TGIF: Trump and the Separation of Powers

The U.S. Court of Appeals' rejection last week of the Trump administration's global "emergency" tariff program was a welcome affirmation of the separation-of-powers doctrine. Next stop: the U.S. Supreme Court. I'm keeping my fingers crossed for a 9-0 ruling that Trump grossly exceeded his constitutional powers. One can hope.

Liberty is never secure. However, if we must have a state, the separation of powers may provide some measure of security. The framers, drawing on Montesquieu, understood this. Unfortunately, politicians have weakened the doctrine over the centuries. Most egregiously, presidents have waged war without congressional authorization, as the U.S. Constitution requires.

The first U.S. constitution, the Articles of Confederation, was better than its successor because, among other things, it lacked the powers to tax and regulate trade. (Hard to believe.) The replacement, alas, did assign Congress those powers in Article I, Section 8. Too bad, but at least it did not give them to the executive under Article II. Autocracy is always a danger. (See my America's Counter-Revolution: The Constitution Revisited.)

Trump's minions apparently hadn't informed him that he lacks these powers, but now the Court of Appeals for the Federal Circuit has told him. He is not happy. He condemned the "Highly Partisan Appeals Court" for its "incorrect" decision.

In V.O.S. Selections, Inc. v. Donald Trump, the court, by a 7-4 vote, held that Trump exceeded his power under the International Emergency Economic Powers Act (IEEPA) when, through five executive orders, he imposed tariffs virtually across the board and on virtually all countries after declaring national emergencies ostensibly related to trade reciprocity and drug trafficking.

No, you don't, Mr. President, said the court. In so saying, the judges upheld a ruling by the U.S. Court of International Trade (CIT). The government was "permanently enjoined from imposing the tariffs, but was allowed to continue them until October 14. The administration appealed to the Supreme Court.

All that is at issue in the case is the separation of powers. The administration claimed that the IEEPA authorizes the president to "regulate," with "importation" mentioned as a factor that might trigger the finding of an emergency. Hence, Trump's people said, the president can impose tariffs.

The majority of judges felt it necessary to give Trump a history lesson:

The Constitution grants Congress the power to “lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations." ... Tariffs are a tax, and the Framers of the Constitution expressly contemplated the exclusive grant of taxing power to the legislative branch; when Patrick Henry expressed concern that the President “may easily become king,” ... James Madison replied that this would not occur because “[t]he purse is in the hands of the representatives of the people.”

Tariffs are a tax. Right.

The judges went on to point out that "at the time of the Founding, and for most of the early history of the United States, tariffs were the primary source of revenue for the federal government.... Setting tariff policy was thus considered a core Congressional function."

Since the late 1800s, the Court stated, Congress has delegated "limited authority to 'activate or suspend' tariff rates through international agreements." But those acts were express delegations of tariff authority and bound by "substantive limitations." As the Court put it:

Taken together, these other statutes indicate that whenever Congress intends to delegate to the President the authority to impose tariffs, it does so explicitly, either by using unequivocal terms like tariff and duty, or via an overall structure which makes clear that Congress is referring to tariffs. This is no surprise, as the core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution; when Congress delegates this power in the first instance, it does so clearly and unambiguously.

The IEEPA says nothing about tariffs. It only allows the president to:

investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States.

"Notably," wrote the Court, "IEEPA does not use the words 'tariffs' or 'duties,' nor any similar terms like 'customs,' 'taxes,' or 'imposts.' IEEPA also does not have a residual clause granting the President powers beyond those which are explicitly listed."

How have other presidents used the IEPPA?

Since IEEPA was promulgated almost fifty years ago, past presidents have invoked IEEPA frequently. But not once before has a President asserted his authority under EEPA to impose tariffs on imports or adjust the rates thereof. Rather, presidents have typically invoked IEEPA to restrict financial transactions with specific countries or entities that the President has determined pose an acute threat to the country’s interests.

Finally, the Court made it clear that "we are not addressing whether the President’s actions should have been taken as a matter of policy. Nor are we deciding whether IEEPA authorizes any tariffs at all. Rather, the only issue we resolve on appeal is whether the Trafficking Tariffs and Reciprocal Tariffs imposed by the Challenged Executive Orders are authorized by IEEPA. We conclude they are not."

