Transcript
William Roberts: All
William Roberts: hi and welcome to the Truth to Power podcast with William Roberts. Today, we're talking to Raj Bala, who's going to help explain what's going on with President Donald Trump's on-again, off-again tariff policies.
William Roberts: Raj is the Brennison Distinguished Professor of International Trade Law at University of Kansas School of Law. He has a master's from the London School of Economics and another in Industrial Relations from Oxford.
William Roberts: He earned his law degree at Harvard. And among his many publications, Raj is the author of the 2024 book, Trade War Causes, Conduct, and Consequences of Sino-American Confrontation, a timely topic.
William Roberts: Raj is also the author of the International Trade Law Textbook Set, which runs eight volumes and more than 6,000 pages. ah ah Thankfully, it's free and open access on KU Scholar Works. Raj, welcome.
Raj Bhala: Thank you. Thank you for having me It's an honor to to be on the program. It's always great to work with you. i always learn a lot from your questions and comments, and especially to do this inaugural Truth to Power ah podcast is fantastic.
Raj Bhala: So thank you.
William Roberts: Thank you. Thank you. You're very kind. I will say you are truly an expert on international trade law and someone I've learned a lot from also and relied a on a lot in the last couple of years to understand what's going on with U.S. trade policy. I'm delighted you're able to join us on this inaugural episode.
William Roberts: Honored to have you.
Raj Bhala: Thank you.
William Roberts: So we knew when Trump won the election to a second presidential term that he would impose new tariffs. He talked about it during the campaign.
William Roberts: And you predicted it would be a a chaotic process. I'm not sure we realized then how chaotic. um um And, And, you know, on April 2nd, what the president called Liberation Day, he announced across the board tariffs on just about every product imported into the U.S. from just about every country in the world.
William Roberts: And he threatened but withheld reciprocal tariffs that would punish major U.S. trading partners for running trade surpluses with the U.S. The reaction in financial markets was not friendly. In fact, think the U.S. stock market briefly tanked in April.
William Roberts: on fear that the tariffs would spark a worldwide recession. Now, Trump has retreated from the ledge and markets have bounced back and they seem somewhat complacent. My question for you is, should they be?
Raj Bhala: They should not be. Markets should not be complacent at all. The long run prospects, not only for the economy of the United States and the world, but but the the legal system in the US s and and around the world are deeply problematic. and Let me explain that why I say that.
Raj Bhala: The first 100 days, which presidents often like to be benchmarked by, of the second Trump administration, so specifically the 20th of January, of 2025, Inauguration Day, through the 29th of April of 2025 had been the most disruptive period in the history of the modern multilateral trading system.
Raj Bhala: That means they've been the most disruptive period in the world trading system since the signing of GATT on the 30th of October, 1947. GATT being, of course, the General Agreement on Tariffs and Trade.
Raj Bhala: And these first 100 days have also been the most disruptive period in our regional, our ah continental architecture that is since the 1st of January, 1994, when NAFTA, the North American Free Trade Agreement in its first iteration,
Raj Bhala: entered into force. president's actions, his trade policy, his America First trade policy, which he signaled with and his America First memorandum on um Inauguration Day, they um have shattered all of the substantive and stylistic norms that we have been used to these last 80 years and these with GATT and these last 30 years with NAFTA.
Raj Bhala: And so if markets are trading only on a short term up and down that, as it's sometimes called the taco trade, that Trump always chickens out, that so markets go down when he announces tariffs because then they expect recession or the possibility of recession and then they go up a day later.
William Roberts: Score one for Raj for for calling the taco trade first in this podcast.
Raj Bhala: Yeah. then in an intraday sense or a couple of days since they're really not focusing on the long term.
Raj Bhala: And let me put it in two words what I think this long term is. And I don't think we've seen a long term like that since the 1930s. And I call it xenophobic autarky.
Raj Bhala: It's also been called by the Financial Times capitalism in one country. Now, what either phrase means, xenophobic autarky or capitalism in one country, it means that foreigners, foreign sources of supply for imports, finished merchandise, inputs, cannot be trusted, friend or foe. In fact, friends are foes because they're competing with American companies and American employees.
Raj Bhala: And The autarky part, A-U-T-A-R-K-Y, that economic term, which has nothing to do with autocracy, it's an economic term, means really self-reliance, no trade.
Raj Bhala: that that So you put the two together, the policy that's underlying in these first 100 days, the the all of the tariffs we're going to talk about, the different kinds, is really to onshore or reshore as much production as possible and not engage in international trade. That's the autarky part.
Raj Bhala: And reason is that foreigners are untrustworthy. And that's, or and again, in the FT perspective, that's capitalism in one country. Now, if you are trading in the markets in Wall Street, name me stock markets anywhere in the world across the last several decades that do really well under those closed economy conditions.
