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The Trade Guys
The IEEPA Bombshell, WTO Pocket Rescission, and Export Licenses to China
00:28:07
On this episode of the Trade Guys, we react to the recent decision from the Federal Court of Appeals on the use of IEEPA for tariffs, look at a rare pocket recission targeting the World Trade Organization, and talk about the revocation of export licenses to China for TSMC, SK Hynix, and Samsung.
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A
I'm Scott.
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B
I'm Bill and we're the Trade Guys.
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C
You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Evan Brown and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thanks for listening to the Trade Guys. On today's episode. We're going to get in the weeds of IPA litigation, look at a pocket rescission from the Trump admin targeting the WTO and talk about the revocation of export licenses to China for a few big semiconductor firms. All this and more on the Trade Guys. Welcome back to the Trade Guys coming to you on September 4th. We have a jam packed agenda for you all. But first we do want to tell you about an opportunity for you, the listener, to spend a day and a half learning from the CSIS Trade Guys in the flesh. So Scott, can you tell us what's in the works?
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A
Sure. This is shameless plug for some work we do through the executive education program at csis. Every spring Bill and I run a course. It's a day and a half long seminar style course. We call it Trade Policy Crash Course with the Trade Guys. There are lots of ways to learn about trade policy. What we offer is something that's fairly time efficient and it's a small class setup. We limit the attendance to 20. So it's a seminar style event only takes a day and a half of your time and Bill and I are the so called instructors and we'll take you through sort of the roots of American trade policy and politics all the way up to the present day. It's a good way to get your questions answered and get a top line view of trade policy and politics. So in any case, the course is open for enrollment now. Go to CSIS.org to executive education and you can find the enrollment materials. And we're doing it on October 8th and 9th, so get your seat while they're available. But October 8th and 9th at CSIS headquarters, Crash Course with the Trade Guys.
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C
Well, I can tell you that Bill and Scott have forgotten more about trade and economics than I'll ever know. And they still remember lots of things too on occasion. So definitely check out. I'll have a link in the show notes as well. So guys, moving on to the news. The big news that hit us in D.C. last Friday, just as I was trying to head off for the weekend, was that the Federal Court of Appeals ruled 74 that President Trump's tariffs implemented under the International Emergency Economic Powers act, or iepa, as we call it, were illegal. So, Bill, I know you spent much of today reading that decision, which I'm sure was a lot of fun. How did the appeals court come to that finding and what comes next?
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B
I did manage to stay awake, but it was a struggle. I mean, it's interesting stuff, but it really gets into the weeds. And we do some weeds here on the trade guys, but we're not going to do that many, I don't think. It was an interesting decision. It affirmed what the Court of International Trade said with an interesting division of thought. First of all, everybody, all 11 of them, agreed on several matters entirely. One was that the Court of International Trade had jurisdiction. That matters because some of the cases are proceeding in other courts. That's not good news for the state of Montana or the State of California, which, among others, which have argued that since aipa, in their view, doesn't contemplate tariffs, it should not. The case should not go to the Court of International Trade because it's not in their jurisdiction. The appellate court essentially rejected that. And so I think that probably puts one more nail in the coffin of that argument, but it will still have to play out. The other thing they agreed on, which was uncontested, was that the plaintiffs have standing to sue, which is always a question with these things, but there was no real, real debate about that. The other thing that the CAFC did that was a little bit of a surprise was they remanded, which means sent back one element of the decision, which was to whom it applies. And this is a consequence of a separate seat Supreme Court decision on a different issue that relates to the question of courts issuing what are known as universal injunctions. So the court will make a decision and say it now applies to everybody. And the Supreme Court has put some limitations on the extent to which judges can simply say that the alternative is to apply the injunction to the plaintiffs in the case. In other words, just the companies that filed suit. In this case, the Court of International Trade provided a universal injunction against all the tariffs on everybody. Court of Appeals for the Federal Circuit sent that element back to the CIT to rethink. Not to tell them not to do that, but to tell them to review it in light of the Supreme Court's narrowing of universal injunction authority. That actually came out, I think, after the CIT decision. So that's going back. I don't think it