Trump has predicted calamity if his tariffs are erased. He has bragged that the Treasury has collected more than $200 billion in duties and warns that refunding that money would sink the economy. Earlier his lawyers argued against a preliminary injunction on the grounds that the money could easily be paid back. Now he seems to have forgotten that when the government takes, private individuals are taken from. Thus the Treasury's loss would be the people's gain. That would be good for "the economy" (that is us). On the other hand, the government runs a $2 trillion deficit, so the money must be gone, and the government would have to sell more bonds—monetized by the Fed—to pay it back. We lose no matter what.

Trump has faced judicial setbacks on tariffs, deportations, and his National Guard deployment in Los Angeles. What's next? How will he react if the Supreme Court affirms the decisions? Buckle your seatbelts.

Restricting Production

"At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.

"While government has no power to make people more prosperous by interference with business, it certainly does have the power to make them less satisfied by restriction of production."

Ludwig von Mises, Human Action

Tariffs Violate Freedom

Debate goes on over who suffers from U.S. tariffs. Biden and Trump, for example, think U.S. tariffs on Chinese goods hurt China, not Americans. This is nonsense. Even if they hurt Chinese producers (who can sell their goods elsewhere), the tariffs still hurt Americans. Whatever the Chinese do, prices in America for the relevant consumer and producer goods, imported and domestic, will rise—that's the point of the tariff—and choice will shrink. Here's what Henry George had to say in Protection or Free Trade:

If Americans did not want to buy foreign goods, foreign goods could not be sold here even if there were no tariff. The efficient cause of the trade which our tariff aims to prevent is the desire of Americans to buy foreign goods, not the desire of foreign producers to sell them.... It is not from foreigners that protection preserves and defends us; it is from ourselves.

He also wrote:

Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do. Protective tariffs are as much applications of force as are blockading squadrons, and their object is the same—to prevent trade. The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war. [Emphasis added.]

 

TGIF: Tariffs Tax Consumers

We seem to forget that a tariff is a tax. It is formally levied on importers, not on foreigners or things, but since it can usually be passed along, it ends up as an indirect tax on consumers.

The point of tariffs is to protect certain domestic businesses and their employees from formidable foreign competitors by raising import prices and reducing consumer choices. Higher prices! Less choice! Raising import prices gives domestic businesses room to raise their prices -- that's the point. Why have a tariff otherwise? (Tariffs intended to raise revenue rather than protect domestic companies have been imposed in the past, but in those cases, the government wanted people to buy the imports or else no revenue would have been raised.)

To put it mildly, taxes are bad. They are the government's way of taking money from people by force -- stealing -- and preventing them from spending it on their own purposes, activities that would have benefited others through production and trade. In a free society individuals are supposed to be at liberty to set and pursue their own goals. A society in which the government preempts individuals' goals is not fully free.

Even if under some market circumstances importers and foreign exporters have to pay some of a tariff, it's still an indirect tax on other Americans. Diverting money from importers and exporters to the government leaves them fewer dollars to spend or invest here. That's an unseen loss. Was Trump, who promises new anti-China and universal tariffs, daydreaming when he attended the Wharton School all those years ago? What's Biden's excuse? He's left most of Trump's 2017-2020 tariffs in place.

Advocates of tariffs think the taxes will protect American businesses and jobs. But as Milton Friedman liked to remind us, there's no such thing as a free lunch. Even if some jobs are preserved or even restored, it comes at a high price. And, as the radical liberal economist Frédéric Bastiat would say, the price is imposed on a large unseen group of people. That includes people who can least afford it. That's not fair.

Because those forced to foot the bill are not readily identifiable, the overall cost of the tariffs is also unseen and hence unappreciated. Most of us have no sense of the damage the protectionists have done. One study estimated that a single round of Trump anti-China tariffs cost the "typical household" $831 a year. Even when some jobs are saved, the price per job is stupendously expensive. As Donald Boudreaux and Phil Gramm wrote in the Wall Street Journal (paywall), Trump's tariffs to "close the 'washing-machine gap' ... cost $815,000 per job saved, and ... his steel tariffs ... cost ... more than $900,00 per job saved." Think of the opportunities forgone! Think of the opportunities forgone! And remember, for semi-finished goods, some American companies' output is other American companies' input -- meaning higher production costs than foreign companies face. (See "Who Really Pays the Tariffs? U.S. Firms and Consumers, Through Higher Prices.")

