Trump’s Tariffs Head to the Supreme Court

In this episode of The Deduction podcast, host Kyle Hulehan and co-host Erica York are joined by Alex Durante, Senior Economist at the Tax Foundation, to discuss the Supreme Court's upcoming decision on whether the president can impose $2.2 trillion in tariffs under the International Emergency Economic Powers Act (IEEPA). 

The conversation covers the origins and implications of these tariffs, their economic impact on consumers and businesses, and the potential outcomes of the court ruling. They also explore the broader theme of presidential authority in trade regulation and the possible legislative responses. Stay tuned for an insightful breakdown of the tariff landscape and its future implications.  

00:00 Introduction and Bananas 

00:36 Welcome to The Deduction Podcast 

01:15 Tariffs and Presidential Authority 

04:15 Impact of Tariffs on Consumers and Businesses 

06:58 Bananas as a Case Study 

08:42 Personal Stories of Tariff Impact 

10:43 Legal Battle Over Tariffs 

14:25 Future of Tariff Policies 

20:53 Congress vs. Presidential Power 

23:32 Conclusion and Listener Engagement 

Transcript

Alex Durante: 0:00

but in the case of bananas, 98% of bananas that we consume in the US are import. We can't just produce more bananas. So, so in that situation consumers, they, I, if they really like bananas, you know, they really have, no choice, but they just pay that, that higher price. And of course they could switch. to other kinds of fruits as well. But, again, those are also facing tariffs. So I think that's like one, one example where it's really, I think, pretty difficult for consumers to insulate themselves from those price increases.

Erica York: 0:30

Yeah, if your toddler loves bananas you've gotta pay the higher price.

Arrested Development: 0:33

it's one banana. Michael, what could it cost?$10.

Kyle Hulehan: 0:37

Hello and welcome to the Deduction a Tax Foundation podcast. I'm your host, Kyle Hulehan, and we are back today with another episode, and I am joined by my co-host, Erica York. Erica, it's great to have you back on the show. I feel like you might have a a few months of tariff takes to get off your chest potentially.

Erica York: 0:55

Yeah, I gotta say, you know, I was out with a newborn, a 6-year-old and a three-year-old, and I thought that was chaotic, but coming back and catching up on all the tariff news that happened while I was out, I think you guys may have, you guys may have had it worse than I did, keeping up with all of the tariffs rather than keeping up with a newborn.

Kyle Hulehan: 1:12

It's a very close call in this case, I think. So today we also have Alex Durante, senior Economist here at Tax Foundation joining us to discuss tariffs. Now, I'll kind of set the stage here for you guys. The Supreme Court is set to decide on whether the president can. Unilaterally imposed 2.2 trillion in tariffs. I wanna start off by going to you, Erica. Can you walk us through what exactly these new tariffs are and how using the International Emergency Economic Powers Act, uh, is different from how the president has imposed tariffs in the past?

Erica York: 1:44

So. If you look at the Constitution, it actually grants the authority to impose taxes, duties, imposes tariffs, all these different types of taxes to Congress, not to the President. But throughout the years especially in the post World War II period, Congress passed laws to delegate those authorities. To the president, and in most cases, the statutes are really specific. You know, if imports threaten national security or if imports are causing undue injury to domestic firms, and you know, there's some leeway with what those. Phrases mean. But in most cases there's a process that's pretty well spelled out. But this law that you refer to a EPA from 1977 is an emergency powers kind of law for the president that doesn't actually mention the word tariff in it and from when it was passed in the seventies. Up until before Trump came back into office, this law had been used for 67 different emergencies, but had never been used to impose tariffs. So Trump is really pushing the bounds of what this statute allows by using it to impose baseline tariffs. And you'll recall as we've talked about on the show before, there are two buckets of IEP tariffs. The first are related to a national emergency. Fentanyl and border crossings and those are tariffs on China, Mexico, and Canada. And then the other bucket are these reciprocal tariffs that were, you know, an idea supposed to be matching trade barriers that other countries impose on the us but really are. random numbers that you don't really know where they're coming from. They range from 10% to 50% and apply to almost every US trading partner. So rather than these being really narrowly targeted measures related to. and time-limited national emergencies. These are just really broad tariffs. The president has used this statute to impose his idea of baseline tariffs, is essentially what we're talking about. And all these tariffs add up to, like you said, about$2.3 trillion in taxes over the next. Decade. So that's a 10 year measure of how much revenue could be expected if these tariffs remain in place. But if the Supreme Court strikes it down, of course that revenue would go away. That brings me to Alex we've already seen billions of dollars collected, I believe, the total from I EPA tariffs so far. This calendar year is getting close to$90 billion. But who actually pays those tariffs? If we hear President Trump talk about it, you know, he'll say This is a tariff on China, this is a tariff on Canada. We're gonna make Canada pay more. But what does the research show so far about who is paying and how these are burdening different people?

