind.

In his statement, “If Mexico fails to act, Tariffs will remain at the high level, and companies located in Mexico may start moving back to the US to make their products and goods. Companies that relocate to the United States will not pay the Tariffs or be affected in any way.”

That’s not necessarily a problem. As we’re learning with the Section 232 steel tariffs, the legal line between national security and economic security is blurry, working towards the president’s benefit. Read more here.

Nonetheless, the kinds of executive powers that FDR relied on to remake the US financial sector in 1933 (technically through the Trading With the Enemies Act of 1917, with the “enemy” defined as economic depression) have been rolled back since.

The National Emergencies Act (NEA) in 1976 and the International Emergency Economic Powers Act (IEEPA) in 1979 established additional checks. More here. 

Unfortunately, they haven’t been too meaningful in practice, since the ultimate enforcement of those checks is left up to Congress, which by a joint resolution can overturn the emergency.

Who thinks THIS Senate will stand up to Trump?

Also, I wouldn’t hold my breath for courts to intervene on the tariffs on Mexico. They’ve been very deferential to presidents on IEEPA, so long as they follow the minimal procedural checks in place (e.g. declaring an emergency and updating Congress).

In 1981, President Reagan used IEEPA to unilaterally abort all ongoing US court claims against Iran, and shift them to the US-Iran Claims Tribunal. (Side note: This was the major precedent for investor-state dispute settlement ISDS, as I note in my book.

SCOTUS upheld the move (which stripped their own jurisdiction) on an 8-1 decision in Dames & Moore v. Regan.

Now some are arguing that IEEPA doesn’t apply to tariffs. Indeed, presidents haven’t used it for tariffs, but rather more targeted sanctions.

But that’s hard to square with the central precedent we have: the United States v. Yoshida International from the United States Court of Customs and Patent Appeals (precursor of today’s Court of International Trade) in 1975.

In that case, the court upheld President Nixon’s imposition of a 10% tariff in 1971 on virtually all imports.

Though it technically predated IEEPA, my reading is that the court’s reasoning would still be valid under the TWEA as amended.

For the court, it was important that not all trade and domestic commerce was affected, and that it was linked to a cognizable and described emergency. The Mexico tariffs meet this loose standard. (Just Mexico is affected, not all commerce, and it’s not a total import ban.)

Yoshida tried to argue that the law didn’t technically permit tariffs as the policy tool. Indeed, even the current IEEPA uses the word “regulate,” which depending on your point of view is either broader or narrower than tariffs.

The Yoshida Court disagreed, finding tariffs a form of regulation: “Far from attempting…to tear down or supplant the entire tariff scheme of Congress, the President imposed a limited surcharge, as “a temporary measure” calculated to help meet a particular national emergency,”

In sum, Congress didn’t give express authority to levy the Mexico tariffs, but neither did they explicitly defy Trump from doing so. Indeed, the long history of bipartisan legislation on border security establishes numerous implied authorizations to act.

Is this congressional silence or congressional implication?

This puts us, in Justice Robert Jackson’s words from Youngstown v. Sawyer (1952), in a “zone of twilight” – and one we can’t expect the courts will save us from.

And, for what it’s worth, it’s far from clear that they’ll be any effective international remedy either.

The ball is in Congress’ court. Mismanagement of foreign affairs definitely qualifies as the type of defect of public administration Hamilton described as a basis for impeachment.

Could the Mexico crisis be an 11th article of impeachment alongside the 10 episodes of potential obstruction of justice identified by Mueller? Past impeachments (of judges) often grouped various diverse bits of behavior together.

Good point here by Alex Lawson.

Of course, it’s been a while since presidents have acted in ways that might trigger these precedents. Since the Roberts Court didn’t block the #MuslimBan, all bets are off.

I’m more optimistic that SCOTUS might block the 232 tariffs, because there the policy objectives of restraining Trump happen to coincide not only with free trade but also destroying what’s left of the New Deal administrative state. Read more here.

Author

Todd N. Tucker

Director, Industrial Policy and Trade

As director of the industrial policy and trade program at Roosevelt, Todd N. Tucker, a political scientist, leads Roosevelt's work on the role of governance and institutions (both national and international) in facilitating economic transformation.

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