‘L Day’ Tariff Legality, With Stanford’s Sykes

Intelligence covering consumer and industrials litigation. Today's podcast will focus on several key court rulings impacting tariffs and specifically a May twenty eighth decision by the US Court of International Trade and May twenty ninth decision by a Washington District court holding that President Trump's reciprocal tariffs and terriffs imposed on China, Canada, and Mexico were unlawful. I'm delighted to be joined today by Stanford Law School Professor Alan Sykes.

Professor Sykes is the founder of Stanford Law School's LM program in International Economic Law, Business and Policy, as editor of various trade journals. He's a graduate of Yale Law School and received his PhD in economics from Meale University. Professor Sykes signed and amicus freef and support of the plaintiffs in both cases that the International Trade Court decided.

One of those cases was filed by importers who say they would suffer irreparable harm if there reciprocal terariffs were allowed to continue, and the second was filed by twelve states. Thank you for joining us again, professor, and we'll dive right into the topic. So, the International Trade Court on May twenty eighth found executive orders imposing so called reciprocal tariffs or otherwise known as worldwide tariffs and tariffs on China, Canada,

and Mexico related to fentanyl trafficking were unlawful. Can you explain the International Trade Course ruling?

so called trafficking tariffs relating to fentanyl. With respect to the worldwide and retaliatory tariffs, which are the bulk of the tariff on the rest of the world other than Canada and Mexico, the court ruled that the International Emergency Economic Powers Act, known as AEPA does not give the President the authority to impose the sweeping tariffs that he proposed to impose on the world as a whole, the ten percent tariff on everyone and then the reciprocal tariffs

that would range up to I believe it was something like eighty percent on certain countries. The reasoning on the

worldwide retaliatory tariffs was interesting. The court did not accept the argument put forward by some plaintiffs that AEPA does not allow the use of tariffs at all, but rather the court said that even if AYEPA does allow tariffs under certain circumstances, it does not allow the kind of unbounded tariffs that the President has imposed, which are not limited in time, very much higher than US tariff commitments in US statutes, and goes without saying, much higher than

the US commitments under international trade agreements, and chosen against

any country the President wishes. That that sort of sweeping authority was beyond what IEPA conferred, and the thinking, in part was that if the authority, as the government put it forward, were to be accepted, then AEPA would be in effect of delegating to the President all authority over tariffs to do whatever he wants, any tariff he wants, in any country he wants, for any duration he wants, and that would be unacceptable under the Constitution, both in

relation to what's known as the non delegation doctrine and what's known as the major questions doctrine. So the Court said, we're going to construe the statute to be consistent with the Constitution, and therefore the sweeping tariffs that the President composed under AEPA or simply not acceptable. Then with respect to the so called trafficking tariffs, the Court said that

the tariffs imposed by the president. First of all, it concluded that this was not an unreviewable political question, that the Court did have authority to review the president's decision with regard to the trafficking tariffs. And then, having reached that conclusion, it went ahead to say that these trafficking tariffs do not, in the words of the statute, deal

with the emergency, which is thought to be drug trafficking. Either, they simply impose punishment on Canada and Mexico for failing to have done more themselves to abate the problem of drug trafficking. And the Court ruled that that did not meet the statutory requirement that the measures taken by the President actually deal with the emergency in question.

for tariffs. The President didn't literally claim unbounded authority. He declared a national emergency, said it was an unusual and extraordinary situation, So he went through all the statutory hoops and did not in a formal sense claim unbounded authority over tariffs, although as a practical matter, one could certainly

argue that that's what he took on. Another aspect of the decision that might be open to argument would be the part of the decision that said that the Trade Act of nineteen seventy four, and I didn't mention this before the Court of International Trade said that the Trade Act of nineteen seventy four, essentially because it was responding to the President Nixon import surcharge at the end of the gold standard period in the early seventies, and it

created a statute called the section of the statute called

the Trade Act of nineteen seventy four. Section one twenty two of that statute gives the President very limited authority to impose time limited, modest tariffs in response to a balance of payments emergency, and the Court of International Trade said that by implication, the enactment of section one twenty two of the seventy four Act took away the president's authority under AEPA to impose tariffs for balance of payments purposes, and it interpreted the worldwide and retaliatory tariffs based on

our trade deficits to be effect in effect, a balance of payments measure. So that the argument might be on the other side that even if section one twenty two does give the president limited authority to deal with balance of payments problems, it doesn't necessarily take away the emergency

authority that might have been contained in IEPA. And then I think maybe the hardest issue that might come up on appeal for the plaintiffs relates to the trafficking tariffs, where the Court ruled that the tariffs on Canada and Mexico did not deal with drug trafficking. Rather, they simply punished and put pressure on Canada and Mexico to change

their own behavior. The problem with that thinking, potentially, is that the United States for decades has used sanctions to try and persuade or coerce, whichever word you prefer our counterparties in the world in various situations to change their behavior to help the United States. And to say that the United States cannot do that under AEPA is perhaps at odds with what one might expect it to be the construction of So I think that'll be an argument that's raised off pel for sure.

