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- [01:30]
C
hey guys, Kathryn Rampel here. I'm the economics editor at the Bulwark and the author of the Receipts Newsletter. I recently had the pleasure of interviewing Mike Froman, who was the former US Trade Representative under Barack Obama and is now the president of the Council on Foreign Relations, to talk a little bit about his thoughts on the Landmarks Supreme Court ruling striking down Trump's tariffs. Take a watch. Thank you so much, Mike, Ambassador Froman, for joining us.
- [01:59]
D
Thanks for having me. Mike is fine.
- [02:01]
C
Mike is fine. Okay. I always defer to the guest. I figure I'll let you correct me.
- [02:06]
D
Only my children are required to call me your Excellency.
- [02:12]
C
Why don't we start with your just giving me your top line reaction to the court's decision today.
- [02:20]
D
First, I think it's important to just note that the court made a decision and by a majority of 6, 3 that the court provided, I thought, important oversight of the administration. And regardless of what it thinks about the substance at a time when a lot of people are questioning institutions and whether the checks and balances of our system are working. This is an example of checks and balances working as the Founders intended. So I think that's a very positive thing. On the decision itself, what was significant about it is a very clear decision that IA the International Economic Emergency Economic Powers act cannot be used to impose tariffs. And the court looked at the fact that it had never been used that way, that there's no mention of the word tariffs. The taxing power lies with the Congress. And unless the Congress specifically gives the executive that authority, as they have in a number of other cases, but not in iipa, then the President can't do it under ipa. And that became quite clear. But as we've often said, that even if AIPA is not available, the President does have lots of other authorities under which he can impose tariffs. And he announced in this press conference today one of those actions under section 122, a 10% tariff for 150 days, during which time he'll pursue other authorities that he has and come up with a more permanent solution on the tariff. So we're likely to live in a much more. A much higher tariff world than we have in the past.
- [03:52]
C
All right, I want to get to what he has described as his Plan B. I mean, maybe he didn't describe it as that way, but I want to get to that in a second. But my first question to you, though, about this initial takeaway you mentioned that there are checks and balances, that there are still some guardrails in some respect, is, can you explain why you think the Court decided to limit executive powers or to rule against the President's assertion of his executive authority here, given that there have been a series of prior rulings that suggested that they bought into a more expansive view of executive authority? I think there are a lot of people who are a little bit confused by why this time the court ruled against Trump when they have deferred to him in prior cases.
- [04:41]
D
I think part of it is that the issue ultimately had to do with taxation. That's what tariffs are. And taxation is so clearly a prerogative of Congress. And under what's called the major questions doctrine, unless Congress very explicitly delegates authorities to the executive, the Court is reluctant to give the executive, give administrative agencies the benefit of doubt to say, well, that ambiguity allows us to assert this power. And this was considered a major question because it goes to the heart of the taxation power. So some of those other instances may not have dealt with taxation, may not have been as clear. There may have been prior precedents that they were able to point to here. The majority of the court decided that because it was taxation, because there was no clear mention of it in ipa, that no president had ever tried to use IIPA before for this purpose. And it was part of the majority said it was a major questions issue. Then they, they stuck to the stricter interpretation.
- [05:46]
C
So you don't think it's because there was money on the line or this, this has more economic implications per se than some of these other cases?
- [05:55]
D
Not necessarily, because I think some of the other cases had to do with regulation. And that too has very significant economic implications. I mean, taxation is a very specific issue. And the whole idea, you know, in Article 1 of the Constitution is that that power, you know, without representation and the representation is the Congress. And so I think the court is quite reluctant to read into statutes that don't explicitly give that power to the, to the executive in those instances.
- [06:27]
C
Okay, so I want to play for you something that Donald Trump said earlier today that gets to the other point you were making about putting in place new tariffs instead.
- [06:36]
E
Therefore, effective immediately, all national security tariffs under section 232 and existing section 301 tariffs, they're existing, they're there, remain in place, fully in place and in full force and effect. Today I will sign an order to impose a 10% global tariff under section 122 over and above our normal tariffs already being charged. And we're also initiating several Section 301 and other investigations to protect our country from unfair trading practices of other countries and companies.