Some people will argue that America's astounding economic success in the 19th century is attributable to protective tariffs. The land of the theoretically free certainly had outrageous tariffs from the start. But beware of the post hoc ergo propter hoc fallacy (after this, therefore because of this). America had something else besides tariffs: largely free enterprise and low taxes inside a large free-trade zone. That's a much better explanation; it has a solid theory behind it. (See Donald Boudreaux's "Tariffs and Freedom.") Slavery was the worst departure from classical liberal, or libertarian, principles, but there were other, though less monstrous departures. The tariff was one of them.

Slavery and the tariff had something in common. Both prevented people from freely doing what would do the most good for themselves and others. Through private property, free exchange, and the price system, unmolested markets tend to channel workers' efforts and scarce resources to the activities that best accord with consumers' and hence entrepreneurs' most intense demands. Enslaved people, forcibly and cruelly barred from free labor markets, were forbidden to choose what they would have anticipated as their most rewarding work. That was one way in which slaves suffered, but the prohibition also made almost everyone else poorer than they would have been. How so? As Adam Smith showed in 1776, specialization through the division of labor makes us richer. The bigger the market, the better.

We got rid of slavery, thank goodness. When will we finally get rid of that other mark of tyranny: the tariff and other forms of protectionism? And when will we finally stop taking protectionist demagogues seriously?

TGIF: National Conservatism's Ominous Economics

National conservatism is objectionable on many counts -- the name in itself tells you that -- but it does pay tribute to free enterprise. A closer look, however, may cause one to doubt its commitment.

The movement's official Statement of Principles includes Principle 6, which begins encouragingly, though predictably tradition-bound:

We believe that an economy based on private property and free enterprise is best suited to promoting the prosperity of the nation and accords with traditions of individual liberty that are central to the Anglo-American political tradition. We reject the socialist principle, which supposes that the economic activity of the nation can be conducted in accordance with a rational plan dictated by the state.

So far pretty good. When people are free to act peacefully, most will engage in the voluntary exchange of goods and services (including labor) to achieve better lives for themselves and their families. In the process they will acquire possessions the security of which is necessary to the pursuit of sustained, even lifelong projects of all kinds (and not only commercial) aimed at that betterment. In other words, free enterprise and free trade take place when we are left free to pursue our broad interests through peaceful social interaction and the division of labor. It's a bottom-up, emergent environment that requires no coaxing from the government. (Historically, nonstate customary law emerged along with production, the division of labor, and trade. It did not wait for wise rulers to create an appropriate legal environment.)

But then the Statement of Principles starts its trek downhill: "[T]he free market cannot be absolute."

This is ominous. First, it's far from clear what that means. It should be obvious that no enthusiast of the free market thinks society ought to consist entirely of money-making. Life is more than production and trade of material values. Everyone knows that.

The sentence suggests to me that, according to the national conservatives (natcons), people -- even when they restrict themselves to peaceful consensual activities  -- can't be completely free of the cold hand of the state. The very rationale of the Statement tells us this. After all, these are the principles of "national conservativism." It's a nationalist movement. Its essential element is protecting the nation-state through the government. The existence of individuals is not denied, but their interests (as they conceive them) are subordinate to something called national interest. Individuals do not exist for their own sake. Therefore, every consideration is to be passed through the national interest filter. At bottom, then, national conservatism is a collectivist project. We cannot forget that, much less hope for an affinity between natcons and libertarians.

The concern with national interest prompts the question: as conceived by whom and by what criteria? The answer presumably is: according to the criteria of those who are elected to and are able to remain in office. The many problems posed by the perverse effects of democratic politics have been well-documented in theory and history. They include the impotence of any one vote, rational ignorance, rational irrationalism, concentrated benefits/thinly spread costs, inflated political transaction costs, apparently benign incrementalism, campaign theatricality, elites' access to power, and limited accountability. So right from the start, the statement poses more questions than it answers. It does little to reassure people who place a priority on individual liberty. In short, it ignores public-choice economist James Buchanan's call for "politics without romance."