will result into any change, but there it is. With respect to the decision itself, a little bit, to my surprise, it really ended up turning on the most fundamental issue that those of you that listen regularly remember that Rick Waldenberg talked about when he was on the podcast several weeks ago, which is, does IPA permit tariffs or doesn't it? And the CIT said, both courts actually said, well, it might permit some tariffs. We're not addressing that. We are only looking at whether it permits these tariffs, meaning the fentanyl tariffs, which they call the trafficking tariffs, and the reciprocal tariffs, which are the Liberation Day tariffs. Both courts concluded that those tariffs are not permitted by ipa. And the appellate court actually divided on that question in some interesting ways. The four judges that dissented said that the statute does permit tariffs and the President was in his authority to impose them. Of the seven in the majority, four of them said the opposite, that the statute does not permit any tariffs at all. But they rallied with the other three to agree that to perform a majority that said these tariffs are clearly illegal, they did not address the constitutionality of the statute in any detail. They did not seem to address at great length the delegation powers of the Congress or whether Congress had unconstitutionally delegated its Article 1 authority to the Executive. They basically argued over several words, one that wasn't there and two that were there. The word that wasn't in the statute is tariffs. And part of the argument was it's not there, so it's not contemplated. The two words that are there, along with a bunch of others, but the relevant two are regulate importation. And some of the justices, as I said, the minority at the appellate level decided that's good enough. But the majority decided, based on legislative history, based on prior litigation, that it wasn't good enough and that Congress did not intend to give at that authority this broad to the President. A lot of discussion surrounded a case that dates from the Nixon administration, which is known as Yoshida. 2. This all grows out of Nixon's tariffs that he imposed in 1971 due to a balanced payments crisis, which the Congress subsequently addressed in a separate statute giving the President specific authority to do that. Trump chose not to use that statute partly because it imposes a limit in terms of time, 150 days and amount 15%. And in a way that ended up being the basis for the decision because Yoshida, which affirmed Nixon's action and said that his terrorists were okay, did so by saying, according to the both courts, did so by saying that Nixon's terrorists were limited in time, scope and amount. That is, they were 15%. He was careful to stick with the existing congressional authority, actually, and they were limited in time scope and amount, and Trump's tariffs are not. And the implication was therefore that a limited set of tariffs, like Nixon did might pass muster with the court. But the unlimited exercise of authority and the claim that that authority was unlimited was a step too far. And that's what the court struck down. And so now it goes to the Supremes. Interestingly, Trump wants them to do it right away and has already begun his lobbying effort with the court to try to get them, to persuade them to argue, to decide in his favor. I think he is this week actually has notified them that he wants a quick decision. The other side, of course, doesn't disagree with that. They want a quick decision, too, because if the tariffs go away, they all get their money back. So there's an incentive here. But it's led the commentariat to suggest that this one may end up being decided by the end of the year rather than being stretched out.
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C
Scott, if you're, say, a firm, whether a big multinational or a small mom and pop shop here in the US how do you see this? Given that things are going to be decided by the Supreme Court, who knows when?
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A
Well, most businesses operate practically. And so you don't count on a court decision until it's happened and you make plans. And I think we talked about this some in our last week's podcast with the more practical companion podcast, the gentleman we had on the show from Texas and simply trade. Yes. And I thought they made a good point, which is, look, there are some fallbacks for the administration to keep doing what it's doing. Probably most importantly, the trade act of 74, Section 122, which is about the balance of payments, and it does authorize a 15% tariff. So the universal tariff, sort of the flat 15% that's applied to most goods entering the United States, would likely fall within that. Obviously, it is time limited according to the statute and would need congressional renewal. But I think businesses would sort of, we're going to deal with the worst that we have. And if our dreams come true and we get our money back, well, that's great. But they've got to operate within the law today. And so they'll do that.
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B
Yeah. It's important to note, as Scott said, nothing on the ground has changed. The sheriffs stay in effect. The appellate court continued the order of keeping them in effect until October 14, which will give everybody a time to file their appeals and their briefs. Assuming the Supreme Court takes the case, they will probably continue them until they render a decision. So celebration is premature.