Raj Bhala: In fact, if we think about it, the entire history of post-Second World War development economics theory and practice Study after study shows that open economies perform better than closed economies.
Raj Bhala: They perform better in terms of sustained rates of growth per capita gross domestic product. And economists measure open economies with different benchmarks, like what percentage of the economy is accounted for by imports or exports.
Raj Bhala: And there are always some quibbles about the econometrics, but the consensus is clear. Study after study, including World Bank studies, studies by famed economists like Jeffrey Sachs and Kruger,
Raj Bhala: They all make it plain that open economy perform better in terms of the rate of growth of per capita GDP in a sustained period. Well, why would you be complacent then if you're on Wall Street saying, well, the markets are up today. the tariffs are are not going to be a problem.
Raj Bhala: think that's wrong.
William Roberts: Trump announced 50 percent tariffs last week week and he he signed the order yesterday. I'm imposing this 50 percent ad valorem tariff on steel and aluminum imports to the U.S. Canada is the largest exporter of steel to the U.S.,
William Roberts: followed by Brazil, Mexico, South Korea, and Vietnam. It's also the largest supplier of aluminum. China is the second largest supplier of aluminum, and ah ah and China is one of the world's ah ah largest producers of steel for other markets.
Raj Bhala: Thank you.
William Roberts: 50% is a really high tariff, and Trump said in his speech, you know the 25% tariff that he put in place in February, was high, but not stopping the imports to the U.S. And his rationale is that this is going to help the U.S. steel industry.
William Roberts: he he He announced it in connection with the approval of the Nippon Steel acquisition of U.S. steel. But everybody in the manufacturing sector is looking at this saying, this is crazy because our costs now are are going to First of all, we can't get supply in the U.S. And secondly, if we if we were to be able to, would be very expensive.
William Roberts: It just seems almost counterproductive. if your If your goal is to promote manufacturing in the United States, why would you raise the basic cost of things like steel with a 50% tariff? Mm-hmm.
Raj Bhala: Well, I agree with you entirely. First, ah ah then there's several ah ah great pieces to your question. So let me kind of peel them off one by one. First, China is a supplier. In 2024, though China is the world's largest steel producer, China accounted for only 1.8%, less than of total u s steel imports
William Roberts: Right.
Raj Bhala: As far as aluminum goes, we have in the U.S. a small smelting capacity. We only account for about 1.73% of global smelter capacity. So we do import about 50% of our aluminum.
Raj Bhala: But as you rightly said, the vast majority of our imports come from Canada. And Canadian importers are twice those of the next nine countries combined.
Raj Bhala: and following Canada are the UAE and China. So ah ah here again, the point is the statistical picture with respect to aluminum like steel in terms of dependence on China just isn't there.
Raj Bhala: The real problem, which the administrations, Biden and Trump, have not addressed is over capacity in the Chinese steel and aluminum industry.
Raj Bhala: The idea that a global accord or at least a plurality accord may be under the auspices of the OECD, the Organization for Economic cooperation and development, or possibly the World Trade Organization, to somehow manage trade and production in steel and aluminum is going to be what's needed.
Raj Bhala: And as we all know, that's going to require addressing the nexus between Chinese Communist Party power politics, staying in power and slimming down state-owned enterprises in a way that does not create an industrial unrest and topple.
Raj Bhala: the CCP, because that's not on, obviously. So that that very important political economy over capacity problem is not being addressed by the tariffs.
Raj Bhala: Now, you also made the point quite rightly that they were doubled from 25 to 50%. And you said earlier, and as you said know essentially paraphrasing the president, president said, well, at 50%, foreigners cannot, foreign steel suppliers and aluminum suppliers won't get over the fence.
Raj Bhala: Well, there we have it again. We don't want them to get over the fence. Why? Because we are trying to onshore or reshore under an autarkic xenophobic trade policy all of our production.
Raj Bhala: Now, you also mentioned that our major suppliers are, in addition to Canada and Mexico, are the likes of Korea and Germany.
Raj Bhala: These are not traditionally anyway ah ah foes. These are friends. And one of them, very importantly, India, one of the world's top three steel producers, China, India and Japan, is an ally that we are, or at least an a friend that we are trying to develop into an ally.
Raj Bhala: Another part of your question, which really doesn't get enough attention, is the way in which the increase on the Section 232 tariffs occurred.
William Roberts: Mm-hmm.
Raj Bhala: They occurred on day 131 of this administration. know That is to say, the president announced he was doubling the tariffs on the 30th of May.
Raj Bhala: That was day 131. They took effect at midnight today, which is day 135. That was sloppy.
Raj Bhala: Stylistically, that was sloppy. Why? Because businesses were... given very little notice as to what was happening and they were given no document, no executive order, no proclamation on day 131.
Raj Bhala: They had to wait four days until yesterday, basically, to get that proclamation when it finally went up on the whitehouse.gov website.
