Presidential Powers and International Trade: How Far Can Trump Go?

Just a signature under an executive order.

Many were struck by the ease by which the new US President could just undo several years of hard negotiation and knock-out one of the potentially biggest free trade agreements in history, the Trans-Pacific Partnership (TPP), from coming into existence. Keeping this in mind, it seems worthwhile to take a closer look at what powers on trade the President actually has – and at the checks and balances in place. 

Let’s start by looking at the very important basics: The US Constitution and who has which power in regulating and governing trade.

The power in trade policy: What the Constitution says

The power of Congress

Article I, section 8 of the US Constitution confers the power to regulate foreign commerce as well as the authority to establish and collect taxes, duties and tariffs upon the bicameral legislative body of the US, the Congress. The most important committees having primary congressional jurisdiction on trade matters are firstly the House of Representative’s Ways and Means Committee as the chief tax-writing body and the Subcommittee on Trade; secondly the Senate’s Finance Committee and its Subcommittee for International Trade, Customs and Global Competitiveness. Also other committees may be involved if the trade agreement affects legislation within their jurisdiction.

So what is in there for the President?

The President is not assigned any specific power in international trade by the Constitution. Yet, Article II, Section 2 of the US Constitution gives him the “Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two-thirds of the Senators present concur”. Therefrom derives the President’s constitutional authority to negotiate trade agreements with other countries. Yet, if the agreement requires changes in US law (as trade agreements usually do), these have to be implemented through legislation by Congress. Whereas the Senate’s involvement is explicitly mentioned by Article II, Article I Section 7 of the Constitution brings in the House: As bills on the generation of revenue must be introduced in the House, and as trade agreements traditionally affect the national stream of revenues, also the House must participate in the process. Finally however, it is up to the Senate to approve the treaty.

That said, many free trade agreements are approved as congressional-executive agreements rather than treaties. Even though indistinguishable from treaties under international law, these agreements are nonetheless limited to issues covered by the constitutional competences of the President and the Congress. As these are quite broadly interpreted, most agreements could be proposed as congressional-executive. Whereas treaties have to be approved by a two-third vote in Senate, congressional-executive agreements have to be approved by both chambers of Congress, but “only” via a simple majority vote each. In cases when controversial issues are at stake, this may prove easier than reaching a two-thirds-majority in the Senate is needed for treaties. Exemplarily, two decisive trade matters, the NAFTA in 1992, as well as, the agreement for US membership to the WTO in 1995 were handled via a congressional-executive agreement.

Speed it up: TPA or the fast-track procedure

Congress has repeatedly delegated authority in trade matters to the President. In the context of trade agreements, an important one is the so-called Trade Promotion Authority (TPA), also known as a “fast-track authority”. Under a TPA, the President can negotiate and enter into international trade agreements. He is however required to submit the agreement to Congress for approval and for vote on legislation appropriate and necessary for the agreement to be implemented.

What makes this process so “fast track” then? Firstly, implementing bills relating to the agreement are accorded timely committee consideration in Congress and ensured a final floor vote; secondly, Congress can approve or deny the agreement as a whole, but not amend it. A President can thus assure his international negotiation partners that Congress won’t modify the agreed terms of the agreement. A successful procedure is however bound to the condition that the President follows the terms of the TPA statute, which inter alia include requirements for the executive to notify and consult with Congress. Being an impermanent authority, the TPA has been renewed by Congress several times. In June 2015, the Congress gave final approval to a new TPA granting the Obama administration enhanced negotiation powers for major trade agreements with Asia and Europe (i.e. the TPP and TTIP).

A President’s tool: the executive order

An executive order is the tool which Trump primarily used to withdrew the US from the TPP. Even though not clearly defined by the US Constitution, an executive order is a statement by the President to government agencies and departments. It elaborates how a law should be implemented or how to operate in certain government areas. Every US President has used executive orders in some way or another (the absolute record holder being President Roosevelt with a whopping 3,721). They may use it especially when they cannot get a law to pass in Congress or when a particularly divisive issue is at stake which halts the legislative process, as executive orders allow Presidents to bypass the legislative body. Whereas laws necessitate a long preparation and often face lengthy procedures in Congress, an executive order can be enacted by just the mere signature of the President. It is legally binding and will be published in the Federal Register, the official journal of the US government.

However, in comparison to laws passed in Congress, executive orders pale in various ways: Commencing as a bill, a law is passed by both Congressional chambers to be subsequently signed by the President. To revoke laws which have actually passed all these stages is a lengthy and difficult process, so they potentially prove to be more resistant in the long run. Additionally, a law passed in Congress cannot be revoked by an executive order.

Can an executive order be stopped or amended?

There are three ways of stopping an executive order: via another executive order, in Court or in Congress. Firstly, the President himself can revoke executive orders of his predecessors. Secondly and in the context of trade policy, if the President’s actions prove to evidently damage the US economy, his decision may face court challenges by affected US firms and states (such as several states brought a lawsuit against Trump’s travel ban). This may be facilitated if the executive order lacked accuracy: If not properly or just insufficiently elaborated, it may be easier for opponents to identify weaknesses and loopholes to contest the order. Again, this is what we may just have witnessed with the quickly drawn-up travel ban, which was challenged and subsequently stopped in court for the time being. Thirdly, if the President exercises his powers and statutes conferred upon him in a way that Congress never intended to, Congress itself may debate new laws in order to revoke powers it once delegated upon the President.