Alex Durante: 4:29

Right, so the research shows. Those, that's a combination of both consumers and American businesses that are paying the tariffs. So the administration likes the claim that it's actually foreign firms that have been paying the tariffs. But that's in fact not the case. So we have pretty good data showing that the tariffs. Themselves are almost fully passed on to the import price that the importer's paying, which in many cases is going to be that importing firm and business. And then once that transaction happens then the firm has a decision to make, which is how much of that cost increase do they want to pass on to the final consumer? And what we've seen so far is that the burn of the tariff is being shared by both that business and the final consumer. So, the latest evidence that just came out, and this is from a team of Harvard economists and they have looked specifically at tariff pass through to that final retail price. And what they found is that about 20% of those tariffs have been passed on to. final consumer. And that itself has had about 0.7 percentage points to the consumer price index. Now, initially that might not sound like a whole lot, you know, because as you said, Erica, you know, we've seen tariffs as high you know, as 50% say on Brazil and India. So, so the question is, I mean, why are we not even seeing more price spikes? And I think the reason for this, and this is coming from a lot of the survey evidence that we have of businesses, is that there's a lot of uncertainty around the tariff regime. A lot of these businesses you know, they operate on a contract basis, they might have already locked in some of their prices for the year. So they're gonna be shifting those price increases until next year. So, so I think while we have you know, we've seen some, you know, as I said, some modest price impacts so far. And I think given the evidence that we've seen, you know, from the surveys as well, that we should be expecting more price increases going forward especially as we head into the holiday season. Now, of course, this is all assuming. That the Supreme Court, you know, upholds, you know, the ie, but tariffs. And if they don't you know, then we're going to see a lot of additional you know, pricing decisions. That, that will have to be made there because there will still be a lot of tariffs left in place under under other authorities. But in, in that situation those IEP tariffs would go away.

Erica York: 6:58

I saw a really interesting article this week on bananas. You know, if you look at banana prices over like the past decade or so, they're really steady. But since April, banana prices have increased by more than 5%, which is because of the tariffs. So I think. In addition to these differences over timing, like, are the tariffs gonna be here, are they not? Do we change our price or not? You also see a lot of variation in different products. You know, some of it depends on can we get any of it from the United States? Can it be stockpiled in the case of bananas? Like no and no. So we're seeing that pricing change show up faster than we do for other products where there may be more ability to have some kind of a buffer.

Alex Durante: 7:36

Bananas are a really good example here for a couple reasons. I mean, one is that you just see the clearest, you know, trend break in the data from when the tariffs were opposed. And there was no other obvious explanation. Like there was no other, you know, supply shock that occurred that would cause bon banana prices to rise. And I think the second reason, that's a good example is that you know, if you're able to shift, some of your production to the US that does attenuate, the price increases somewhat. Of course it would not be as low as they would be if the tariffs weren't imposed. But in the case of bananas 98% of bananas that we consume in the US are import. We can't just produce more bananas. So, so in that situation you know, consumers, they, I, if they really like bananas, you know, they really have, no choice, but they just pay that, that higher price. And of course they could switch. to other kinds of fruits as well. But, you know, again, those are also facing tariffs. So I think that's like one, one example where it's really, I think, pretty difficult for consumers to insulate themselves from those price increases.