Raj Bhala: Now, normally, the way trade policy would be done on a dramatic move like this is quietly, you'd have the US trade representative with the commerce secretary huddling up, thinking about doubling the 232 tariffs, meeting then, expanding the circle a bit, perhaps including the treasury secretary and a few other administration officials, and then going to the president.
Raj Bhala: and and saying, okay, let's do it. Or the president would say, I want you all to look at this possibility quietly. And then an executive order or proclamation would be drafted And industry would be consulted, quite possibly.
Raj Bhala: Instead, it was the announcement was on social media. Then there's a four or five day hiatus. Industry's all upset, understandably.
Raj Bhala: So are our foreign trade partners. They are worried. And then we get the proclamation. And by the way, during these four days, something very interesting happened.
Raj Bhala: India announced with the European Union that it was halfway through negotiating a free trade agreement, and an Indo-European free trade agreement.
Raj Bhala: Now, it cannot be stressed enough. What that means is in Delhi and in Brussels, They are looking at the U.S. as an unreliable trading partner. And one of their pieces of evidence is the chaos, as you put in your opening, with it with the Trump administration trade policy in in style as in as well as in substance. so The long term, and it goes kind of goes back to your financial market question too.
Raj Bhala: In the long term, many of our closest trading partners, like the Europeans and like one we're trying to develop, India, are essentially, ah ah decoupling is too strong a word and diverting is even too strong a word.
Raj Bhala: But right now they are diversifying their trade away from the U.S.
William Roberts: Mm-hmm.
Raj Bhala: And think what happens to American exporters if the Indians and the Europeans secure an FTA the way India has already with the United Kingdom and Australia.
Raj Bhala: Well, farmers and ranchers in Kansas and Missouri, I am, are at a competitive disadvantage because the margin of preference is going to be whatever the tariff the Indians and the Europeans put on as against zero for their own trade.
Raj Bhala: So that's going to be one problem. And finally, let me take one other piece of your your question, which is the effect on our local producers who are truly domestic we're trying to help.
Raj Bhala: And I want to use some examples, two examples right here from Kansas City, and that's with beer. We have multiple good craft brewers. We've got Boulevard Beer. We've got Brookside Artisanales. We've got Casey Beer Company, Martin City Brewery.
Raj Bhala: And guess what? They all need aluminum for production. They're beer.
William Roberts: Mm-hmm.
Raj Bhala: And all of a sudden, a few days ago on day 131, they found out that their source of supply was going to go from 25 percent 120 to percent tariff.
Raj Bhala: Okay. And then they're scrambling and some of them are small and medium sized enterprises. They don't have high price counsel. They're trying to figure out, well what do I do? Where do I get this aluminum from? How do I pay this tariff?
Raj Bhala: Can I use a warehouse? Could I even use a foreign trade zone? They don't know. And so they're going to think, well, how do I price my beer this summer?
Raj Bhala: Do I factor in a tariff? What what amount of tariff? What price will my aluminum cost? Will the aluminum suppliers in Canada absorb some of that?
Raj Bhala: what What should my the timeframe of my supply contract be? Should I buy aluminum cans all the way through to for the Oktoberfest and the Christmas beer season?
Raj Bhala: Or should I just do it month to month? Tremendous uncertainty injected into the decision making of our wonderful local craft breweries.
William Roberts: and And they are wonderful. I've been to Kansas City, and I can say that i there there was a pub there called Hurricane Alley, as I recall, way back when, or Was it not hurricane? Tornado Alley, maybe?
Raj Bhala: Yeah, yeah, yeah. That's it. Yeah. Yeah. yeah
William Roberts: it's It's a haze. It's it's a fuzzy memory.
Raj Bhala: Well, if if if the tariffs don't crush these companies, we'll do we'll do a truth to power podcast live from the one of these breweries.
William Roberts: I would take you up on that.
Raj Bhala: Yeah.
William Roberts: Absolutely. Let's talk about China because you wrote the book on it. and And Trump posted on Truth Social this morning at 2 a.m. that President Xi Jinping of China China ah is a very tough man and very hard to do a deal with.
Raj Bhala: Okay.
William Roberts: And this is after Scott Besson and the U.S. Trade Representative met with the Chinese delegation, the counterpart and in Geneva.
William Roberts: In the middle of May, they met over the weekend. They came out with a framework for doing a deal or framework for talks, and they agreed to back off the the escalating tariffs from ridiculous levels to just extremely high levels.
William Roberts: and and ah And the U.S. side said that China had agreed to some non-tariff relief on the rare earth minerals that are required for EV production and all kinds of other things.
William Roberts: including advanced weapons. That has suddenly become a really big issue, not just for the U.S., but also for Europe and other countries that China is is holding back on these exports.
Raj Bhala: Thank you.