- [07:19]
C
So Mike, this is part of what I think you were alluding to earlier, that he's going to use these other tariff authorities. We don't need to go through all of them. But can you explain why if they had these authorities, they didn't just start out using them, if they were potentially on sounds like on more solid legal footing, like why not start out with tariffs under these parts of the law rather than the part of the law that was legally questionable?
- [07:44]
D
So they have used some of these authorities before. He mentioned the existing tariffs under Section 301 and Section 232. But those laws require process. They require the U.S. trade Representative or the Department of Commerce to conduct an investigation to assess what the damage is and to justify their actions. The reason why the President liked imposing tariffs under AIPA is that it doesn't require any process. He could just announce it. I'm going to put a 50% tariff on Brazil because I don't like the way that they treated former President Bolsonaro. That he could do under aipa. He could do that under the other ones. So that kind of use of tariffs, I think is likely to go away going forward. And he's going to have to justify the tariffs under one of the other existing authorities, which are all either national security or trade related. Section 301 is about unfair trade practices. So if countries engage in unfair trade practices, we have some 301 tariffs on China, for example, from his first term. Right from the first term. And section 232 is about national security, where he has said certain products are so critical to national security. We're going to impose a tariff so that we're not dependent on other countries and we can incentivize the production here in the United States. That's a little trickier one because on some of the, some of the things he's done under section 232, one could say are related to national security. Maybe steel and aluminum, things of that sort. Other cases like furniture. It's a little hard to justify how furniture is a national security issue, but that's to be litigated in the courts.
- [09:19]
C
Weren't there legal challenges in the first term over whether he had the authority to use these national security tariffs for metals, for steel and aluna? I'm trying to remember.
- [09:32]
D
There have been challenges. Yeah, there have been challenges. But that's an example to go back to one of your previous questions where if the executive says we have determined this is in our national security, that's an example where courts may well be reluctant to second guess the President. The president has authority in national security. If he and his administration define some product, whether it's semiconductors or steel and aluminum, as being critical to national security, the court's gonna elected to second guess that now that we'll see if that's tested on things like lumber, on things like furniture, and we'll see what else he launches 232 investigations on and tries to claim national security implications.
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C
You don't think you're a lazy boy. Chair is critical to national security?
- [10:18]
D
You know, it certainly is critical to me.
- [10:20]
C
Yes. Okay, so he's going to try to reconstitute or backfill some of the tariffs that the court struck down using these other authorities. How does the use of these other authorities affect our ongoing negotiations or trade deals or whatever you want to call them with other countries? Because part of the reason he had, as you pointed out, been using the national emergency authorities is that he had a lot of latitude to basically apply them whenever he wanted. And he could say, I'm mad at you Brazil for being mean to my buddy Baltimore scenario. He could say to Canada, I'm not going to negotiate over reducing those tariffs because I'm mad at, I think it was the premier of Ontario who had the ad just showing the words of Ronald Reagan and that made the President mad. So how does the use of these other kinds of tariffs affect our standing in terms of these negotiations? Given that he had been wanting to use tariffs as a cudgel and I guess he can't like as nimbly anyway,
- [11:28]
D
he can't do it quite as, as nimbly or in sort of, he certainly can't do it in an arbitrary fashion. But he still has a lot of authority, a lot of authority under these other provisions. And my guess is that other countries are going to be reluctant to abrogate the agreements they've signed with the US or to seek to renegotiate them because they don't want to attract the anger and the ire of the President. He's got lots of ways that he could use these other authorities to impose tariffs on them going forward. And he even alluded in the press conference that those countries that have treated us well will be treated well. And those who haven't treated us well will be treated poorly. And so my guess is they're going to want to see what happens over time with these various investigations. And in the meantime, they may end up paying a lower tariff than they were expecting to. China, for example, is likely to go from about a 30% tariff to about a 20% tariff when the new tariff is imposed. Other countries will also see a windfall that they weren't expecting. But over time, if the President does impose more permanent tariffs on visual other authorities, they will have to absorb those as well.
