Lighthizer Says IEEPA Tariffs Could Be Struck Down

Lighthizer said Aprl 28 that IEEPA's "operative paragraph" doesn't use the word tariffs -- it was "really, really written broadly."

The law says that the president, after an emergency is declared, can "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."

However, Lighthizer also said that Congress passed IEEPA because legislators wanted to "sort all of the mess out" from when President Richard Nixon used the Trading With the Enemy Act to impose 10% tariffs on all imports.

If CIT does say tariffs are not authorized through IEEPA, it would be appealed to the U.S. Court of Appeals for the Federal Circuit, and "then ultimately the Supreme Court would decide."

He said, "It’s clearly not a 100% thing" that the Supreme Court would bless the use of IEEPA for global tariffs.

"If you used the balance of payments provision, that would be 100%," he said, referring to Section 122 of the Trade Act of 1974, which allows a 15% tariff on all imports due to a balance of payments crisis, but that action can only last for 150 days, unless Congress extends it.

"I think there’s a reasonable possibility it’s overruled," Lighthizer said April 28. "To me, it’s a very good faith argument. I believe it should be sustained."

Lighthizer defended the administration's tariff actions, disputing a questioner's point that a 145% tariff on China and 10% on everyone else would result in more Chinese inputs exported to countries like Vietnam, and the same level of global trade deficit, just with different partners, as happened when Section 301 tariffs were imposed.

Lighthizer said Vietnam and Malaysia and other "conduits" for Chinese manufactured goods would see far higher tariffs under the reciprocal tariff regime, and that is appropriate, since they are conduits for those goods.

Council on Foreign Relations President Michael Froman, who immediately preceded Lighthizer as USTR, asked him if the end game is a new standard rather than substantial transformation, if there will need to be agreements on rules of origin with all exporters?

"Substantial transformation can’t be taking a piece of steel and coating it," he said. "We have to get more sophisticated about that."

With regard to Chinese investment abroad, he called it a freight train, and said much of it is in the automotive sector. He said he thinks the U.S. should treat technology goods -- including connected cars -- made by Chinese companies the same way it does for good coming from China.

"If you said a clothing company or something like that, then maybe not," he said.

Lighthizer built his argument for protecting manufacturing with global tariffs on the assertion that two-thirds of American adults have no more than a high school degree, and that they need good jobs. He said that the fact that the average services job now pays more than the average manufacturing job is misleading, because, he said, very high-earning services jobs are covering up the low wages of restaurant, entertainment and healthcare jobs. (Teaching and registered nurses are the services jobs with the most employment.)

Census data from 2021 shows that more than half of adults have an associate's degree, bachelor's degree or advanced degree.

Lighthizer said he calls NAFTA, the formation of the World Trade Organization and granting China permanent most-favored nation, or MFN, status "the trifecta of stupid," and said the three are responsible for millions of lost factory jobs. "We’ve seen this group of people, their communities become desolate, they’re losing hope," he said.

Froman pushed back, noting that Germany, too, has had a similar decline in manufacturing jobs, and that automation started the declines before NAFTA passed.

Lighthizer joked about his appearance at CFR: "It’s like going to the college of cardinals and disputing the virgin birth. I know you're moving my way. I know on your deathbed, you’ll say: 'Lighthizer is right.'"

One member of the audience said he agreed with Lighthizer that hiking tariffs is the way to address the persistent trade deficits, but he said he's concerned the speed of the implementation would cause too much economic pain, and there would be shortages in stores, maybe equivalent to COVID-19 pandemic shrinkages. "Is this the right way to implement the tariffs?"

In his book, Lighthizer said the tariffs on imports should increase each year, and Congress should not implement them immediately. "It will have to be done carefully over a period of time," he wrote.

At CFR, he said, "Implementing really big changes is never ever without flaws," and said that over time, the U.S. will get the proportions right.

"My hope is we end up with a universal tariff, and we end up with specific higher tariffs" for countries he called predators.

He said that subsidies for strategic industries like shipbuilding, active pharmaceutical ingredients, semiconductors and protective equipment also are necessary.

He also complained about one of the U.S. services exports -- foreign students at U.S. colleges. He said the Chinese presence in American universities "scares the hell out of me," and called it "nothing short of insanity."