Erica York: 8:36

Yeah, if your toddler loves bananas you've gotta pay the higher price.

Kyle Hulehan: 8:40

Exactly, and you know. I actually, I have a personal story about tariffs affecting my life that I saw very recently. I have a small obsession with Converse, and Converse is actually made better when you buy them from Japan. It's a different company that makes them, so if you buy Converse from Japan, it's a really high quality shoe. I bought them and it was like 130 bucks, and then it got delivered to me and. I then got an email being like I had to pay$60 on top of that, which were in additional tariffs, and I didn't know that. I had no idea, but it just, but I paid it, like they didn't pay it. Nobody else paid.

Alex Durante: 9:18

Apparel. I would say that's a really good example because, you know, as Eric had mentioned, I mean, there's, so there's certain kinds of goods where we've seen more price increases than others. And apparel has had one of the largest price increases a as a result of the tariffs. So yeah I'm not, I am not surprised to hear that. That was your your personal experience.

Erica York: 9:37

Yeah, and that's probably due to another change that was made under A EPA, which was ending di minimis. So prior to that change, if you had a like low value package coming in, I think$800 or less that essentially just skipped through the customs process. There wasn't a tariff or anything like that applied. Trump has ended di minimis under the IEPA statute. And so all of these small dollar packages, like the$130 shoes you bought now get a tariff bill slapped on. And given that tariff rates are pretty high right now, that is a relatively large amount of revenue. But if you look at like the administrative hassle of looking through all of these like single purchases, these little packages that are coming through, that's a huge administrative cost. To the government for probably very little revenue squeeze.

Kyle Hulehan: 10:25

Yeah, and I will say I believe what I read in my email, and this could be wrong, but was it. eBay, they're paying it first and then I'm paying them. So they have to put out money and then I have to pay them. And that's like a whole thing that it's just a complicated, messy process. It's not simple like you guys are saying. And it affects us Americans. But real quick, let's, let's transition here to talking about the court fight. That this sort of legal battle that's gonna go on. You know, uh, Alex, to you, you know, what are the plaintiffs actually arguing and what makes this case such a fundamental test for presidential authority under a epa.

Alex Durante: 10:59

Right. Well, the plans are simply arguing that the I, the, i, the IEP authorities do not grant the president the authority to impose tariffs this broad in scope. You know, as Erica mentioned earlier if you look at the statute not only does it not use the word tariffs, but it doesn't use any other words that are sort of synonymous with tariffs like duty or taxes. So it seems to be the, and actually the other thing I think is important to highlight here is that the, you know, Congress around that time did pass certain statutes granting the President Moore executive authority to impose tariffs. So the question really is, if. A EA was intended. And again, a EA came, you know, in, in the late seventies. I mean, if it really was intended to give the president the authority to impose tariffs this broad, it would be sort of redundant with respect to the other powers they gave the President. And if you look actually, you know, e Eric had mentioned that, you know, IPE had been used many times throughout the past several decades. If you look at the cases. you know where it was used and how it was used? It was mostly related to freezing assets of uh, foreign adversaries. In fact it was first applied by Jimmy Carter during the Iran hostage crisis specifically to freeze Iranian assets. So this is a very. Narrow different circumstance from imposing tariffs. You know, that, that were this broad in scope and I think the government is going to have a really difficult time arguing that it was the intention of Congress when they passed these, you know, emergency powers to give the president authorities that were that broad.

Erica York: 12:30

And I think another issue that, that some of the arguments have brought up are that, you know, this has to be related to a national emergency. I forget the exact language, but in the statute it's like, it's a time sensitive thing. It's like something that pops up and will end because of the actions that you take. of the national emergencies is that the US is running a trade deficit, but the US has been running a trade deficit for more than my entire lifetime. So that's like not some new. Emergency that just popped up, that needs to be addressed. This is like a longstanding issue. So even if you like, ignore the part about tariffs, just the national emergencies that have been declared don't match up.