- [10:51]
A
I do think it's important to note that the Court has some recently articulated views on the President's inherent Article 2 powers and the degree to which the non delegation doctrine applies to it. This is in a I didn't find this by myself. I had a friend in the business. But he pointed me to FCC versus Consumers Research as a 2025 decision authored by Lynne Kagan. Justice Kagan wrote for the Court, but it was one of the issues that came up was whether independent agencies had proper delegation of authority. And in the concurrence by Justice Kavanaugh, he went into depth about both the non delegation doctrine, the major questions doctrine, and noted the difference in application between domestic and international affairs. So Justice Kavanaugh's opinion was that the Court would not apply, as he said, the major questions doctrine in matters of international relations and foreign policy because of the President's inherent independent Article 2 authority. And he quoted some dictum from Chief Justice Rehnquist a few years back. Well, like in the areas of foreign affairs, Congress must often accord to the President a degree of discretion and freedom from statutory restrictions which would not be admissible were domestic affairs alone involved. And I found that interesting not because it's determinative, but because there are unique powers in the foreign policy space and the President is the official that has those powers. It's in our system and it's part of the baseline of the way America does foreign policy, and particularly in areas of national security and economic emergencies. So this is one, one of the areas where I think it comes down to a basic question of separation of powers and who has it. And I don't think the courts want to make foreign policy. So we'll see. We'll see what happens when it gets there. But clearly Justice Kavanaugh was suggesting that the major questions doctrine is really not a subject for international affairs. That's a domestic only principle or set of expectations. So it'll be interesting. And as I said, this is one concurring opinion in one case, but it's from the most recent term.
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B
I think it's an important hint. I was intrigued that the decisions so far have focused on the use of the word or non use of the word tariffs and what the statute authorizes. I'm inclined to guess that the Supremes will more likely focus on what Scott was talking about, which is the separation of powers and the delegation authority issue. There is a little bit of difference here between in this case because it's not only a foreign policy case, because the economic impact is very clear and it's Very domestic. You know, there's a lot of people in the United States that are going to pay more because of this decision. And it's going to have a huge effect on importers and also on domestic manufacturers. Importers are partial components. Prices are going to go up. So it's not an abstract foreign policy issue alone. It is also an important issue that has a big impact on the domestic economy. That said, I have a feeling that what the Supremes will do is focus more on the major questions issue and the non delegation issue. It would be very hard for me to see that they would argue that this is not a major question. The breadth of it and the sweeping nature of it and the economic impact of it, I think clearly put it in that category. Whether they want to show deference to the President or not, I don't know. There was a little blurb today about, of a cranky little blurb about the growing number of judges that are not showing deference to the President and are actually daring to say things like, he's wrong about this. The most recent case was the judge who was dealing with the Venezuelan migrant issue where Trump invoked the Alien enemies Act from 1798 or something, which Trump was using to deport all these Venezuelan migrants on the ground. The Trend gang from Venezuela was an invasion because that statute is geared to invasions, basically. And the judge said more or less, that's ridiculous. This is not an invasion. Doesn't pass the smell test. And the commenter that I was reading made the point. That's a very unusual thing for the judge to say because normally they'll defer to the president on a call like that. The fact they're not means something, I think.
- [15:14]
A
Yes. I mean, I think that's right. But stack that up against Justice Kavanaugh's one key sentence. He says the major questions canon has not been applied by this court in the national security or foreign policy context because the canon does not reflect ordinary congressional intent in these areas. On the contrary, the usual understanding is Congress intends to give the President substantial authority and flexibility to protect America and the American people. And the Congress specifies limits to the President when it wants to restrict them. So that's. He's talking about the court as it is composed right now. So we'll see. That's why they, that's why it's fun to watch.
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B
We'll spend another episode on this once there's a decision.
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A
Yes.
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C
Yeah. And guys, let's stick just briefly in this realm of presidential power and a slightly different question. So Trump is invoking the Empowerment Control act to carry out what's called a pocket rescission to cancel about 5 billion in foreign aid and funding to the World Trade Organization is apparently one of the many items at risk. So, Bill, two questions. One, can he do this? And two, what does this mean for the future of the wto, which has faced obviously a tremendous amount of challenges over the past years?
