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Defiant Trump Invokes Section 122 |
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Dear reader, |
On Friday the United States Supreme Court jammed a spanner within the president's trade gears. |
By a 6-3 count, the honorable justices declared the president's tariffs — enacted under the International Emergency Economic Powers Act (IEEPA) — invalid. |
Thus the Supreme Court barred what we will label door no. 1. And so the president immediately struck out for door no. 2. |
The sign emblazoned upon door no. 2 reads "Section 122 of the Trade Act of 1974." |
The referenced section authorizes the president to impose tariffs up to 15% for a 150-day period. Its declared intention is to correct a "large and serious balance-of-payments deficit." |
Thus the president announced on Friday afternoon that: |
The Supreme Court did not overrule tariffs. They merely overruled a particular use of IEEPA tariffs… Today, I will sign an order to impose a 10 percent global tariff under Section 122, over and above our normal tariffs already being charged. And we're also initiating several Section 301, and other investigations, to protect our country from unfair trading practices of other countries and companies. |
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Yet can the president turn the handle on door no. 2 — and barrel his tariffs through the opening? |
The Courts May Block Trump Again |
I have consulted my crackerjack legal advisors. And they advise me that the courts may likewise bar door no. 2. |
The reasons cited were, as you might expect, technical in nature. |
In brief summary of these reasons, a "large and serious balance-of-payments deficit" is not a trade deficit. |
Thus — under this theory — the president cannot invoke Section 122 of the Trade Act of 1974 to confront a trade deficit. |
He can only invoke Section 122 of the Trade Act of 1974 to confront a "non-emergency" balance-of-payments deficit. |
The two balances are related. Yet they are not twins. And trade balance falls under the expanded balance-of-payments family. |
For example: Foreign nation X sells this gewgaw or that gewgaw to an American purchaser. In exchange for the gewgaw, the American purchaser transfers United States dollars to X. |
With these dollars X may proceed to purchase financial assets within the United States — stocks for example, bonds for example, real estate for example. |
The scales balance even. |
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The Big Picture |
Thus while the transaction may expand the trade deficit between the United States and X… it does not necessarily expand the balance-of-payments deficit between the United States and X. |
As explains the Library of Economics and Liberty: |
BALANCE OF TRADE [is]the difference in value over a period of time between a country's imports and exports of goods and services, usually expressed in the unit of currency of a particular country or economic union. |
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The balance of trade is part of a larger economic unit, the BALANCE OF PAYMENTS (the sum total of all economic transactions between one country and its trading partners around the world), which includes capital movements, loan repayment, expenditures by tourists, freight and insurance charges, and other payments… |
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More: |
If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if Americans buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding dollars, which they may hold in the form of bank deposits in the United States or in some other U.S. investment. |
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The payments of Americans to Japan for automobiles are balanced by the payments of Japanese to U.S. individuals and institutions, including banks, for the acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the United States sold Japan dollars or dollar-denominated assets such as Treasury bills and New York office buildings. |
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Now you have the flavor of it. The kernel here is that the United States does not suffer a balance-of-payments deficit. |
It does suffer a trade deficit — yet not a balance-of-payments deficit. |
Might Trump "Go There"? |
And so I hazard the courts will have another go at the president under Section 122 of the Trade Act of 1974. |
And if they stymie him once again? If they lock door no. 2? |
The president is a very determined and resolute fellow. I hazard he would strike out immediately for door no.3. |
Should the courts bar door no. 3, he would likely approach door no.4… then 5… then 6 and beyond… until he finds a door he can open… or perhaps crowbar open. |
"John Marshall has made his decision; now let him enforce it!"... as Old Hickory Andrew Jackson may have never said in 1832. |
This was in reference to a Supreme Court ruling the president did not like. John Marshall was Chief Justice. |
I would remind you that President Trump vastly esteems President Jackson. In fact the dour and glowering portrait of Old Hickory adorns the Oval Office. |
I do not forecast it. I do not believe he will do it. |
Yet I concede the possibility that a blood-raised President Trump may one day run dry of patience: |
"John Roberts has made his decision; now let him enforce it!" |
Brian Maher |
for Freedom Financial News |
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