NB: This should have gone up a week ago. Each part has subsequently been scooped. But I think it still offers a unique perspective overall.
There’s a Long, Unsuccessful History of Presidential Trade
Power
by Robert E. Wright
Trump isn’t the first president to test the limits of the
post-war free trade consensus.
Presidents Nixon, Carter, Reagan, and others also fiddled
with U.S. trade policy even though Article I, Section 8 of the U.S.
Constitution clearly vests Congress, not the president, with the power to
“regulate commerce with foreign nations” and to “lay and collect taxes, duties,
imposts and excises.”
We’re going
to tell you when and why presidents received limited but unilateral authority to
impose tariffs, quotas, and non-tariff barriers (NTBs) and show that their
efforts have proven of limited duration and effect, at most slowing inevitable
shifts in international commerce rooted in comparative advantage and relative
factor prices, especially labor and other input costs.
In 1934, Congress temporarily delegated President Franklin
Roosevelt limited authority to negotiate bilateral tariff reductions – which
were sky high due to the Fordney-McCumber and Smoot-Hawley tariffs of 1922 and
1930 -- in the Reciprocal Trade Agreements Act (RTAA). From its passage until
1939, the RTAA led to trade agreements with 19 countries. Although World War II
muted the effects of those agreements, the claim of some political scientists
that presidents would prove more amenable to free trade than Congress seemed
empirically vindicated.
It turns out, though, that presidents, like Congress, will
respond to political pressures to try to save industries and jobs from
international competition.
President Richard Nixon’s (R, 1969-1974) 1971 use of the
Emergency Banking Act of 1933 to impose short-lived 10% tariffs as part of his
New Economic Policy provides our first example of the limited and short-lived
effects of presidential trade tinkering.
Fearful that his decision to end dollar convertibility --
the lynchpin of the Bretton Woods fixed exchange rate regime -- to protect the
government’s dwindling gold reserves amid a growing trade deficit would spur
yet higher levels of unemployment and inflation, Nixon tried to bolster the
falling dollar, discourage imports, and encourage exports and domestic
production by imposing tariffs and implementing domestic rent, wage, and
product price controls.
The Nixon Shock triggered shortages and, as the accompanying
chart shows, did not
reverse the long-term decline in the country’s trade balance, a largely
meaningless national accounting construct in any event.
Legislators and other policymakers, though, remained confident
that presidents would use their power to reduce trade barriers rather than
increase them, except in times of crisis or war. The 1962 Trade
Expansion Act, the Trade
Act of 1974, and the 1977 International Emergency Economic Powers Act
(IEEPA, 91
Stat. 1625) resulted.
In 1977, President Jimmy Carter (D, 1977-81), pressured by
labor unions, used the 1974 act to negotiate Orderly Marketing Arrangements
designed to protect American shoe and color TV manufacturing jobs from lower
wage east Asian competitors.
To cover himself politically with free traders, Carter labeled
those de facto quotas “free but fair trade.” President Trump has used similar phrases. The measures failed to
re-elect Carter or to protect those industries, domestic production in which
has been nearly nil since the 1990s, from the long-term effects of foreign
competition.
Due to a big drop in domestic steel production in 1977,
Carter also imposed a reference price system or “trigger price mechanism” on
Japanese steel producers, effectively putting a floor on the import price of
many steel products from 1978 until 1982.
As the accompanying chart shows, U.S. raw
steel production indeed rebounded under Carter’s order but never again reached
its historical highs because American steel producers continued to face higher
input costs than foreign competitors.
In his first term (2017-21), President Donald Trump (R) leveraged
provisions of the 1962 and 1974 trade acts to impose tariffs on solar panels,
washing machines, steel, and aluminum. Their prices increased but domestic
production hardly soared. Steel production has been below its 2017 level since January
2022 and Nippon Steel just bought US Steel.
As the chart
below shows, domestic aluminum production is also lower today than in 2017.
Trump’s tinkering may have slowed the decline of protected
industries but it certainly did not
transform the U.S. economy or overcome the logic of comparative advantage and
mutually beneficial trade. Even his tariff on Chinese imports had less effect
than reported as workarounds like the de
minimis customs exception were exploited.
In his second term, therefore, Trump declared an emergency to
invoke IEEPA, which grants considerably more policy power. Unless Congress
intercedes, ongoing court battles will determine just how much trade power
Trump and future presidents will possess.
