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Tags: trump | tariffs | weapon | mexico | china

Trump Barrels Into Uncharted Territory With Tariffs as Weapon

Trump Barrels Into Uncharted Territory With Tariffs as Weapon
(Mandel Ngan/Getty Images)

Friday, 31 May 2019 04:24 PM EDT

President Donald Trump is taking the weaponization of tariffs to new extremes, testing the will of Congress to block the president’s use of a tool reserved for a national crisis and possibly provoking a legal battle.

In threatening Mexico with tariffs to force better border security, Trump is deploying potential levies to achieve policies that have nothing to do with economics or trade. The president has repeatedly brandished the threat of trade sanctions as leverage to negotiate deals with other countries, and he has proclaimed himself a proud 'Tariff Man.”

But with the Mexico move, the president is showing a willingness to use laws traditionally seen as a last resort. In the process, it’s becoming increasingly difficult to distinguish between the president’s domestic political agenda and America’s economic policy abroad, with potentially destabilizing effects for financial markets and the global economy.

“These are coming out in a completely unexpected way. It’s the unpredictability of it, that people don’t know where this is all going,” said Nathan Sheets, chief economist for PGIM Fixed Income and a former Treasury official from the Obama administration. “When it’s so uncertain, it’s hard to make investment decisions and in that circumstance people pull back and go risk-off.”

To impose the duties on Mexico, the president is invoking the International Emergency Economic Powers Act, allowing him to bypass Congress to “investigate, regulate or prohibit” everything from foreign-exchange transactions to transfers of credit, and freeze assets.

Trade experts are already questioning Trump’s authority to impose tariffs under IEEPA. It’s been used primarily to sanction nations such as Iran during the hostage-crisis and it’s never been deployed to directly hit imports with tariffs, according to the Congressional Research Service, a non-partisan arm of the legislature.

“This is certainly unprecedented,” said Doug Jacobsen, a trade lawyer at Jacobson Burton Kelley in Washington. “It could be challenged in court, and the courts certainly will give deference to Congress. Ultimately Congress could change the law or prohibit the president from taking this action.”

The law’s roots trace to the First World War, when then-President Woodrow Wilson sought “expansive new powers to meet the global crisis,” according to a report by the Congressional Research Service. Since then, presidents have declared a state of emergency to push through various policies, such as when Richard Nixon took the dollar off the gold standard and slapped a 10% tariff on goods entering the U.S.

Emergency State

Congress eventually pushed back against the expansion of the president’s powers, and when IEEPA came into force in 1977, it gave lawmakers considerable latitude to check executive authority -- including the ability to terminate the state of emergency through a joint resolution of both houses of Congress.

The Mexico tariffs may revive efforts by lawmakers to pass legislation that reins in Trump’s tariff authority. Regardless, the duties will test Republican support for a president who relishes the type of trade protections the party has long opposed.

“This is a misuse of presidential tariff authority and counter to congressional intent,” Republican Senator Chuck Grassley of Iowa, chairman of the Senate Finance Committee, said in a statement Thursday. “I support nearly every one of President Trump’s immigration policies, but this is not one of them.”

In the near term, the tariffs throw a wrench into the administration’s plans to secure approval of a new trade deal with Mexico and Canada, a pact known as the USMCA.

Big Escalation

“This is a dramatic escalation that will likely make it impossible for Mexico to continue cooperating with this administration on trade or on controlling asylum flows from Central America,” said Edward Alden, a senior fellow at the Council on Foreign Relations.

An increasing reliance on emergency declarations may eventually push Congress to act to take back some of its power, according to James Wallner, a senior fellow at R Street and a former legislative director to Senator Pat Toomey, a Republican and free trade advocate.

“At some point, words do lose their meaning and when that happens, these loopholes become dangerous,' Wallner said. 'Congress complains but it does nothing. It gave this power away and it can take it back at any point.'

Congressional Options

Most immediately Congress could pass a measure to prevent Trump’s tariffs from taking place, but it wouldn’t be easy to get a veto-proof majority in both the House and the Senate. Some Republicans will be loath to oppose Trump, and some Democrats in both chambers could support a tougher stance on foreign countries like Mexico that are perceived as taking American jobs.

Wallner points to two bills that could help Congress take back some power, if they decided to. One would require Congress to approve tariff decisions by the president ahead of time, and the other would give legislators the ability to disapprove tariff decisions by the president after they’re announced.

Meanwhile, investors are coming to terms with the prospect that Trump’s love for tariffs may continue to sow uncertainty.

“It suggests that Trump trade policy might well mean a permanent state of endemic uncertainty and instability in the global trading system,” Krishna Guha, head of global policy at Evercore ISI in Washington, said in an research note.

It’s becoming clear that Trump now seems to be using tariffs to achieve a political outcome, Steve Chiavarone, a portfolio manager with Federated Investors, said in an interview at Bloomberg’s New York headquarters.

“If I have to worry that every time there’s a political dispute that tariffs will be the way that we’ll solve that problem as a policy tool, how do I as a company invest, how do I as a consumer understand what I’m going to pay,” Chiavarone said. “How do I as an investor understand the rules of the game?”

© Copyright 2023 Bloomberg News. All rights reserved.

President Donald Trump is taking the weaponization of tariffs to new extremes, testing the will of Congress to block the president's use of a tool reserved for a national crisis and possibly provoking a legal battle.In threatening Mexico with tariffs to force better border...
trump, tariffs, weapon, mexico, china
Friday, 31 May 2019 04:24 PM
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