- [12:35]
C
Well, you say that other countries will want to lie low, it sounds like because Trump said if you treated us well, we'll treat you well. But I guess I don't understand why any other country would trust that at this point given that we have made agreements with so many of our trading partners and they've other countries have done what we have asked of them. I'm thinking about them. You know, the many ways that Canadian leadership, for example, has pledged to fight the, the importation of fentanyl into our country come from Canada, that doesn't really exist. You know, they're, they're doing everything that they can, even solving kind of made up problems. And without this weaponry and without the ability to trust any, even a handshake deal with this president, why would they continue to work with the president?
- [13:38]
D
Look, at the end of the day, I think most countries want to have a positive, constructive relationship with the United States, and they take our leadership as it is. And so, yes, they'll each have to make the judgment whether they are willing to negotiate and what they're willing to make in the way of concessions to have a constructive relationship with the United States. But nobody really wants to be out alienating or offending the United States. We're still the largest economy in the world. We're still the largest military in the world. We provide a lot of public goods for the world, and they want to have a positive relationship with us. But I think this will come to a head, for example, when it comes to the USMCA review. This is a year when we're supposed to review the U.S. mexico, Canada, free Trade Trade Agreement. And these agreements, trade agreements are hard. They're hard to do politically. They usually involve some compromises with local domestic constituents. So if you're a Mexican politician or a Canadian politician, how do you go to your constituents and say, okay, we need to make the following concessions that the US Is demanding of us if at the same time they're not 100% sure that the US is going to uphold its side of the commitment. That's tricky, that's difficult. And we may see that come to a head this year. But on the whole, I think these countries would rather find ways of resolving their differences with President Trump and the administration than to find themselves at the. The, the end of the stick of retaliation in some way.
- [15:07]
C
One confusing thing to me about all of this is what objectives the President actually has, right? What concessions he is demanding of these other countries, in part because it seems like it's a moving target. Is it about fentanyl? Is it about opening up market access? Is it about anything else? You were the U.S. trade Representative. My question to you is, is there a trade problem that needs to be solved or a problem that you think would be appropriate to solve using the tools of trade, and how would you solve it? Like it. Are we, are we trying to. Or is the President trying to come up with a solution, in search of a problem, or is there an actual problem solving that it would be appropriate for the current Office of the U.S. trade Representative and the President and other diplomatic representatives of the United States to be trying to tackle with our trading partners?
- [16:04]
D
We have trade issues with almost every country in some form or another. If you Take Canada as an example, obviously a very close trading partner. We have integrated economies in a lot of ways. But there are issues around dairy access to Canada or around softwood lumber that have been around for decades, in some cases centuries. And there may be cases where using trade tools to resolve trade issues would be appropriate. I think the broader question of can you use trade tools like tariffs to try and bring peace between two countries or to try and change the politics of a country or to change the foreign policy of a country, that's another issue. But there are plenty of things to negotiate with other countries where we would like to have a better, more level playing field at times, whether it's tariff barriers or non tariff barriers that other countries maintain.
- [17:01]
C
I don't know if you saw, but Donald Trump in his press conference today said that he used tariffs to solve to end five of the eight wars that he ended. So he apparently disagrees with you.
- [17:11]
D
Look, I think the president, I think this administration has demonstrated the use of US Power in unconventional ways, including through the use of tariffs. Now, whether it brought countries to the table in peace negotiations, a little hard for me to see. But if you had asked us a year ago, if the president announces a whole series of tariffs, what the likely response would have been, some countries would have said, the European Union as an example. The European Union say we're not going to negotiate with the United States under the threat of tariffs. And then as soon as we imposed tariffs, they got on a plane and came to Washington and negotiated. And with the exception of China on critical minerals and a little bit on Canada with regard to electricity, nobody really retaliated, nobody threatened to retaliate against our imposition of tariffs. So I think we've learned a lot over the last year about, about tariffs, about how they're perceived, about how they could be used as a tool of American foreign policy. They also come as very significant costs, most importantly to the American consumer or American manufacturers who rely on imported inputs. But we've seen tariffs used in unique ways over the last year and those will be lessons that we take forward.