so forth. By ruling that AIPA does not allow tariffs at all, the Court was able to keep jurisdiction. And of course, once you say that AIPA does not those tariffs at all or allow the imposition of terifts at all, it immediately follows that all of the tariffs imposed by the Trump administration, both the worldwide and retaliatory tariffs and the trafficking tariffs, are unlawful. So this was a different type of decision. The Court emphasized its view that the

power to regulate is not the power to tax. IIPA refers to the regulation or gives the power to regulate importation of property in which a foreign national has an interest.

The court said regulating importation is not the same as taxing importation, and went through a lot of historical material to argue that the power to regulate is not the power to tax, and in the course of that analysis, The Court referred to a decision by the Court of Customs and Patent Appeals, which is the predecessor to the Federal Circuit, in a case called Yoshida, which ruled under the Trading with the Enemy Act, which has language more or less identical to the AIPA language in terms of

what the president's authority is. The court said that it found the Yoshida decision, which said that the predecessor Act did allow tariffs to be unpersuasive, and that it was not binding on the District Court at DC in any event, because the District Court of DC does not sit underneath what is now the Federal Circuit. So that was the key difference in the District of DC decision.

the language in AIPA. So the Court might have felt that it couldn't go against the prior ruling in Yoshida. Also, I mean, it's clear there is a textual argument for the government's position, which is that the statute authorizes regulation of importation, and certainly a traditional way of regulating imports,

one might say, is to use tariffs. That's certainly, historically the principal way that the United States has controlled the flow of importation as practical matter, So the Court might have thought that it was a less shaky basis for the decision to say that we're not going to decide whether AI allows tariffs at all. But even if it does, it doesn't allow the broad tariffs that the President has imposed here, and indeed such a broad tariff power would be a constitutional issue.

The magnitude of the measures that are being taken, which are or far beyond any terifts that the United States is imposed in modern times. Congress didn't necessarily speak to the question of whether there's any constraint on the magnitude

of the measures that the president can take. Congress hasn't spoken really to the concept of what exactly is a national emergency and could a pray deficit be construed as a national emergency that gives the president sort of unlimited, unbounded, no time limitation, authority to impose tariffs for as long as he wants against him ever he wants. So there are a lot of ways in which Congress could have

spoken more clearly here. And I know that there are some commentators who think that when this issue finally reaches the Supreme Court, that there's a decent chance that the major questions doctrine will end up being the key issue.

So what that leads me to the next question, which is, you know, neither the District Court nor the International Trade Court addressed whether the trade deficit constituted an emergency or the fentanal trafficking for that matter, Do you have any thoughts as to why both of those courts declined to address that issue.

So the Court of International Trade sort of ducked that question in favor of saying that the unbounded delegation would run a foul of constitutional concerns and therefore will construe the statute not to do that, And the District Court duct the issue by finding that tariffs are not allowable at all, So it wasn't necessary to address the question

of whether there's a bona fide emergency. When I said earlier that I agreed with the result in the case, I think the reason that I agree with it is precisely though, because I think that at least with respect to the worldwide and retaliatory tariffs, putting the fentanel issue to the side. It is almost absurd to call bilateral merchandise trade deficits a national emergency. We've had them since the beginning of trade. We've had aggregate trade deficits for

the last half century. We will probably continue to have them for the next half century, as long as the United States has a greater need for capital than the national savings provides. It is a mathematical necessity that we run a trade deficit to finance the importation of capital. So to call something that's on the scale of a century and an emergency is almost absurd to any economically literate person, I think, but it's hard for a court

to say that the courts are not economists. The legal authority to review the presidential decisions is not an authority to judge them for sound economic policy. And so both courts, I think we're looking for other grounds to reach what is clearly the right outcome here, which is to say, this is not an emergency situation, and the Congress needs to weigh in if we're going to impose this kind of change in American trade policy.

or under the newer major Questions doctrine. And the final thing would be to say that there's not really an emergency here, which I think is really the correct thing to say. That's the real reason why this is why this action by President Trump is unacceptable. But the Supreme Court, well, I wouldn't be at all surprised if it finds an alternative way to rule, assuming the rules against the president.