Politicians and bureaucrats, then, would be assigned the task of letting us know when we have, in their judgment, pursued market activities too much. Natcons declare themselves in favor of the rule of law, but remember: the content of the law is as important as due process. It's not enough to be free from decrees handed down on the fly. We also need freedom from duly enacted oppressive legislation, that is, rules that forbid or specify the terms of consensual conduct.

"Economic policy must serve the general welfare of the nation," the statement continues. Clearly, for national conservatives, it's not enough that policy-makers abstain from violating the individual's right to life, liberty, and the pursuit of happiness because through freedom, tradition may fall by the wayside, and the natcons can't have that.

The best explainers of how markets work -- I'm thinking of the Austrian economists -- have shown that the general welfare is exactly what the pursuit of individual welfare in self-regulating markets accomplish. Adam Smith and his best predecessors understood this, even if they got some details wrong.

Let's never forget that strictly speaking, markets don't actually do anything. Only individual human beings act. When they act in a market setting, which is at once economic, legal, and cultural, it's as if people are led by Adam Smith's metaphorical "invisible hand" to do well for themselves by doing good for others. We must supply what others demand because bankruptcy awaits those who ignore others. Barred from government power and forbidden from using physical force and fraud directly, they will seek their own welfare by catering directly or indirectly to consumers. We may not always like what every consumer wants, but as long as no one can initiate force directly or through the state, we can secure ourselves, individually or in association with others, from undesirable influences.

Unsurprisingly, the natcons are dubious about globalism. That word means different things to different people, but the natcons don't like even what libertarians mean: the free movement of people, goods, and money across national lines without government impetus or impediment -- the division of labor writ large. Economists have long demonstrated that global welfare is best enhanced by that route. Significant, though incomplete moves in that direction over the last several decades have gone a long way toward wiping out absolute poverty and infant mortality.

The natcons, like the economic nationalists on the left, lament that "globalized markets allow hostile foreign powers to despoil America and other countries of their manufacturing capacity, weakening them economically and dividing them internally." This is the "hollowed-out America" claim. The problem with the claim is that American factories still produce an incredible volume of goods. What's changed is technology: many fewer people are needed to work in those factories because labor-saving computers and machines are far more productive than people working in jobs that not very long ago were condemned for their mind-numbing drudgery. Jobs that parents once hoped their children would never have to do are now looked to nostalgically by both the natcons and the Michel Moore left.

The Statement goes on:

Crony capitalism, the selective promotion of corporate profit-making by organs of state power, should be energetically exposed and opposed.

That sounds good, but the natcons will have to explain how their policies will avoid crony capitalism. Industrial policy, which is what the national conservatives really want, is an engraved invitation to well-connected business interests to the detriment of everyone else.

More could be said, but you get the idea. The Statement's embrace of free enterprise is hollow indeed. Government intervention, complete with tariffs, import quotas, immigration restrictions, a military-industrial-science complex, and subsidies -- all necessarily constituting de facto central planning -- would be rampant, as would be the lobbying frenzy for special consideration. It's no comfort to know that our rulers would be motivated by the national interest.

TGIF: Economic Nationalism: Elitism in Populist Clothing

My old friend and former American Conservative editor Dan McCarthy gets it all wrong about Donald Trump's "national security" tariffs on aluminum and steel.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com.

Become a Free Association patron today!

TGIF: Trading Places

"What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war." --Henry George

When Donald Trump can propose tariffs on imported steel, aluminum, washing machines, and solar-panels without being roundly booed off the stage, one has to wonder if reason has any power to win the day. Is this truly a democracy of dunces?

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com.

Become a Free Association patron today!

TGIF: The Voice of American Workers Is a Charlatan

Donald Trump, the self-proclaimed voice of American working people, has decreed that the prices of washing machines and solar panels shall rise.

So it is written. So it is done.

Read TGIF at The Libertarian Institute.

TGIF (The Goal Is Freedom) appears on Fridays. Sheldon Richman, author of America's Counter-Revolution: The Constitution Revisited, keeps the blog Free Association and is executive editor of The Libertarian Institute. He is also a senior fellow and chair of the trustees of the Center for a Stateless Society and a contributing editor at Antiwar.com. Become a Free Association patron today!

Guess Who

At least one presidential candidate speaks favorably of printing money to pay the national debt and of taxing the rich. At least one candidate promises not to raise taxes on the middle class, although inflation (printing money) and tariffs are taxes on the middle class (and everyone else).