- [18:31]
C
This is why you're the diplomat and I'm not, but I'm actually surprised to hear you speak in what sound to me like relatively positive terms about the efficacy of these trade wars.
- [18:45]
D
As a former trade negotiator, I have great respect for the use of leverage in negotiations. And certainly Ambassador Greer, the current ustr and the administration has been able to negotiate a series of concessions from other countries that have been difficult to achieve before. Having said that, I think it comes again at a great cost. So we just need to be very aware of the trade offs. If we are willing to live in a less efficient, more expensive world, particularly for American consumers, where they're going to pay more for very basic items that they depend upon in order to achieve some other objective, then that's what the democratic process should debate. But we shouldn't pretend as though this is free. My successor is ustr. Bob Lighthizer wrote a book called no Trade is Free and I often joke with them that it should have been no trade policy is free because every trade policy has a set of trade offs, costs and benefits. And we owe it to the American people to have an honest and open discussion about what those trade offs are and see what they are comfortable with.
- [19:53]
C
How would you assess the unnet, whether the trade offs this time around have been worth it?
- [20:00]
D
I think it's hard to do in the aggregate. I think the challenge has been that we've created a lot of uncertainty in the global economy. People aren't really aware of what their revenues are going to be or what their costs are going to be. And it's hard to make business decisions, including around where you put your next factory or whether you hire people if you don't really know what your business prospects are because of the uncertainty around around tariffs. But we've also shown a lot of resilience here in the US Economy. We're less dependent on trade than a lot of other economies. We only import about 11% of GDP where in Asia, Europe, it's a much higher percentage. And we've demonstrated that even with higher tariffs we've been able to continue to grow. We're still seeing the effects of tariffs work their way through the system. But it's come with, you know, contribute to the affordability issue. There's no doubt about that. And it may continue to contribute to it as ultimately companies that have tried to stock up on inventory and hold out as long as possible before raising prices to their customers and consumers may ultimately have to do that.
- [21:10]
C
I want to play you something else that Trump said earlier today.
- [21:13]
D
Since Liberation day, there's about $175 billion in tariff revenue that is now in limbo. Do you have to refund $175 billion?
- [21:23]
E
Thank you Peter, very fair question. They take months and months to write an opinion and they don't even discuss that point. We've taken in hundreds of billions of dollars, not millions, hundreds of billions of dollars. And so I said, well, what happens to all the money that we took in it wasn't discussed. Wouldn't you think they would have put one sentence in there saying that keep the money or don't keep the money. Right. I guess it has to get litigated for the next two years. So they write this terrible, defective decision, totally defective. It's almost like not written by smart people. And what they do, they don't even talk about that. Your question is very basic. That was the first question I asked, also to make you feel good. I said, what about all the money that we've taken in, sir? They don't discuss that. How crazy is that?
- [22:16]
C
What you're saying is, are you saying that you don't plan to honor refunds
- [22:19]
A
for companies that file for them?
- [22:21]
E
I just told you the answer. Right? I told you the answer. It's not discussed. We'll end up being in court for the next five years.
- [22:27]
C
So, Mike, I want to get your reaction to that interpretation of the decision today. The decision, as I understand it, does not, in fact say whether or when or how these refunds are due. But tell me if you read it differently. And then I'm also curious to hear your thoughts about how logistically feasible it would be in fact, to rebate this money back.
- [22:51]
D
So, as I understand it, it is established law from many, many cases that if tariffs have been collected illegally, inappropriately, mistakenly, they are to be refunded. There's really no question about that. That is an expropriation of property. In terms of the process, there's a complicated process because importers, they deposit the tariffs, they sit there for a period of time before what's called liquidated, they're brought into the Treasury. And so it depends on whether they've been liquidated or not and what the process is for each of those. My guess is it will be messy, there will be some litigation, but that ultimately those tariffs will be refunded. And in the meantime, this new tariff, the 10% tariff under section 122, that will begin to be collected, and that will substitute for a certain amount of the tariff that otherwise would have been collected.