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B
Well, first of all, there's a mystery that has arisen with respect to this. His initial rescission document referenced the WTO as a toothless organization that would not be a wise use of US Funds. Subsequently, that statement was removed from the rescission document. However, the amount of the rescission did not change. So it's not clear whether that's still being taken aback or not. You think that once you remove the rhetoric, they might also remove the money. So it's now a little bit in limbo, shall we say? Can he do that? Well, he's going to end up in court again. The chairman of the Senate Appropriations Committee said he can't do that. The Government Accountability Office says it's illegal for him to do that. Numerous other people and legal scholars have said it's illegal for him to do that. It's worth noting that the term pocket is significant here. And it's a little bit like a pocket veto where the President vetoes something and in theory, The Congress has 10 days to act on that time. It doesn't have 10 days. He has 10 days to decide to veto. He vetoes it, but Congress is adjourned. So they can't override. In the case of a rescission, Congress has 45 days to act. But in this case, the funding expires on September 30 anyway because it's fiscal 25 funding. And if Congress doesn't act by September 30, he gets away with a rescission because it'll be gone and Congress hasn't overridden it. And I think the complaints are not that the rescission is illegal. There are rescissions all the time. In fact, Senator Collins of the Senate Appropriations Committee pointed out that the current appropriations that their bill that they're operating under has 70 rescissions contained in it. So rescissions are not an odd thing. The pocket rescission is a very odd thing, and that's what she was complaining about. I think one way around that is if they just vote on it before September 30th, if they're determined to veto it or.
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A
Yeah. Or override it. Veto. Or Protect the funding. For me, there are a few interesting things to watch here that are a little bigger picture. One is that this all arises from the Budget Control and impoundment act of 1974, which a lot of people who have time in the executive branch think ought to be declared unconstitutional. This was a bill passed over, I believe Nixon was still had vetoed it and it was passed by a veto override. And it was really a very weak executive who couldn't fend off a Congress that wanted to take back as much budget power as they could. So the, the idea of not spending appropriated money had been a common practice since I think, since Washington, certainly Jefferson, but then that practice was done away with in the impoundment control parts of that act. So there's been a lot of people who have extensive executive branch experience have been looking for a way to challenge the law constitutionality. I don't know if it'll get that far, but it's not clear cut that this ever really made sense in the total context. That's number one. Number two, this is a sign of the weakness of the post World War II rules based order. All these institutions that were formed at the end of World War II are running on fumes from a practical standpoint, are demonstrating very few if any positive results and become sort of obvious places for criticism and cost reduction. So this is, we're at the end of a cycle here and something new hasn't come about yet. But the old institutions are subject to attack now. This was compounded in some cases like USAID and State Department discretionary funds which were essentially decent programs that somehow turned into this giant self licking ice cream cone where there are a lot of, you know, a lot of people's friends on NGOs got funded and it was very difficult to justify once you saw the thing in high resolution. And so I think there's, there's a number of cross currents going on here. I think the Trump administration would like to cut this part of the budget anyway. The institutions aren't showing enough results to make a clear case that they're worthwhile. Then there's this background issue of how much can we cut without the Congress.
- [20:41]
B
I agree with Scott that there's clearly an effort to test the constitutionality of the statute. I mean the OMB director Russ Vaught has been pretty clear about that. So this one will make its way up. I neglected to answer the other half of Evan's question, which was what does this mean for the wto? First of all, it turns out we're Actually two years in arrears because the Biden people never got around to paying it in 24. And so now this is the second year that we'll be in arrears. I think it adds up to $29 million if you're in arrears for a year. I forget if it's a year or two. I think it's a year. What happens as a practical matter is the WTO stops sending you documents and stops sending you papers. And I think maybe after two years you lose your right to speak at WTO meetings and after three years you're declared an inactive member. It's not clear exactly what that means. Probably it means that I think it's in practical terms that if you're an inactive member, you would not be able to block consensus if the rest of the organization wants to move in some other direction. I don't think it's that's ever happened yet. So it's a little bit of untested ground. It will put the United States at a disadvantage. Clearly it calls into our into question our commitment to the organization. If our nominee Joseph Barloon ever gets confirmed and he wasn't before the August recess, if he does get confirmed, it'll put him basically on the back foot when he's there because most of the questions he's going to have to deal with is why haven't you paid, you know, and what are your plans? And I think he's going to encounter more skepticism him than usual about US intentions under the circumstances. On the other hand, Congress hasn't voted on him yet and I don't know why. I mean, I expected kind of a party line vote on the this one. There were no dramatic red flags raised about him at the hearing. The committee voted them out on a party line vote. Maybe they're holding him up to wait and see what happens to the budget. I don't know. If we don't pay, there's not really any point in sending anybody.
