Pessimism reigns for trade liberalization in the short run, but there is fresh hope for the long run. A new court decision over solar panel tariffs shows why. Reason’s Eric Boehm’s headline sums it up: “A Judge Just Did What Biden Wouldn’t: Dump Some Trump Tariffs.” This is good news, but it gets better.
The decision’s importance isn’t about the solar panel tariffs themselves. It’s about the separation of powers. And political institutions, such as the separation of powers, are what drive trade policy in the long run—not adjustments to this or that tariff rate. The rules of the game determine how it is played. Those rules have been out of whack for some time, and presidents have been abusing them. That could start to change if this precedent were to influence other cases.
In short, the court ruled that the executive branch overstepped its tariff-making authority, so it partially negated some solar panel tariffs that President Trump enacted without congressional input. Most readers know that Article I, section 8 of the U.S. Constitution states that only Congress has taxing authority. The Constitution grants the president no such powers.
There is some history behind why the president was still able to unilaterally enact tariffs without congressional input. This context is important for understanding why trade policy has become so dysfunctional and which institution-level changes will be most effective in reforming it.
In the mid-20th century, Congress wanted to pass large-scale tariff relief, but was systematically incapable of doing so. Nearly every tariff had its own special interest in some member’s district defending it. So even though almost everyone agreed that tariff relief as a whole is good policy, they couldn’t it done. Hundreds of small exemptions added up quickly, and trade reform bills became so watered down as to become useless.
Worse, tariff liberalizations were necessary to meet requirements under the General Agreements on Tariffs and Trade (GATT), which was founded in the aftermath of World War II, and was the predecessor to the World Trade Organization (WTO). GATT was established in part to preserve peace after the horrors of World War II; countries that trade seldom go to war. It was also established as a way to undo the U.S. Smoot-Hawley tariffs and foreign retaliatory tariffs that had reduced foreign trade by two thirds and left it clogged with paperwork and corruption.
The solution to this special interest sludge, Congress believed, was to outsource tariff policy to the president. The thinking was that the president represented the country as a whole, rather than small slices of constituents, and so would be less prone to lobbyists’ pleas. So, the 1962 Trade Expansion Act and the 1974 Trade Act both contained provisions granting the president the authority to unilaterally impose tariffs under certain conditions without a vote in Congress.
It didn’t work. Tariffs did go down over time, but those provisions had little to do with it. They were almost entirely dormant until the Trump administration. And instead of using them to lower tariffs, Trump used them to raise them—eventually doubling America’s average tariff rate in about three years.
This week’s court decision said that the Trump administration overstepped its bounds on a solar panel tariff it imposed under Section 201 of the 1974 Trade Act, which lets the president enact tariffs to protect domestic industries from foreign competition.
It is a narrow ruling that affects only one of the three major tariff-making provisions—and the least-used one at that. Much the bigger fish are Section 232 of the 1962 Trade Expansion Act, a national security provision that was invoked for the steel and aluminum tariffs, and Section 301 of the 1974 Trade Act, a treaty violation provision that was invoked for the China tariffs.
But this week’s court decision sets a precedent. Again, what is important isn’t what the ruling does to solar panel tariff rates, though any tariff relief is welcome. What is important is what the ruling means for institutions, such as the separation of powers. Iain Murray and I have been arguing for years that tariff reform depends on restoring a healthier separation of powers. For a long time, the executive branch has been too powerful relative to Congress. And the problem gets worse with each new administration, regardless of which party is in power.
Which leads to a bit of bad news. The Biden administration actually defended the Trump administration’s position in the case. Politicians rarely argue to reduce their own powers, and that’s what this case is really about.
It is also bad news that President Biden is seemingly allergic to tariff reform. Even a modest reform like resetting tariffs to 2017 levels would help unclog supply networks while lowering consumer prices during a time of high inflation. It’s as close to a win-win as there is in politics—helping the economy and making the other party look bad at the same time. But Biden isn’t doing it. He is even airing new proposals, such as carbon tariffs, that are essentially Trump-era trade policies in green packaging. And if he needs to, he might try to do it without Congress having a say.
Even with a court victory, the short run still looks bad for trade policy. The Trump tariffs should now be called the Trump-Biden tariffs. The Biden administration is also delaying or ignoring other important facets of trade policy, including trade agreements with the United Kingdom and European Union, rebuilding the WTO, and rejoining the Trans-Pacific Partnership, which is carrying on without American involvement.
Any significant positive move on trade policy is likely years away, but this week’s court decision gives some hope for the long run. That is because policies, in the long run, do not depend on changing this or that tariff rate. They depend on institutions. The more we can chip away at executive power and contain taxing power to the legislative branch, where it belongs, the better off we will be. This is just a baby step, but as every parent knows, baby steps lead to good things.