Alex Durante: 13:06

And, and that argument, I think, becomes even harder for the government to defend because under the reciprocal tariff regime, they're imposing tariffs of countries that we even have trade surpluses with. I, I think the government, you know, in that sense, doesn't really have, a a leg to stand

Kyle Hulehan: 13:20

Yeah, and, and I wonder, you know, especially I think the president might not be helping his case with maybe raising tariffs because of a commercial, potentially. Things like that certainly, probably don't help as.

Alex Durante: 13:31

Well, right. I mean, just to get into that example, you know, the first round of tariffs that came in February were specifics that were, so those were the tariffs on Canada, Mexico, and China. And those were, allegedly supposed to address fentanyl coming through the border, as well as you know, the immigration crisis and border crossings, you know, that we were experiencing earlier in the year. And now the president just over the weekend says he wants to impose, you know, an additional 10% tariff on Canada as he was offended by a commercial. I mean, how does that. to the fentanyl and border crisis. Right. So, I think it is very unlikely that the intention was for the president to be able to impose tariffs because he was offended by a TV commercial.

Kyle Hulehan: 14:10

Yeah. And I think, um, you know, Alex, on a different podcast that you were on a, a few months ago when we were talking about a little bit of crony capitalism, like that's kind of a little bit the vibe where you're like, oh, like, it's a little concerning when you get to that point.

Alex Durante: 14:22

Right.

Kyle Hulehan: 14:22

But, you know, o over to you Eric. Uh, I wanna do a little bit of. F forecasting with you, you know, if the Supreme Court rules one way or another, you know, how quickly might we see the real world effects for businesses and consumers?

Erica York: 14:35

Yeah, so there's been a lot of speculation about, you know, if the Supreme Court strikes these tariffs down they could require refunds being paid to anyone who has paid an IEPA tariff. So then it becomes a process question, does the government make this a taxpayer friendly refund situation or do they make you jump through a lot of hoops? But you know, there is a world where. Importers who have paid tariffs get their money back. That raises questions too. Then what if those importers had raised their prices? Do they get some sort of windfall? Do prices come down after there's all of these knock on effects from refunds. There's also a question of like, how much does this really improve certainty for for the economy?'cause on the one hand, if the Supreme Court says no, the president cannot use a EPA to impose tariffs. All of this system we've built up of these reciprocal tariffs of these fentanyl tariffs comes crashing down, but mean the threat of higher tariffs. Has gone away, it probably means the president is going to try to impose them through other channels or try to get Congress to do something on tariffs. So we're not really in a world of a better trade outlook. We're just in a world of, okay, this channel has gone away. We're maybe getting refunds of this, you know, 89 billion or so that has been paid in, but we don't really know what's happening next.

Alex Durante: 15:56

And just to follow up on that, you know, thinking about what comes after, you know, a EPA, if the tariffs are struck down. well there's currently 12 ongoing section 2, 3, 2 investigations. the section 2 3 2 authority gives the president the ability to pose tariffs up and the interest of national security. And those are product focused tariffs. So, so the latest ones that have been announced were furniture tariffs. There's ones on medium and heavy trucks that are gonna be coming November 1st. And then throughout the year we had section 2, 3, 2 tariffs imposed on auto steel and aluminum and and certain derivatives of copper. So there's still a lot of you know, investigations. There, there is, you know, a strong likelihood that you know, tariffs will be on those products down the road. And then. There's also the possibility that the president could use other authorities that he used when, his first term. So this would be the section 3, 3 0 1 tariffs which he used to target China's unfair and discriminatory trade practices. He could, you know, we could potentially see more of those down the road. And then finally there, there's a sort of, less used provision by less, I mean actually this was only, I believe, only used once ever, which is a section 1 22 of the 1974 Trade Act, which gives the present the authority to impose broad tariffs up to 15% to address balance of payments and trade deficit related issues. Which sounds a lot like the IE the IE reciprocal tariffs. However, these tariffs could not be higher than 15% and could only be in effect for 150 days unless congress approve an extension, which I think given all the debates that are going on right now, I think it is pretty unlikely in that situation that they would approve you know, extending those. But so. Yeah, I do think that the Supreme Court overturning the IE Pitar, I mean, this would significantly hamstring the president's ability to oppose tariffs that broadly. But I don't think we would, you know, I don't think we would be quite out of the woods yet because there are so many ongoing related product investigations and it seems likely the president is going to impose more tariffs on those goods down the road.