William Roberts: You know, there's been this talk that Xi and Trump might have a phone call this week to try to patch things up and get things on track at I don't know what to make of the Truth Social post, except that perhaps a phone call isn't going to happen ah ah or or maybe it will. ah ah We just don't know. But it does look like Xi is playing a a more hardball game than the White House
William Roberts: anticipated.
Raj Bhala: Well, let's look at it for a second from President Xi's perspective. this This deal, which was not a comprehensive deal at all, that was announced on day 113 of the Trump administration. That's the 12th of May.
Raj Bhala: Everyone has seen around the world, including the Chinese authorities, how certain foreign leaders have been treated when they come to the Oval Office.
Raj Bhala: Prime Minister Zelensky and the South African. president as well, and perhaps some
Raj Bhala: And so one thing that is very important, I think ah we all know, if we have any cultural competency in dealing with the Chinese is the concept of face, not to be humiliated publicly.
William Roberts: Mm-hmm. Mm-hmm.
Raj Bhala: I suspect, i think you've written about that. ah You certainly know about it. And the Chinese look at this trade war, which was launched back in the first Trump administration and in March of 2018.
Raj Bhala: through the lens of the humiliation of the colonial period and the spheres of influence and the treaties of Nanjing going back to 1842 and the opium wars.
Raj Bhala: And so, the opium wars and so
William Roberts: Mm-hmm.
Raj Bhala: they They feel that if they just get on the phone and pick it pick up the phone, like a good foreign leader relationship would you you would would say that they could, they're going to get ambushed way the Ukrainian and South African leaders have, ah much less if they were to appear in the White House.
William Roberts: sorry
Raj Bhala: And the the Chinese leaders are not confident that the Trump administration really understands this long-term historical perspective and the importance of this cultural competency in the style of negotiations.
Raj Bhala: know also the history back in the first Trump administration, how, for example, the Canadian prime minister, then Trudeau and Canadian trade Chrystia Freeland, were treated in the USMCA negotiations.
Raj Bhala: So when they did finally get to a deal, non-comprehensive deal, yes, as you see on day 113, yes, the US did agree to lower its country-specific reciprocity tariff from upwards of 125% down to 10%, and then said it might lift them back up no further agreement was reached of 35%, and then it retained its baseline reciprocity tariff of 10%.
William Roberts: Mm-hmm.
Raj Bhala: kept on the steel and aluminum tariffs, 25, now 50%, maintained 100% tariffs on electric vehicles and on solar products, which had been levied during the Biden interregnum.
Raj Bhala: And US kept up its fentanyl and immigration tariffs under the International Emergency Economic Powers Act, IEPA, which I suspect we'll talk about soon.
Raj Bhala: So and And there was no termination of the de minimis exemption for Chinese goods.
William Roberts: Mm-hmm.
Raj Bhala: Those tariffs remained in place. So what did China do? What China said, all right, we'll cut our 125 percent counter retaliatory threats down to 10 percent, kind of matching tit for tat, the de-escalation, if you will.
Raj Bhala: And we'll suspend our export controls on seven rare earths. and But we didn't they didn't make any pledges on purchasing any more goods.
Raj Bhala: They didn't make any pledges on state-centered economic policies. they actually published a white paper on national security. Okay, so then... Why the Trump post that you mentioned Mr. Xi is difficult to deal with and China's reneging and China said we're reneging?
Raj Bhala: Well, yes, by all reports, the licensing of exports of rare earths from Chinese ports has been slowed, kind of you know dragging their feet on licensing those exports.
Raj Bhala: That's from the American side. From the Chinese side, we have been slow in lowering our tariffs on Chinese goods. And of course, now we've increased the steel and aluminum ones.
Raj Bhala: So you know Thinking for a second as international law teacher, um you know how do you solve this problem? And I think both sides got to step back a little bit and understand that there is legitimacy, there are factual bases.
William Roberts: Thank you.
Raj Bhala: their historical bases to the perspectives of the other side. And look at the importance of quiet negotiations. I mean, we've seen now four and a half years, the first Trump administration and now the first six months of the trump ah ah second Trump administration of loud bullhorn diplomacy with Beijing. Has it worked?
Raj Bhala: No. Is the trade war still being fought? Yes. Is the trade war even being fought you know more ferociously with attempts to decouple? Yes.
Raj Bhala: So ah a style change is is certainly in order. And it's not ah ah it's not a sign of weakness to be a little bit empathetic if you want to get to yes on a negotiation.
Raj Bhala: And they're good points on both sides. And I might add one um footnote here. In the meantime, that this chaos has been going on, China is considering its next made in China but policy, its next five year plan, its next industrial policy that will take it through the next five years.
Raj Bhala: That's something that the U.S. would should want to help shape. So in a way that is favorable to the US. And right now, I don't see the US having any input in Beijing into the next made in China policy.
William Roberts: These deals that the White House is talking about, they did reach a deal with the UK. UK. ah They got Prime Minister Keir Starmer on the on the bullhorn in the Oval Office and they announced it.
