President Donald Trump has upended the global trading system by implementing a tariff regime that has ballooned America’s effective tariff rate from 2% to over 17%. For the legal power to issue the majority of his tariffs, he relied upon the International Economic Emergency Powers Act of 1977 (IEEPA). No previous President has issued tariffs via IEEPA, and, after litigants challenged the legality of the President’s authority to do so, the Supreme Court of the United States must now rule on the question.
In that sense, the Supreme Court is now stuck in a classic trolley problem. The Supreme Court must either pull the lever to change course to a path fraught with short-term uncertainty, invalidating the foundation of America’s current tariff regime and dramatically resetting President Trump’s policy agenda. Or, if it does nothing, America’s existing high-tariff regime will not only endure for the rest of the Trump presidency but likely for years to come, confirming the ability of America’s presidents to usurp Congress and gain unilateral power to impose international taxes and tariffs. Either way, this is a choice of enormous global economic consequence.
Putting The Wheels in Motion
Within days of taking office for a second term, President Trump set off to upend the global trading system. On 1 February, he announced ‘trafficking’ tariffs on Canada, China and Mexico, citing the need to stop drug trafficking and illegal migration. On 2 April, so-called ‘Liberation Day’, he went further, announcing a ‘reciprocal’ tariff on 185 countries and territories along with a 10% universal tariff, this time citing the need to lower the national trade deficit.
Many of these tariffs have now been in place for the better part of a year and firms and foreign governments have adapted to a new normal. However, the President may not have had the legal authority to issue them in the first place. And the problem is, there’s no easy way to turn back.
Emergency Economic Powers
When announcing both the trafficking and reciprocal tariffs, the President invoked authorities under IEEPA. The law grants the President the authority to ‘deal with an unusual and extraordinary threat which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.’ To take action, the President must declare a national emergency related to the threat.
Since the law’s passage under President Jimmy Carter, every President has invoked IEEPA. In the first instance, President Carter froze Iranian government assets in response to the Iran Hostage Crisis. More recently, President Joe Biden issued wide-ranging sanctions against Russia in response to its 2022 invasion of Ukraine. IEEPA serves as the foundation for much of America’s economic statecraft, including sanctions, the outbound investment programme, data security restrictions and controls on information and communications technology.
