Are National Security Tariffs Legal?

Today, the Commerce Department inched one step closer to something that seems like a decision point on national security tariffs. The agency recommended tariffs of 24% on all imports of steel, and of 7.7% on all imports of aluminum. The final decision of whether to implement these recommendations falls to President Donald Trump.

Can he do so? Here are some quick and dirty reactions.

What’s this all about?

Since Donald Trump came into office, there’s been discussion about whether he might do something like this. In April of last year, the administration initiated an investigation under what is known as Section 232, looking [in the words in the press release]...

into the effects of steel imports on US national security. The study will consider overcapacity, dumping, illegal subsidies and other factors, to determine whether steel imports threaten American economic security and military preparedness. “We are going to fight for American workers and American-made steel by conducting a thorough investigation into steel imports,” said President Trump.

A few weeks later, this was followed up with a similar investigation on aluminum imports.

What is Section 232?

It has its roots in 1955 and 1958 authorities granted to President Eisenhower, which took their more or less current version in the Trade Expansion Act of 1962 under the Kennedy administration years.

I’ll quote it at length. It delegates to the president the ability to determine…

(b)… the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security…
(c)…the Secretary and the President shall, in the light of the requirements of national security and without excluding other relevant factors, give consideration to domestic production needed for projected national defense requirements, the capacity of domestic industries to meet such requirements, existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense, the requirements of growth of such industries and such supplies and services including the investment, exploration, and development necessary to assure such growth, and the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements.
In the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered, without excluding other factors, in determining whether such weakening of our internal economy may impair the national security. (emphases added)

It’s powerful stuff. The president gets to decide when and how national security might be under threat. National security is broadly defined to include “economic welfare” and the skills of the workforce. Finally, the president gets to decide the duration and nature of his policy response.

Others have considered using it, but it’s rare to actually do so

Since its inception in 1962 through last year, 26 investigations under Section 232 were launched. The last time was in 2001, when Democratic members of Congress requested President Bill Clinton in his final days in office to investigate iron and steel imports; a year later, his successor George W. Bush declined. Indeed, these investigations have almost never advanced to the import restriction stage, as this figure shows.

Requests for 232 or similar relief, by presidency

While the steel industry has petitioned for relief under 232 before, the previous uses of 232 all related to oil imports.

Was this a unilateral power grab?

Section 232 is an unusually broad grant of trade power to the president from Congress, which constitutionally is tasked with making commercial policy.

Is it constitutional? It would seem iffy, at first glance. But going back to the 1955 act, Congress was repeatedly put on notice of what was being demanded, and they granted the authority anyway. As testimony from an industry spokesperson in 1955, counting on traditional “outs” like anti-dumping was…

wholly inadequate in regard to supplying the necessary safeguards for the protection of our strategic industries. These escape-clause provisions were established on the basis of economic criteria alone and have been applied only when serious injury has been demonstrated on the part of domestic industry by reason of increased foreign imports.
[this] constitutes a gap in our national security, an Achilles heel in our defense-mobilization planning. There exist within these strategic industries, and particularly within the scientific optical-instrument industry, uniquely critical skills, highly essential to defense production, and the product of unusually long training time. These skills cannot be stockpiled in a manner similar to critical materials, but must be maintained in constant use in order to be available as a base from which expanded wartime production can be rapidly and efficiently launched. If these unusual skills, are dispersed or allowed to atrophy through disuse, they will be lost and can be recreated only with a costly loss of time.
Provision must be made to identify these uniquely critical skills and to establish the minimum levels at which they should be maintained for wartime expansion. If the strategic industries employing these unusually critical skills are allowed to suffer serious injury, such as suggested under the escape-clause provisions before action is taken to preserve them,, the damage has already been done and our national security already put in jeopardy. The national security and the strength or our mobilization base cannot be subject to limited authority or limited action.

In the 1962 hearings, Rep. Thomas Curtis (R-Mo.) said: “This is a request for delegation of authority from Congress to the Executive. There is always a question of how do we delegate and what are the guidelines, if any. Really, the request here, as I see it, has been for almost blank authority.”