William Roberts: And he was able to secure a carve out or the 10 Downing Street was somehow from these 50% steel tariffs, although they're still set at 25% the
Raj Bhala: you
William Roberts: and the USTR is talking to the European Union about some sort of ah ah of a European deal. what um what um What are your expectations for what those documents will ultimately look like? I mean, we expect them to be executive agreements.
William Roberts: So that would imply that there may be some limits on what the US can give. How do you see that playing out?
Raj Bhala: Well, answer that first part of the question, I don't see them as being impressive at all. If we gauge an impressive bilateral trade agreement by the standards of the Clinton or Bush, George W. Bush administrations of being ambitious in the sense of broad and deep.
Raj Bhala: And I see this playing out over a long time, nothing short. And here's why I say that. First of all, if the United States were serious about um a a comprehensive, again, ambitious in terms of breadth and depth,
Raj Bhala: free trade agreement, the president would be seeking trade negotiating authority. And as you exactly rightly said, he at best, this would be an executive agreement that would not require congressional approval.
Raj Bhala: He's not seeking TPA, trade promotion authority or fast track that expired in July of 2021. his predecessor didn't seek it either.
Raj Bhala: in fact, it's a little bit ironic because one of the best ways to distinguish himself, Mr. Trump, from his predecessor, which he's obviously want to do, be to get trade negotiating authority.
Raj Bhala: And then he could do a truly comprehensive deal. ay the in Starting with the UK so-called economic prosperity deal, and I must poke a little bit of fun here.
Raj Bhala: There's something about the naming in the Trump administrations of deals that is so underwhelming. United States, Mexico, Canada agreement. I mean, that could be an agreement that about, where to play NFL games, whether the chiefs are going to play in Mexico city again. Um, and and likewise with economic prosperity deal. I mean, I, I kind of like some of our old logos like CAFTA and NAFTA and chorus, putting that aside,
Raj Bhala: The U.S. maintained under the U.K. economic prosperity deal its 10 percent reciprocity tariffs. So that's why some people say just think of 10 percent as the new normal.
Raj Bhala: That's like our new baseline rate.
William Roberts: Mm-hmm.
Raj Bhala: The U.S. did agree initially. under the deal to exempt British origin steel and aluminum and derivatives from the tariffs.
Raj Bhala: No 25%. So now, how is this a win for the UK as of last night at midnight that it gets 25% instead of 50% when the EPD said they'd get zero?
William Roberts: Right.
Raj Bhala: ah That looks like a cave from Downing Street. The U.S. said it would exempt in a limited way from the 25% Section auto tariffs the first the U.S.,
Raj Bhala: of british autos imported into the u Okay, that's about the volume, 100,000 British vehicles that have been coming into the US as is in 2024.
Raj Bhala: But after that, there's an over quota tariff of 27.5%. In other words, to be clear, the the the normal flow of British autos coming into the US, yes, it gets zero tariff, not 25%.
Raj Bhala: But if the British want to increase beyond that 100,000 unit per year, they're going to get a higher tariff, not 25, but 27.5.
William Roberts: Mm-hmm.
Raj Bhala: Not exactly a great deal, I think, for the UK. um The UK said it would purchase $10 billion dollars worth of Boeing aircraft, including maybe about 30 787 Dreamliner planes.
Raj Bhala: That's interesting because traditionally, pre-Brexit, the UK was part of the Airbus consortium. All right. And the U.S. s said, we'll give you, UK, some preferential treatment in all these upcoming Section 232 national security investigations, copper, lumber, pharmaceuticals, semiconductors, medicines. OK, well, can you trust the word of the U.S. on that?
Raj Bhala: All right. Now, what did what did the UK get? What did the sorry? What did the UK agree to? It basically cut its overall average tariffs, British tariffs on U.S. goods from 5.1 percent to 1.8 percent.
Raj Bhala: one point eight percent Okay, that's pretty significant, 5 to 1 or 5 to 2%. It was still pretty low anyway. And most of those products, you know olive oil, sports equipment, wine, you know they matter. so that that's and And the UK said they would streamline customs processes for US goods. Okay, that's that's helpful.
Raj Bhala: But what did the UK not agree to do? alter its digital services tax.
William Roberts: Mm-hmm.
Raj Bhala: That's a big area of controversy between the US and the UK. And that remains at 2%, 2%, basically, um i ah ah that the that the DST that the UK collects from big tech companies.
Raj Bhala: And overall, um there was really no nothing more than talk about more talk to expand this deal. And I might also point out very importantly, the UK did not, and I say will not,
Raj Bhala: weaken its sanitary and phytosanitary measures on food imports like beef, uh, that use growth hormones or, you know, uh, chicken poultry that's, uh, washed with chlorine.
Raj Bhala: All right. So that's just the UK. Now that UK should be the easy case, right? You asked about the EU coming. The, the, it should be the easy.