- [23:44]
C
Kavanaugh, in his dissent, had said something to the effect of this is going to be disastrous. It'll be. I don't know if he used the words impossible, but he made it clear that he thought it would be very difficult to actually give this money back. Based on your tenure in government, I believe there have been times when CBP had to refund some portion of tariffs collected. It seems doable, at least at a smaller scale. Right?
- [24:13]
D
This will be bigger than probably what has been done in the past. But it should be doable and it is an obligation of the government if you've mistakenly collected money from people you know need to refund it. That is established precedent. So my guess is, again, it may take a while for some versus others. There have already been a lot of suits by, by importers to establish their claim to the refund should the court make this decision. And my guess is these things will get. Get resolved over time.
- [24:47]
C
So did you hear in those comments that we just played a refusal by this administration to refund the money? Because you're saying that legally they have to. And it sounds like I don't think so.
- [24:58]
D
Now, the court could have potentially been a little clearer about the refunds, but may well have said it's already been, you know, may well have assumed because it's been established by law that by remanding this back down to the lower courts, including the Court of International Trade, they will go through the various procedures that have existed before for getting refunds done.
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C
You know, I think you and I had first met years ago when you were overseeing the Trans Pacific Partnership, those negotiations. So this would have been what year would that like?
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E
20.
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D
2013.
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C
2013, which obviously did not end up getting approved here in the United States by Congress. I'm curious how often you think back to those times and whether we would be in a different place today in terms of our economy or geopolitically or specifically in terms of China's relations with the United States or with other countries, particularly in other countries of the Pacific Rim, if that had gone through. Is that something you ever think about? Or if you, if you have not engaged in that thought experiment. Can you tell me what.
- [26:17]
D
Try not to.
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C
How would the world be different?
- [26:19]
D
I try not to engage in nostalgia, but I do find it interesting that the administration, the Trump administration, withdrew from tpp, I think, on the third day of its first term, but ever since then has been working to try and get countries to work together with us vis a vis China and have a common approach to set certain higher standards and to try and attract countries around us, which is exactly what the goal of TPP was. So I think we may have been a little before our time with regard to TPP and the fact that TPP continues to exist today. Now it's called the cptpp, the Comprehensive and Progressive Trans Pacific Partnership. And the UK has joined it and there's a long list of other countries who are seeking to join it. And even the EU is talking about having some relationship with it going forward. So those standards, that approach continues to exist. It's just that the US isn't getting the benefit of it and the US isn't part of it. This administration has had a different approach to trade liberalization. It's about raising tariffs, not lowering barriers to trade. And I think the question is, can they achieve this objective around gathering countries together to have a common approach to China? At the same time as doing that,
- [27:36]
C
what do you make of the fact that there has been this sort of parade of Western leaders, foreign leaders into China recently to meet with President Xi? We had the President of South Korea. I think we had Keir Starmer, the PM from uk, we had Mark Carney. They all like had their first return to or someone in that position having their first return to Beijing for the first time in like many, many years. I think like seven or eight years in many of these cases. I'm just curious, how do you think that, what do you make of all that?
- [28:11]
D
I think on one hand it's kind of natural. It's the second largest economy in the world. Countries do need to have a positive and constructive relationship with China, as the US has sought to do as well. On the other hand, I think we've created an opening by withdrawing from certain fora, by alienating some of our allies to a certain degree that has encouraged them to diversify away from the United States. At the end of the day, I don't worry about it too much because I think regardless of whether leaders like the way the United States has been treating them recently, the question comes down to national interests. And I think whether it's Europe or Japan, Korea, Canada, Australia, all these countries, I think we have certain common interests vis a vis China on the national security side, on the economic security side. And ultimately those interests will draw us together, not drive us apart.
- [29:08]
C
Thanks so much your excellency, Ambassador Froman. Mike, really appreciate your taking the time to talk with us. I'm sure you're very much in demand this weekend, but very glad to hear your insights, even if they're a little bit more positive than I would have expected on recent events.
- [29:24]
D
Thank you for having me.
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F
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