Use of IEEPA for Reciprocal Tariffs Raises Host of Legal Questions on Law's Use

In invoking IEEPA, Trump declared that a national emergency exists based on the "large and persistent trade deficit that is driven by the absence of reciprocity in our trade relationships" along with "other harmful policies," such as "currency manipulation and exorbitant value-added taxes (VAT) perpetuated by other countries." The remedy for this declared emergency is a baseline 10% tariff on all countries, with many countries receiving higher tariffs based on the size of their trade deficit with the U.S.

A potential issue in the president's reference to trade deficits as a national emergency is the existence of Section 122. This authority allows the president to impose temporary import surcharges to address "large and serious United States balance-of-payments deficits," though the statute limits such duties to 15%, which can only be in place for 150 days.

The statute was passed in response to President Richard Nixon's use of the Trading With the Enemy Act, IEEPA's predecessor, to impose a duty surcharge to address a balance-of-payments crisis.

Matt Nicely, partner at Akin Gump, noted that Congress passed this law to specifically grant the president the authority to do what Nixon did and tell the president that these duties are "meant to be temporary and limited in terms of how they can be imposed." Nicely said Trump "has avoided that congressional limitation completely in what he’s done."

Others saw more wiggle room for Trump under IEEPA's broad grant of authority. Thomas Beline, partner at Cassidy Levy, said that there's "nothing in the IEEPA statute that renders it inapplicable in the event there is an alternative statutory delegation by Congress to address the issue causing or exacerbating the national emergency."

While Trump cited trade deficits as a cause for the duties, he also discussed "other structural issues" that cause the trade in goods deficit, "which the government could conceivably argue that Section 122 would not effectively redress in large part due to Section 122’s tariff limits and limited duration of the measure," Beline said. "This may be why there are multiple passages in the Executive Order discussing the long-term impacts [of the non-tariff barriers]."

Lawrence Friedman, partner at Barnes Richardson, added that while Section 122 may be the "preferred tool" for addressing balance-of-payments issues, "Congress has not yet added any more restrictions on the use of IEEPA as the President sees fit."

However, Nicely suggested that a relationship exists between Section 122 and the "major questions" doctrine -- a legal theory adopted by the Supreme Court that says the federal government needs explicit authorization from Congress to regulate issues of major national significance. "This action is not supported by explicit congressional authorization," Nicely said. "He clearly is taking action that is of major national significance."

Trump has effectively changed the tariff schedule for each country, usurping "Congress’ power to determine duties on every country in the world," including on countries that the U.S. doesn't have a trade deficit with, Nicely said. "He’s usurping Congress’ power under the guise of an emergency that doesn’t exist.”

Friedman added that whether trade deficits can even be properly called a "national emergency" is an open question. "The legislative history indicates that an emergency is a rare and brief event, not an ongoing problem," he said, noting that it's "hard to see how any trade deficit could constitute an emergency" with regard to some of the countries targeted by the president. "No level of trade deficit with the Falkland Islands justifies an 'emergency action,'" Friedman quipped, noting that despite this conclusion, "Courts are always hesitant to second guess the President's policy decisions."

Beline said that under the "broad delegated powers" of IEEPA, "the use of tariffs to offset" trade deficits "appears defensible."

Further complicating Trump's declaration of a national emergency to address trade deficits is the way in which the tariffs were calculated. In a statement, the Offce of the U.S. Trade Representative showed that, effectively, the tariffs were calculated by dividing the size of the U.S. trade deficit with a given country by the amount of imports received from that country, then cutting that number in half.

Simon Lester, a trade researcher and co-founder of WorldTradeLaw.net, said in a blog post that even if trade deficits were a national emergency, "tariffs as the response don't make much sense." Focusing on "macroeconomic issues such as savings rates or currency levels" would better address the overall deficit, he said, adding that to address manufactured goods in particular, "there are plenty of better ways to shift your economy away from services or agriculture or energy and towards manufacturing." Ultimately, "taking an approach that tries to address trade deficits on a bilateral basis is extremely misguided," Lester said.

Beline said the way the tariffs have been set "makes it difficult for countries to negotiate out of the reciprocal tariffs insofar as if they made some concession like reducing their weighted-average by trade most favored nation duties, that might not have any impact on the calculation USTR used for at least the foreseeable period of time." He added that, "[i]ronically, however, the imposition of the tariffs by the US would be the cause of any change in the underlying calculation." While this reality won't make the tariffs harder to defend in court, "it may undermine achieving the overall objective of reciprocal trade."

Outside of the reciprocal tariffs, Trump has used IEEPA to impose tariffs on Canada, Mexico and China, though none of these duties prompted immediate legal challenges, due, in part, to the likely lack of injunctive relief against the duties (see 2504010036). However, the scope of the new reciprocal tariffs could change this calculus, perhaps prompting a more immediate legal challenge.

Nicely suggested that a temporary restraining order or preliminary injunction could possibly be obtained "more easily now, with duties being imposed on such a broad number of countries, so that the irreparable harm that you're going to have to show is going to be easier to prove." Beline noted that while this factor may be easier to prove, a court may be unwilling to grant a preliminary injunction or TRO since "because of a declared emergency, it is in the public interest to not grant" the requested relief.