William Roberts: Yeah.
Raj Bhala: We've got 27 members of the European union.
William Roberts: Yeah, and i don't yeah I don't get the sense that they're eager to let Trump off the hook here.
Raj Bhala: they already have published their counter retaliation list, which yes,
William Roberts: The bazook.
Raj Bhala: Um, and it's going to be, it's, it's, it's cleverly and predictably targeting, Trump voting constituencies. So get ready, Kentucky bourbon, uh, uh, they're going to be hit.
Raj Bhala: And given that you've got 27 nation states that make up the EU with different trade interests, getting an agreement that's anywhere close to framework that's that's ae semi-ambitious is going to take time.
Raj Bhala: and And I might also point out, as as you know, we've both been studying trade, students of trade for decades now. The idea of a US-UK FTA and the idea of a US-EU FTA have been around for decades. I think it was, and correct me if I'm wrong, former Texas Senator Phil Graham had looked at these possibilities back in the 80s or 90s.
William Roberts: Mm-hmm.
Raj Bhala: The ITC has studied them. So we've lost a lot of decades of time. Meanwhile, other trading partners or nations, be it Japan or Singapore or Mexico or Canada, have raced ahead with free trade agreements.
William Roberts: We've painted pretty alarming picture here of of Trump's trade policy as chaotic, damaging to the world economy and the US economy, and and counterproductive.
William Roberts: There have been a number of lawsuits, I think more than 10,
Raj Bhala: Thank
William Roberts: by different different organizations, small businesses, and and a couple of rulings. The international trade court the Court of International Trade last week ruled that the the Trump tariffs were, the Liberation Day tariffs were unlawful, that his use of the International Emergency Economic Powers Act was beyond the scope of of what Congress anticipated or provided for in the law.
William Roberts: what
William Roberts: What is your sense of... of and So so the the state of play, as I understand it, is the administration appealed immediately to the circuit, the appeals circuit for the federal federal courts.
William Roberts: The appeals circuit stayed the the ruling temporarily pending the appeal. And so, you know, ah ah it we and then there are these other cases in the pipeline, I mentioned, 10 of them, I think, that, you know, we could get a circuit split.
William Roberts: um um We're likely to see this go to the Supreme Court under the heading of you know, can courts review president's ah ah determination of what an economic emergency is and and whether or not the the the trade court ruling is is legitimate? I mean, it's a 50 page ruling.
William Roberts: It's very detailed. But the administration has rejected it and said, well, even if if we lose this case, we've got other other ways to to apply tariffs.
William Roberts: you unravel all of this and so what should we expect to see happen?
Raj Bhala: Yeah. Yeah. Okay. Great. I love the question. Great, great question. Lots to unravel. Okay. So first off on the last part of your question, this administration is dogged about about um its tariff policy.
Raj Bhala: And even if, and it's highly hypothetical, the Supreme court were to rule definitively that the president's use of the 1977 international emergency economic powers at EPA,
Raj Bhala: had exceeded his authority. i The president has other statutory levers to impose reciprocity-like tariffs.
Raj Bhala: He's got a never-used statute, Section 338 of the Tariff Act of 1930, which
Raj Bhala: And that would empower him, possibly after an ITC, International Trade Commission, investigation to impose tariffs on countries that are deemed to discriminate, basically treat the U.S.
William Roberts: Thank you.
Raj Bhala: unfairly in trade. And he could use that. So he could use Section 338. He also could use Section 122 of the Trade Act of 1974.
Raj Bhala: And Section 122 empowers the president to... and section one twenty two empowers the president to deal with a balance of payments problem, in this case, ah the trade imbalances, the trade deficits, by raising tariffs by up to 50% for days
William Roberts: Thank you.
Raj Bhala: So it's limited in how much he can raise the tariffs and it's limited in how how long he can raise them. And he could perhaps renew if he's able to work with Congress on renewal.
Raj Bhala: So it's a little bit more of a constraint on it, but he could do that. He also could try and pull out Section 232 again with respect to some countries and saying they actually pose a national security threat.
Raj Bhala: That would require, again, a Commerce Department.
William Roberts: Mm-hmm.
Raj Bhala: investigation, the conclusion would probably be foregone.
William Roberts: Mm-hmm.
Raj Bhala: and And at least he could do it on major commodities from certain countries, major products. His best solution would probably be ah ah legislative one.
Raj Bhala: whereby he simply has Congress while his party is still in control of both houses to pass a law that authorizes his use of the IEPA for reciprocity tariffs.
Raj Bhala: And that that is a possibility as well. On the judicial decision the Court of International Trade issued back on the 28th of May.
Raj Bhala: First, a a point of humility. I've been listening to various commentators, including trade professionals at major organizations,
Raj Bhala: and trade lawyers, and they have been, several of them have said the CIT decision will be upheld by the Court of Appeals for the Federal Circuit in Washington, and if not, certainly by the Supreme Court.
