Congress Has the Power on Trade
First, President Donald Trump killed the Trans-Pacific Partnership, now he’s considering a 20-percent tax on Mexican imports in order to fund a border wall. Both announcements have launched torrents of headlines, and reinforced the impression that the president is the judge, jury and executioner when it comes to trade policy.
But that, like much of Trump’s theatrics, is an illusion. This latest proposal for Mexico, which would rely on something called a border-adjustment tax, is part of a larger overhaul of the tax code contemplated by Congress, not the president .
When it comes to trade, Trump can’t go it alone, slapping tariffs on other nations and renegotiating existing trade agreements. That’s because Congress, not the president, has largely controlled trade policy throughout the nation’s history. Trump can negotiate. But it’s Congress that is invested with the power to lead.
The U.S. Constitution gives Congress the authority to “regulate Commerce with foreign nations.” It also gives Congress the power to “lay and collect Taxes, Duties, Imposts, and Excises.” Given that trade policy in the early years of the nation consisted almost exclusively of setting tariffs on foreign goods -- a tax that provided most of the federal government’s revenue -- Congress most definitely held the upper hand the nation’s early year’s.
While nineteenth-century presidents occasionally asserted their authority over trade as an extension of their oversight of foreign affairs, Congress maintained tight control by drafting tariff schedules that slapped duties on imported goods. The Republican Party was especially fond of protective tariffs because they protected domestic industrial interests.
The high-water mark of legislative control came with the drafting of the infamous Smoot-Hawley Act, which imposed approximately 20,000 different protective duties on a wide range of imported goods, with ad valorem taxes averaging 53 percent. As more than one legal scholar has observed, tariff schedules invite political horse trading, as every special interest gets its cut. In fact, as the legislation took shape, it was amended no less than 1,253 times in response to requests by nearly every imaginable economic interest.
This infamous piece of legislation, which President Herbert Hoover reluctantly signed, precipitated a trade war with other industrial nations and is widely thought to have contributed to the economic cataclysm known as the Great Depression. With protectionism discredited and Congress blamed for its failure to manage trade policy in the interests of the country, the door opened to free trade and a stronger role for the executive branch.
In 1934, Congress passed the Reciprocal Trade Agreements Act of 1934, which gave the president significant control over trade policy. Under its provisions, Congress gave the executive branch advance authority to negotiate bilateral tariff reductions with other nations. For the first time, the president was free to pursue free trade policies without Congress micromanaging the process.
But Congress didn’t cede all its authority. For starters, it drew up binding guidelines as to how much tariffs could be reduced. Moreover, Congress maintained control over the process because it limited the president’s authority to a three-year period, at which point it would have to be renewed. Subsequent amendments to the law gave Congress additional say over whether domestic industries had been damaged by these trade agreements.
In 1962, President Kennedy sought additional negotiating authority from Congress in order to deal with the forerunner of today’s European Union. Congress pushed back, fearful that Kennedy would negotiate over more than just tariffs (indeed, he would also seek to lower so-called NTBs, or Non-Tariff Barriers, which included subsidies, import quotas, and other contrivances that hindered free trade).
These fears prompted a revolt against Kennedy’s successor, Lyndon Johnson. When the latter’s authority to negotiate came up for a vote in 1967, Congress refused. President Richard Nixon suffered the same fate. In fact, it was not until the waning months of the Nixon administration that Congress compromised.
On a superficial level, the resulting legislation – known as the Fair Trade Act of 1974 – reaffirmed the president’s power to cut trade deals. It created the so-called “fast track” authority, which empowered the president to negotiate trade agreements independent of Congress. Unlike conventional international treaties, these agreements would not require the approval of two-thirds of the Senate; they would simply require a majority.
Moreover, Congress agreed that it would not amend agreements negotiated by the president, much less filibuster them or otherwise meddle with them. As a committee report on the legislation put it, “such agreements negotiated by the Executive should be given an up-or-down vote by the Congress. Our negotiators cannot be expected to accomplish the negotiating goals ... if there are no reasonable assurances that the negotiated agreements would be voted up-or-down on their merits.”
But the president’s newfound power, forged as the Watergate scandal forced Nixon from office, was far more contingent and fragile that it first appeared. Congress, deeply skeptical of the executive branch, tied the president’s hands in several subtle but concrete ways.
The first provision limited presidential authority by specifying the objects of negotiation. In other words, the president can’t simply go it alone; he must operate within whatever parameters Congress imposes. Moreover, the president’s authority was subject to a sunset provision: Congress must renew the authority every few years. In addition, the law required that the president consult Congress and comply with elaborate certification and reporting requirements. If Congress believed the president has failed to do so, it could strip him of his fast track authority immediately.
In the 1980s, Congress actually seized even greater control over the president’s ability to negotiate trade deals. Under the Trade and Tariff Act of 1984, the president was required to consult Congress even more frequently, with the latter given multiple opportunities to derail any trade negotiations. And Congress did not hesitate to bring its power to bear on subsequent presidents, shaping trade agreements and also, on more than one occasion, refusing the renew the president’s fast track authority.
These conflicts invariably pitched free-trade presidents against protectionist members of Congress. But the situation is now reversed with Trump as protectionist-in-chief and most members of his own party – and more than a few Democrats – as the free traders. While it’s anyone’s guess how this will play out, it’s almost certain that these differences of opinion will ignite more than a few battles.
When that happens, Trump may be surprised to learn that Congress has the upper hand. It’s one thing to kill off a trade deal that probably wouldn’t have passed Congress anyway. But if history is any guide, Congress will run circles around Trump should he be foolish enough to try and go it alone.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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