Erica York: 18:02

And those authorities can be abused too. Like if you look at the section 2 32 steel and aluminum tariffs. Okay. So, you know, like primary steel, we need to have that for national security reasons, even though the Department of Defense has kind of said, no, we've got what we need. Well, if you look at what has happened with Section 2 32 tariffs. There's been an inclusion process and the tariffs have been applied to derivatives and companies can ask the government to. it further to apply to more derivative products. So now we're in a spot where instead of just a applying to like the metals themselves, steel and aluminum, the national security steel and aluminum tariffs apply to the aluminum content of tennis rackets and of canoes and of baseball bats. Which is so far removed from national security. So it just shows like. It can be abused. It can mushroom beyond just, you know, what you might think is, you know, laid out in the statute. So like Alex said we're not really out of the woods here.

Kyle Hulehan: 18:59

Yeah, and I'm just wondering and if you guys don't wanna go on the record for this, that's totally fine. I, I just wonder if either of you have any idea, like, based on what you guys know, like which way the, the court would be leaning or, or there's just no way to know. Like, is it just all up in the air? What do you guys think?

Erica York: 19:13

I say, I've been watching betting markets.

Kyle Hulehan: 19:15

Yeah.

Erica York: 19:16

you know, more people think that the tariffs will be struck down than upheld, but like,

Kyle Hulehan: 19:22

Yeah.

Erica York: 19:23

who knows? There's just as many people arguing like, well, maybe the court will rule in favor of this, even though that would kind of be contradictory to other rulings recently on you know, presidential authority, like regarding student loan forgiveness and that sort of thing. So it's, yeah, I don't, I don't have good sense.,

Alex Durante: 19:39

if you actually look at the US Court of Appeals decision, which was a seven four decision against the government. The seven hour in the majority were comprised of judges that had been a appointed by both Republican and Democrat administrations. However, for the four that dissented. And that agreed with the government's argument. There were also there were two democratically appointed justices and even two Republican appointed justice judges. So, meaning that it's you know, you really it's, I think it's really hard to say,

Kyle Hulehan: 20:07

yeah.

Alex Durante: 20:08

way, which way it goes. I mean, I mean, I do think we have seen instances with at least a couple of justices on the Supreme Court. They have been, willing to rule A against the president and limit some of his authority. So I am personally somewhat optimistic that the IEP tariffs will be you know, overturned. But I think it is, you know, as we said, it's hard to say without any kind of a absolute certainty.

Erica York: 20:31

Have you placed any bets on it? Alex

Alex Durante: 20:33

no. Um, My, uh,

Kyle Hulehan: 20:36

We're not,

Erica York: 20:36

down.

Alex Durante: 20:37

yeah, yeah,

Kyle Hulehan: 20:37

You know, that's.

Alex Durante: 20:38

my, yeah, no my my, my election bet betting days are are in the are in the past for me. Yeah. My, my fiance I'll just say my fiance would not be happy with me. I'll say that.

Erica York: 20:53

All right, so, so if we step back from all of that Alex, what do you think this tells us about, like, the balance of power between Congress and the president and where that's headed? You know, I personally wish we would see Congress step up and vote to pull back some of this power from the president. It doesn't seem like that's likely, it's kind of up to the court at this point, but kind of looking a little bit longer term where do you think that the balance will lie?