I wouldn't be surprised if it was not on the basis of whether there's a genuine national emergency, but rather on one of these other bases. And I'll just add, by the way that I think it would be very difficult to rule against the government on the ground that a fentanyl issue is not a national emergency. We've had thousands of people die from fentanyl poisoning, and that I think it is very difficult to say could not be

reasonably viewed as a national emergency. So the court, if it wants to knock out the fentanyl related tariffs, probably has to find some other legal grounds.

It had entered an administrative stay of the International Trade Court's ruling on May twenty nine, and that resulted in the terraffs being reinstated, And just yesterday, on June tenth, that court entered a longer stay, saying the ruling the lower court ruling will be on hold until the appeal has decided on the merits, so the terrorists will be in e fact at least until the appeal has decided.

Do you think that the Federal Circuit Court's June tenth continuation of the stay of the lower court's ruling Penny appeal is any indication of how it will rule on the merits.

he's doing. So I wouldn't infer from the extension of the stay that the Federal Circuit has more made up its mind in favor of the administration. I think that's probably an unwarranted speculation, right.

He's you know, decided to go against the statutes that set tariffs, passed by Congress and signed by prior presidencies, abrogated essentially every international trade agreement that we have, both on a multilateral scale with the WTO and all of our bilateral free trade agreements. And it's hard to think of a case in the Federal Circuit in recent years that's been more consequential than this. So it doesn't surprise me at all that they decided to hear the case on bok okay.

is not an exclusive jurisdiction. Which court do you think got it right?

tariffs at all. The District Court said no and therefore kept jurisdiction. Other courts have read aip but to authorize tariffs, or at least arguably to authorize tariffs, and thought then that the Court of International Trade should resolve the issue. Ameke, This brief I signed includes a section arguing that AIPA does not authorize tariffs, and so I'm not going to say anything that would conflict with that, but I think that's where the battle is joined on who has jurisdiction right.

On the other hand, I think the President has essentially co opted an emergency power statute to take over American trade policy in a situation that does not constitute an emergency at all, again putting the fentanyl issue to the side, And I suspect that many of the Supreme Court justices would have sympathy with that view, whether they are prepared to go against the president here, whether they have to think through all of the unintended consequences that might have

company a ruling against the president on whatever grounds they might choose. So I don't think I can predict the outcome of merits at the Supreme Court, but I do hope that they will find a way to return trade policy to the Congress, which is where the Constitution puts it. And with a conservative majority court, I think the you know, fidelity to the Constitution and the original separation of powers is something that a lot of the justices care about.

So you know that that kind of bodes somewhat well in terms of the plain is hope that the Supreme Court will ultimately rule against the administration.

national security. The Commerce Department under the first Trump administration and Secretary Wilbur Ross made that finding, and that was a basis for the president's first round of steel and aluminum tariffs, and one suspects that the Commerce Department under Secretary Lutnik would renew that kind of finding with respect to a number of different industries, where the claim might be made, perhaps with a straight face, perhaps not that the imports are a threat to national security, so that

could be used on a sectoral basis after findings by the Commerce Department that there was a threat to national

security from imports of particular items. The broadest statute beyond the President's interpretation of i EPA giving tariff emphysician authority is Section three oh one of the nineteen seventy four Trade Act, which allows It was primarily enacted to allow the President to respond to other countries that violate their commitments under trade agreements with the United States, but it also contains the section that says the President can respond

to unreasonable practices by foreign governments that burden US commerce.

And of course, you may recall that the so called reciprocal tariffs were alleged by the President to be the product of unfair treatment of American exporters in foreign markets, and so this provision of the section three oh one Act, Second three oh one of the seventy four Act rather could be invoked to say that all of these bilateral trade deficits are a product of unreasonable behavior by foreign governments, and that's how we can justify these whopping reciprocal tariffs

that were proposed back on so called Liberation Day. So that's a statute that might very well come into play as well. It was used already to impose very high tariffs on China during the first Trump administration, and so one can imagine that by shifting to the National Security Statute and the Unfair Trade Statute, the President, even if he lost on AEPA, could reconstruct a lot of the tariffs that he is now imposing under AEPA. It would

require some time. It requires some preliminary investigations and findings by the agency. Commerce has to deal with the national security issue. The US Trade Representative has to make findings on the unreasonableness of foreign trade practices. But they've already

done a lot of that legwork. Every every year or so, the USTR issues what's called the National Trade Estimates Report, which lists all of our major trading partners and all of the practices by those trading practors partners that we view as burdensome and unfair to the United States, and that could be the basis for findings of unreasonableness against all sorts of countries, and then retaliatory tariffs to punish them for their unreasonableness could be forthcoming under Section three

oh one. So even if the President loses under i EKO, that's the battle might be one, but the war would not be over against the use of these large tariffs without congressional authorization.