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C
Hopefully the WTO doesn't send some debt collectors over to the White House, you know, break some kneecaps, so on.
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B
Boy, that would be something to see. People from Geneva showing up with briefcases and accountants coming in demanding a check. I wonder how Trump would handle that.
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A
Reminds me of an old cartoon from the Washington Post where there were people outside the White House gate that said, we're Republicans, we're here to be mollified. That would be the Geneva approach.
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C
So guys, let's wrap with an interesting nugget out of BIS Bill's former stomping grounds. So the Trump admin has notified TSMC as well as SK Hynix and Samsung, those are three of the biggest players in semiconductor manufacturing, that their validated end user authorizations for facilities in China would be revoked at the end of this year. So, Bill, can you translate that into plain English and tell us what this means for the AI race and also ongoing trade negotiations with China?
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B
I think it's more significant as a sort of message tool than it is as a practical action. The validated end user category means that if you are in it, you can ship a lot of items without having to get an individual license each time in order to do that. And in the case of SK Hynix and Samsung, they both make mostly memory chips in China. And when the Biden administration tightened controls in 2022 and 2023, it put those companies in a very complicated position because they had active production facilities in China and they were now going to have difficulty getting. It wasn't about the chips, it's about getting the equipment that you use to make the chips, the chip manufacturing equipment. They were now going to have trouble getting it into China. So the Biden administration gave them waivers in the nature of voluntary end user certificate that obviated that problem initially for a year and then they extended it indefinitely and that's now been canceled. What it means in practice for all three of the companies is that now they have to come in and get an individual license each time they want to export something to their facilities in China. This is much bigger for Samsung and SK Hynix than it is for tsmc. TSMC has, I believe, two manufacturing facilities in China, one in Nanjing and one somewhere else. The one in Nanjing, which I think is the oldest, makes chips at the 16 nanometer level, which is not the cutting edge that the government has been concerned about in the past. Our government has indicated that they intend to grant these licenses. So I'm not sure in practice it's going to make a lot of difference. It just means the company's going to have to come in one by one and apply for a license starting next year. And in theory they'll continue to get them. The signal is important, though. It's a signal to those countries, I think, that the United States intends to tighten and broaden its controls. And at any point they could start saying no to these applications. So it increases the vulnerability of the companies. And it's pretty clearly a signal to China that we continue our efforts to tighten controls and restrict their ability to acquire really in this case, kind of lower end manufacturing technology. This is not the EUV technology that ASML makes. This is technology for making basically legacy and foundational chips, which is still very sophisticated and very expensive, but.
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A
But not leading edge.
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B
Not leading edge. Right. So the signal to China is still, though, I think going to be a negative one, that we of the United States are cracking down.
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C
Scott, how do you see this?
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A
Well, Bill's the expert here, and I think he's got it exactly right. I think the US Is trying to keep as much leverage as they can. It's a characteristic of the Trump administration to always look for leverage and always, always look for collateral. That's what happens when you elect a real estate developer as president. So this is what that appears to be. And as Bill said, I'm not sure it does much practically in terms of making the business life difficult in these companies, at least not for Taiwan Semiconductor, which, which is probably the world's, as a total corporate entity, is the world's most important foundry. They make more chips for more people at more different levels of sophistication than anybody.
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C
Great. Well, let's wrap there. Thanks, guys. This has been great. Thank you, Bill. Thank you, Scott. And we'll see you next week.
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A
Thank you.
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B
Thank you. And don't forget to sign up. But the Trade Guys crash course.
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C
We won't. You've been listening to the Trade Guys, a CSIS podcast. For more audio content, visit csis.orgpodcasts thanks for tuning in.