But now it gets tricky: Even though Congress may not be able to block an executive order, it can nonetheless pass a law to override it. Yet in turn, the President may place his veto by refusing his signature under the bill, hence stopping the latter from becoming a finalized law. In this case, both chambers of the Congress would need to create a two-third-majority to override the President’s veto. As currently Republicans hold the majority in both chambers of the Congress, this would practically mean that they would need to team up with fellow Democrats against a Republican President.

Additionally and lastly, it should not be underestimated how much the funding power of Congress can influence whether an executive order may be able to succeed: Should the issue at stake require any spending, it would be up to Congress to approve funds.

Trade agreements: Withdrawal, renegotiating and tariffs

Withdrawing from trade agreements

Trump withdrew the US from the TPP by something as simple as a mere stroke of his pen. As striking as this seems, it indeed clearly reflects something one could call a decisive power asymmetry of trade matters: Whereas congressional approval is needed for new (or also revised) trade agreements, it is not necessary for withdrawing from existing commitments (remember though that, unlike e.g. NAFTA, the TPP was still awaiting full ratification and hence did not enter into force yet). The usual checks and balances do not take effect here. And even if, as depicted above, Congress surmounted the President’s veto in order to alter or even repeal the powers it delegated upon him, the courts could actually still rule that the termination of trade agreements is within the realm of the President’s constitutional power over foreign affairs.

The President does not even need to literally rip up the trade agreement he intends to exit from, as sending a note mostly suffices: Most contemporary trade agreements have a withdrawal clause. Exemplarily, Article 2205 of NAFTA (as well as Article 30 of TPP) includes the option to withdraw from the agreement six months after written notification of withdrawal to the other parties. If the US were to pull out of NAFTA, it would however still remain in place for the remaining two parties, Canada and Mexico and tariffs for the US would go back to the WTO “Most Favored Nation” (MFN) rates. Similar withdrawal loopholes can be found elsewhere as well.

Renegotiating NAFTA

Besides the potential option to exit an agreement, Trump repeatedly threatened to renegotiate NAFTA. This option could however be quite tricky. Firstly, Canada and Mexico would have their say at the renegotiation table. If a revised version of the agreement was indeed agreed upon, it would still, as any other “new” agreement, need to pass in Congress. Keeping in mind that free trade is no uncontroversial topic in Congress as well (as was just shown by the approval of the TPP withdrawal irrespective of party affiliation), passing a revised agreement in Congress could prove to be quite a challenge.

Imposing tariffs

Trump repeatedly threatened to impose substantial restrictions on international trade in order to in his view strengthen the US economy. He wants to do so by raising high import duties on foreign products. However, as a GED article shows, there is good reason to believe this approach would weaken growth and employment in the US. But let’s look at how he could potentially put his ideas into place and what the constraints are.

If Trump was to impose high tariffs on imports from Mexico as he repeatedly threatened, this would clearly violate the terms of NAFTA and WTO rules as well. However, he could nonetheless try to use his executive authority via an “emergency” measure: As researchers of the Peterson Institute on International Economics (PIIE) point out, the President could potentially compensate his lack of constitutional authority to raise and collect tariffs by relying on several statutes granted upon him by Congress over time, allowing him to exert such measures in cases of “national emergency”. Such authority was already given to the President in 1917 as Congress passed the Trading with the Enemy Act (TWEA), permitting the executive to regulate and restrict all forms of international trade as well as to freeze and even seize foreign assets in case of a national emergency and times of war. However, as the PIIE experts underline in their analysis, the interpretation of this clause has been quite broad; additionally, as the act does not further specify the term “times of war”, they point out that courts could interpret that clause as a matter of justification rather restrictively (e.g. wars declared by Congress, the last time during World War II) or very broadly (e.g. wars without prior Congressional authorization, such as US military actions in Libya or Syria).

Alternatively, the President could rely on the International Emergency Economic Power Act (IEEPA) of 1977, which confers wide powers upon the President to inflict economic sanctions, originally on Americans enemies, and again to regulate all forms of international trade and freeze assets. Even though the application of the IEEPA is bound to cases of an “unusual or extraordinary threat”, PIIE experts underline that courts have never repealed presidential declarations of a “national emergency”. Another “option” could be the Trade Expansion Act of 1962, which permits imposing higher tariffs in order to offset a threat to national security. Furthermore, the President could rely on the Trade Act of 1974, allowing him to impose tariffs up to 15 percent for 150 days to deal with a balance of payment deficit. Another section of the same act allows him to levy tariffs in order to respond to “discriminatory” actions by any trade partner.

The mere variety of potential options is as immense as it is disconcerting, with the simplicity of a pen stroke sufficient enough to shake up a (not yet enforced) trade agreement as the TPP was. However, if anything, to understand and be aware of the complexity which lays beneath such issues may be a first step in dealing with the challenges that lay ahead of the international community in such a rough climate for international trade relations.