TARIFFS – WHY CONGRESS IS POWERLESS TO TRUMP

In recent years, the discussion on tariffs and foreign trade has become headline news across the globe, especially with the recent trade war between the US and China. How is it that one individual can make executive decisions affecting the entire global economy, and why can’t Congress do anything about it?

The answer is buried under a complex social and historical context.

 

U.S. CONGRESS & TRADE – A BRIEF HISTORY

When the Founding Fathers divided up the responsibilities of federal power through a system of checks and balances, the power to regulate trade and enact tariffs was delegated to the legislative branch. In the Constitution, Article 1, Section 8, it states: “Congress shall also have power to regulate commerce with the foreign nations and to make all laws which shall be necessary and proper for carrying in execution the forgoing powers”.  Political historians agree that the constitution was written for a much smaller nation with a significantly smaller economic footprint. During the first 140 years of the nation, Congress retained control of trade and tariff decisions.

However, as a small nation with a relatively simple economy became a large, influential nation with a complicated global trading economy, Congress became more and more ill-equipped to agree on and negotiate timely trade decisions. Since the executive branch is largely responsible for other foreign affairs, delegating the responsibility to make foreign trade deals to the executive branch was a natural transition of power that took place over the last century. The Smoot-Hawley Act passed in 1930, the Reciprocal Trade Act of 1934, the Trade Expansion Act of 1963, the Trade Act of 1974, and the International Emergency Economic Powers Act of 1977 – all these major legislations gave additional power to the executive to manage trade.

 

CONGRESS – YOU’VE MADE YOUR BED

President Trump has exercised these powers by starting and escalating a trade war with China, rescinding long-standing significant free trade deals, and putting major tariffs in place on other nations as well. There has been contention between Congress and the White House over these trade decisions, even within the Republican Party. Jeff Flake, Republican Representative from Arizona, pushed back strongly on Trump’s trade policy: “Trade wars are not won, they are only lost. Congress cannot be complicit as the administration courts economic disaster.” While legislators can disagree, they have almost no legal power to reign in Trump’s rogue actions on trade, because Congress has legally given the power away to the executive branch.

 

THE GLOBAL ECONOMY IN THE HANDS OF ONE MAN 

It is not easy for Congress take back power. Regaining the ability to wrangle Trump on trade would require a passed legislative measure with a veto-proof majority, or supermajority. The required Congressional unity, that has only worked 1 out of 10 times historically, is unlikely given the personal political risk. Even with President Trump’s turbulent and controversial trade policies, there’s not much that Congress can do to reclaim their historical power over trade decisions. As a result, the US and the international community are in a situation where one powerful person can control the fate of the entire global economy.

 

The trade war greatly affects many of the clients we work with. Blacksmith is committed to finding solutions to the issues this conflict has created. Even if you are not a Blacksmith client, we are here to offer help and advice to product companies that have their supply chain in China. To find a solution for your product business, contact us here.