Nonetheless, Congress approved the authority, perhaps swayed by Kennedy’s Deputy Secretary of State Roswell Gilpatric, who defended the grant, saying “I think interdependence is important, but I always want to have, right here at home, an industrial base which we can look to for our support of our Military Establishment.”

If Congress wanted to rein in this executive power, they’ve had over 60 years to do so, and have not. So courts are likely to see any tariffs imposed as legitimate.

How have courts responded?

In fact, the Supreme Court has already said as much. In the 1976 case Federal Energy Administration v. Algonquin SNG, Inc., it was asked to review the constitutionality of 232’s delegation of power. Justice Thurgood Marshall delivered the unanimous opinion of the court:

In Hampton & Co. v. United States, 276 U.S. 394 (1928), this Court upheld the constitutionality of a provision empowering the President to increase or decrease import duties in order to equalize the differences between foreign and domestic production costs for similar articles.
There, the Court stated: "If Congress shall lay down by legislative act an intelligible principle to which the [President] is directed to conform, such legislative action is not a forbidden delegation of legislative power.”
Section 232 (b) easily fulfills that test. It establishes clear preconditions to Presidential action — inter alia, a finding by the Secretary of the Treasury that an “article is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.”
Moreover, the leeway that the statute gives the President in deciding what action to take in the event the preconditions are fulfilled is far from unbounded. The President can act only to the extent “he deems necessary to adjust the imports of such article and its derivatives so that such imports will not threaten to impair the national security.” And § 232(c )…articulates a series of specific factors to be considered by the President in exercising his authority under § 232 (b).
In light of these factors and in our recognition that “[n]ecessity… fixes a point beyond which it is unreasonable and impracticable to compel Congress to prescribe detailed rules…,” American Power & Light Co. v. SEC, 329 U.S. 90, 105 (1946), we see no looming problem of improper delegation that should affect our reading of § 232 (b).

In short, Marshall interpreted the authority as bounded if it required the president to make a determination that national security was being threatened. In any case, he thought it impractical for Congress to give more detailed instructions. While any action Trump would take under 232 would be legally challenged, the Supreme Court would have to do an about face on its own precedents to rule the move as unconstitutional.

The Commerce Department is insulating itself against legal challenge

Take a close read of the steel report, and you’ll note that the Commerce Department is already taking steps to make tariffs pass legal muster.

First, it’s a lengthy 262 pages, complete with 12 annexes. That’s a lot of data, all of which makes the move look less capricious.

Second, the report notes the similarities to declarations made under the George W. Bush administration, mostly adopting Bush’s conceptual frames and noting how the on-the-ground reality has changed since he declined to levy national security tariffs in 2002.

Third, the logic of the report is straightforward. It notes that the Defense Department and government more broadly relies on steel. It notes the domestic steel industry has had negative net income since 2009 and many factories have closed, as imports rose. It suggests young workers do not see steel as viable career path, so do not enter the industry. The report notes that capacity utilization needs to be at 80 percent or higher in order to ensure sustainable profitability, and that the current utilization rate is at 72.3 percent. Thus, even though imports as a share of total domestic consumption stand at “only” 30%, that level is inconsistent with ongoing profitability. The report then uses standard trade modeling exercises to ask what tariff would be needed to get back up to 80 percent. It then reports out a tariff that gets just to the level of production associated with that (90.6 million metric tons) and not higher: 24 percent. All of this makes the exercise seem fact based and like it’s not out to pad the pockets of steel executives.

Conclusion

Like most policies, there will be winners and losers if Trump decides to impose the tariffs. The winners will include domestic workers and firms, who will get a concentrated boost to their welfare. The losers will include workers and industries that use steel, who will see higher prices. Trump acknowledged as much last week, telling reporters, “I want to keep prices down but I also want to make sure that we have a steel industry and an aluminium industry and we do need that for national defence… If we ever have a conflict we don’t want to be buying steel [from] a country we are fighting.”

In short, the administration is setting itself to survive domestic legal attack if it does go the extra step and impose tariffs. Whether other countries will sit by without retaliating is another question, one I’ll return to in a future post.