Alex Durante: 21:17

So I mean, look, the unfortunate cases as I think we've highlighted this discussion now even without a EPA, under you know, the 74 Trade Act and also the 1962. trade Expansion Act, which gave the president his section 2, 3, 2 authorities. You know, as a result of those legisl those pieces of legislation, the president does have, broad authority to impose tariffs. And that's a choice that Congress made at the time. Of course it's a choice that they can choose to undo. And I think that given, you know, how we've seen, you know, as Erika these executive powers being abused, I think you know, it's possible that we could see. Over the next few years that congress, you know, maybe will try to rescind or return some of that power to the legislative branch. Of course, you know, it's also possible that when a new administration comes in, you know, they try to use, those trade powers to continue to do tariffs, you know, in the more limited scope than what's happening now. And, you know, we're I, and then we're, you know, potentially never, really freed from this the, this cycle um, that we're in. But I do think though the current you know, circumstances that we've seen this year, you know, I, I think does have, Certain legislators, rethinking these powers. and there were a couple bills. Um, I believe one was introduced by Senator Rand Paul earlier this year. There might have been another bill. There were a couple of bills floating around in Congress. That would return on these authorities to the legislative branch. But they have not, you know, they have not been getting you know, a lot of traction, I think because a lot don't wanna be seen as a going against the president in that fashion. I think that's something we'll have to just, you know, keep following. But, you know, I think it's, I think it is possible that we do see. Down the road, Congress take back some of its powers as it relates to trade.

Erica York: 22:58

I think even this week or before the end of October, the Senate is gonna vote on maybe three different. Measures or motions related to the I EPA tariffs. So looking at like the National Emergency Declaration looking at Brazil and Canada specifically. So it will be interesting if they do get to take a vote on that to see how republicans in particular decide to participate in that vote. Whether they're ready to kind of go on record and say, yeah, this is. has gotten out of control. This needs pulled back, or whether they continue to defer to the president.

Kyle Hulehan: 23:32

Now as we're starting to wrap up here, what should listeners, you know, be watching for when oral arguments begin on November 5th and, and how could they keep up with the latest analysis here?

Erica York: 23:43

we'll be covering it on the blog. We might do another podcast episode talking with some folks with legal expertise after the oral arguments take place. But one thing that, that the folks over at Cato um, Scott and Colin and Clark and their brief and in their writing about the ultimate decision have been talking about is, you know, if you look at the government's arguments, they're making some really fantastical claims, like, you know, this is gonna. Decimate the federal budget. If the president doesn't have this authority, this is gonna be terrible for the economy. Terrible for businesses. That's all very far removed from the legal question at hand. And so one of the things that, that they've been saying and using some of our modeling to, to argue is that, even if you take these, you know, fantastical economic and budgetary claims from the government and look at the actual analysis done the government's claims don't line up with reality. So I think one of the things I'll be listening for is, you know, whether the questions are related to these claims and what's gonna happen to the economy and what's gonna happen to the federal budget, or whether it's really. More focused on, okay, is there a national emergency? Does the statute allow for this? Are there other, you know, legal avenues that the president could use to impose tariffs if these really were problems? You know, I'm a legal expert at all, but I think that will tell us some of which way the justices are leaning by the types of questions they ask, how hard they push back on, on the government's claims about the importance of these supposed tariff powers.

Kyle Hulehan: 25:10

Yeah. And you know what? We have a wonderful resource on our website, that all three of us work on regularly and are constantly updating and it is confusing and chaotic to keep it all going, but we managed to keep it all going together. And so as we're signing off here, guys, I just wanna thank you for breaking all of this down for us. This is a really, I think, excellent way for people to kind of understand what's happening. And if you guys have any burning questions, you can send them our way. You can drop a comment on YouTube, you can email us at. podcast@taxfoundation.org. You can DM us on Twitter at Deduction Pod. Thank you all so much for listening.