Raj Bhala: We don't know that. we are not constitutional lawyers. I'm not, and frankly, they're not. And the constitutional lawyers look at statutes not aspirationally the way free trade oriented lawyers would like them to look at and constrain the president's tariff raising policies under the IEPA.
Raj Bhala: Instead, they're going to look carefully at the text of the IEPA.
William Roberts: Mm-hmm.
Raj Bhala: And I'll get into that in a second. But basically what the CIT said in its holding was first under the foreign commerce clause, article one, section eight, clause three,
Raj Bhala: It's the Constitution that grants Congress, not the president, to levy tariffs. That's very clear in the Constitution. And they reaffirmed that.
Raj Bhala: So no no issue there. Second, the IEPA statutory language authorizes the president to regulate importation, regulate imports,
Raj Bhala: And the CIT said regulate imports does not mean impose tariffs, let alone unbounded tariffs. Well, I'm not sure about that, especially if I'm on the Supreme Court the Court of Appeals.
Raj Bhala: Now, happen to have Black's Law Dictionary right here.
William Roberts: There it is.
Raj Bhala: There it is. And you know that the Supreme Court is dominated by textualists.
William Roberts: Hmm.
Raj Bhala: And they're going to go to the Oxford English Dictionary. They're going to go to Black's Law Dictionary, especially the ones issued in 1977 when the IEP was passed. And they're going to look at the words regulate and import.
Raj Bhala: And let me just start with the word regulate. It says to control. to control, to make a work at a regular speed or temperature. And regulation is control over something by rule or restriction.
Raj Bhala: Well- Control, make a rule or regulation does not rule out imposing tariffs. It's it's open-ended.
Raj Bhala: It's somewhat ambiguous. And so the court's going to look perhaps beyond that that dictionary lexicographic definition saying, you know, it's open.
Raj Bhala: The president might have that power and look to other sources like legislative history. Yeah. So I don't know how they're going to rule on that. Now, the third holding of the CIT was that the president failed to prove trade deficits and, well, let's start with trade deficits, are an unusual and extraordinary threat because the IEPA says the president can regulate trade against an unusual and extraordinary threat.
William Roberts: Mm-hmm.
Raj Bhala: Trade deficits are not unusual and extraordinary. And the CIT said, well, we've added bilateral we've had these trade deficits bilateral and global every year for 49 years. Well, here's a counter argument that the Supreme Court might make.
Raj Bhala: They are unusual and extraordinary, not if you take them in any one year, but if you take the aggregate, a half century of trade deficits is unusual and is extraordinary.
Raj Bhala: They could make that argument at the appellate court of the Supreme Court. And then the final holding of the CIT is that levying tariffs on fentanyl and immigration does not deal with the unusual and extraordinary threat posed by fentanyl and immigration.
Raj Bhala: The CIT didn't really get into whether or not illegal immigration or drug flows are unusual and extraordinary. They just said that tariffs don't deal with that threat. Well, I'm not so sure about that either.
Raj Bhala: I could see the Supreme Court saying that's exactly what they're designed to deal with. They're trying to force Mexico City and Ottawa to take action. And in fact, Mexico City and Ottawa did take action.
Raj Bhala: If we go back to January and February, President Scheinbaum and Prime Minister Trudeau did bolster their measures against fentanyl and illegal immigration.
William Roberts: Mm-hmm.
Raj Bhala: So they kind of worked to some extent. I might also note that the CIT said that the political question doctrine does not rob it of subject matter jurisdiction, meaning that these are justiciable political questions that we can get into of the court.
Raj Bhala: Well, the court under what is now pretty talked about. It's been talked about since the George W. Bush administration. It's talked about in the movie Vice, about Vice President Cheney, the unitary theory of the executive.
William Roberts: Mm-hmm.
Raj Bhala: If the Supreme Court says, look, the executive can do what it wants, especially on matters that are within the purview of the executive branch, national security, foreign policy,
Raj Bhala: not trade, but national security and foreign policy, then we could see that we rule that this is a political question. And so we're not going to get into it.
Raj Bhala: Overall, here's the big problem. And and and it's it's it's a fascinating intellectual and practical problem. Where does trade policy end and national security policy begin?
Raj Bhala: The president's constrained by the Constitution under the Foreign Commerce Clause on trade policy. He needs delegated authority, and the delegation has to be subject to an intelligible principle that constrains him so he doesn't run amok.
Raj Bhala: But on national security policy, there's a long history of case law from the Supreme Court on down that he has a lot of power. And the, and it's almost like a great question, you know, for a law school exam, where does trade policy end and form foreign national security policy begin?
William Roberts: yeah
William Roberts: i feel a law review article coming
Raj Bhala: Yeah, exactly. Exactly. That's coming. Yeah. wellll Well, hey, we got to do it together. So I think that there is no clear line there. And it'll be interesting what the how the Supreme Court draws it.
