Saturday, December 22, 2018

Court Questions Law That Underpins Trump’s Trade Policy (Tariff vs. Quota)

See article by William Mauldin of The WSJ.
"A tribunal of trade-focused judges raised constitutional questions over President Trump’s expansive regulation of trade, focusing on a national security law the president has used to impose tariffs on imported goods.

Judges at the U.S. Court of International Trade, presiding over a suit against the Trump administration brought by steel importers and foreign producers, quizzed administration lawyers on whether Congress has improperly delegated too much of its constitutional power to the president. The lawsuit targets Section 232 of the 1962 Trade Expansion Act, in which Congress delegated the president some of the authority to set tariffs.

“It seems Congress has given away an awful lot,” said Judge Claire Kelly. “Maybe it shouldn’t be able to do that.”

Mr. Trump has used Section 232 to impose tariffs on key industries in the name of national security. It was the rationale behind global tariffs of 25% on steel and 10% on aluminum products entering the U.S. earlier in the year, with the administration arguing a vibrant and viable steel industry is crucial for the nation to defend itself. The administration then granted exemptions to some trading partners, including Australia, in exchange for steel quotas.

“No president has ever used Section 232 in the way that President Trump has,” said Alan Morrison, the lead lawyer representing the international steel firms."
The part in red is what stood out for me. A tariff raises the price of a good. The foreign seller ends up selling at a higher price but that is only just enough to pay the tariff. So they receive the same amount from each sale. They also end up selling less than under complete free trade. But if the amount of the quota (with no tariff) is equal to how much the foreign companies sold when there was a tariff, the price consumers end up paying is the same (as is the total quantity bought). The U.S. (or domestic companies) sell the same amount. The government gets no revenue and that money ends up with the foreign sellers.

See Are Tariffs and Quotas Equivalent in their Economic Effects. It includes some graphs in its explanation.

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