These days, trade lawyers in Washington speak with a certain weariness. It’s audible in the pauses and incomplete sentences about what will happen next. The city has been functioning in an odd limbo since the Supreme Court’s 6-3 decision in February that President Trump had overreached himself by enacting broad tariffs under the International Emergency Economic Powers Act. The decision was historic. In some way, it wasn’t the end either.
Trump did not back down. He announced a new round of tariffs under Section 122 of the Trade Act of 1974 within hours of the ruling. Even seasoned trade lawyers had to consult their old textbooks to recall what this obscure provision covered. In a social media post, the rate was raised from 10% to 15%, then it was discreetly lowered back to 10% at the border. This period of American trade has come to be characterized by this kind of policy whiplash.
The history of Section 122 is what makes it peculiar. It was drafted by Congress in reaction to Richard Nixon’s 1971 decision to remove the dollar from the gold standard, which alarmed allies and shook markets. A collapsing dollar or an unexpected balance-of-payments crisis are examples of short-term emergencies for which the law was designed. Today, neither condition is present. The reserve currency of the world is still the dollar. American consumers continue to make purchases. And yet here we are, witnessing the repurposing of a law intended for the Bretton Woods era to barricade off the biggest economy in the world.
The effects are more subtle but more subtle when they are not in the news. For months, importers in Long Beach and Newark have been reevaluating their profit margins. Last quarter, a friend of mine who owns a small furniture import company in Karachi told me that he spent more time on customs paperwork than on actual sales. You begin to understand why Ngozi Okonjo-Iweala, the director-general of the World Trade Organization, frequently uses the word “predictability” in her speeches when you multiply that by a million small operators worldwide. It was the foundation of the system she defends. Trump’s strategy offers something more akin to the opposite.
The number of legal challenges is growing. On paper, the argument is fairly strong, and lawyers anticipate new lawsuits over the Section 122 tariffs almost immediately. A balance-of-payments emergency does not exist. The dollar crisis does not exist. The statute was not intended to be a long-term instrument of industrial policy. It remains to be seen if the courts will act swiftly enough to make a difference. Trade cases often take a long time. In contrast, tariffs go into effect overnight.
The larger pattern is difficult to ignore. The initial tariffs were rejected by the Federal Trade Court. An emergency stay was granted by an appeals court. In the end, the Supreme Court took the challengers’ side. The wall still exists, albeit with a new name. Speaking with members of the trade bar gives me the impression that the legal system is being asked to do something it was never intended to do: monitor a sitting president’s economic whims in real time.
Investors appear to think that the courts will ultimately prevail in this dispute. The most recent round of tariffs has been largely ignored by markets, who seem to believe that the entire structure will be demolished in a year or two. Perhaps. However, Washington has a tendency to turn transient situations into permanent ones. The 1930 Smoot-Hawley tariffs were also intended to be a temporary solution. They persisted for decades in different forms.
It’s unlikely that what follows will be tidy. For the time being, the tariff wall remains intact. No one in Washington can quite answer the question of whether it simply outlasts everyone’s patience or cracks due to legal pressure.