Raj Bhala: But obviously, the way the Trump administration has been casting. trade policy is that, and this is how I would probably make the argument, don't worry about trying to draw an impossible line between trade and national security policy because trade policy is national security policy when it comes to proven adversaries like China or proven threats like
Raj Bhala: illegal immigration or or narcotics or threats that hollow out our industrial base like trade deficits. that The two are one.
Raj Bhala: Okay.
William Roberts: So what I hear is that the courts um um are on like are are unlikely to provide provide ah guardrails or constraints on the president's ability to impose tariffs, as he has been, and that Congress would have to step up.
William Roberts: uh, which it hasn't, uh, and hasn't, you know, i mean, the politics of our country have shifted a lot since NAFTA and China MFN and, um, and, um, the, uh, world trade organization is almost a bad word on Capitol Hill.
Raj Bhala: Yeah.
William Roberts: Uh, the, so I'm wondering, you know, maybe to wrap it up here, It feels like we're witnessing somewhat of an unraveling of the 49-year history of reduction of trade barriers, expansion of free trade under U.S. leadership. what does How does the rest of the world interpret this and and and what does this mean for the U.S.?
William Roberts: in terms of being a credible leader on the global stage.
Raj Bhala: if if If we're advising um um ah you know foreign governments, foreign industry associations, trade and exporters to the US, I think that there are a couple of bets I would put.
Raj Bhala: One is the Sino-American trade war is not going to be resolved anytime soon. I had said back in March 2018, we're talking years and we may be talking decades.
Raj Bhala: So at least with respect to US-China trade, can plan on that being continually conflictual and plan on continued decoupling.
Raj Bhala: Second, view the Sino-American trade war as having expanded into a global trade war against friend and foe alike.
Raj Bhala: So that US, whatever a great relationship the US has had with a foreign country, be it Korea or Japan i or Columbia,
Raj Bhala: That doesn't matter anymore. That history doesn't matter anymore. We've seen president threaten to remove at least reduce the US s troop commitment on the DMZ in Korea.
Raj Bhala: And we've seen him expect Koreans to maybe pay more for their defense. And if you're making those kinds of gestures on something as important as the security of the Korean peninsula, a trade gesture is you know saying, forget it, we're not gonna respect chorus, for example.
Raj Bhala: It's pretty easy to do. So if you're the foreign... but party, you want to, again, kind of do in India, if you will, and diversify your exports, secure as many of your exports through free trade agreements outside of the U.S.
William Roberts: of
Raj Bhala: You can't easily replace the U.S. market. It's too large with too great a purchasing power. But you do have other options to it to piece together. if you're...
Raj Bhala: A country, say, other than India, say Korea, you may want to look at that billion person market in India or the fast growing markets of sub-Saharan Africa.
Raj Bhala: Then and another wrap-up point I would make is, sadly, don't look to the World Trade Organization, as you alluded to, for ah for any help here.
Raj Bhala: I don't see um appellate body coming back online, being resurrected anytime soon. The WTO um um has not produced any major agreements since really the fishing subsidies agreement and the customs trade facilitation agreement.
Raj Bhala: those are somewhat cafeteria plan agreements, which which we can talk about on different occasion. And if you just look at the activities of the WTO, there they're sort of mind numbingly,
Raj Bhala: frustratingly mid-level. they're not They're not major initiatives. So I would, to use a term back from the George W. Bush administration, if I'm you know foreign power, I would look for coalitions of the willing and forge plurilateral agreements on things you want, like, for example, a carbon border adjustment mechanism.
Raj Bhala: that the EU is doing.
William Roberts: Hmm.
Raj Bhala: I would partner with the EU on that. you got it In other words, you got to secure your own trade interests and you can't look to the US or the WTO to help you with this.
William Roberts: Hmm. Hmm.
Raj Bhala: And then finally, I would say, Bill, and this is coming to back to me as a lawyer, i would i would worry about the international rule of law substantively and stylistically because the W is, we both know the the WTO and the FTAs like NAFTA were some of the most successful international agreements in human history. And they had real teeth,
Raj Bhala: They had real binding dispute mechanisms, settlement mechanisms. They worked. And they have been, as I say in a forthcoming law review article, they've been shattered in these first 100 days. And they continue to be shattered in the 35 days after, now at day 135. It's going to be
William Roberts: Raj, thank you very much. that I knew there was a law review article in there somewhere.
Raj Bhala: out this summer.
William Roberts: No, that was a tour de force. and thank you to our listeners for staying with us on that. It's a lot of detail. But I think you know trade policy is detailed policy. And and unless you get into the the the weeds, as they say, it's hard to understand actually what's happening. And so This is very helpful, very insightful, and I really appreciate it. Thank you.
Raj Bhala: Thank you. Thank you for having me.
