There’s Always an Emergency Somewhere…

For a president seeking to impose swift and decisive change to geoeconomic policy, few hammers outweigh the The International Emergency Economic Powers Act (IEEPA), which provides the President broad authority to regulate a variety of economic transactions following a declaration of national emergency.   

With advisers advocating using the act to gut the federal workforce, sweeping tariffs, and even to selectively default on the federal debt, expect the IEEPA to play an outsized role in Trump 2.0.

One of 117 emergency statutes under the umbrella of the National Emergencies Act (PL94-412), the IEEPA  began life in 1917 as the Trading with the Enemy Act (TWEA), giving President Wilson an extraordinary degree of control over international trade, investment, migration, and communications between the United States and its enemies.  Franklin Roosevelt’s emergency measures during the New Deal, followed by the Second World War, saw further expansion of executive authority.

Over the past century, the legislation has been used by Presidents to block international financial transactions, seize U.S.-based assets held by foreign nationals, restrict exports, modify regulations to deter the hoarding of gold, limit foreign direct investment in U.S. companies, and impose tariffs on all imports into the United States.    

Between the IEEPA’s passage in 1977 and the beginning of 2024, Presidents have declared 69 national emergencies, 39 of which are ongoing.    Indeed, the first declaration under the IEEPA was in response to the taking of U.S. embassy staff as hostages by Iran in 1979, and remains in effect.

“Whether such actions subvert the rule of law or are a standard feature of healthy modern constitutional orders has been a subject of debate,” states a Congressional Research Service report on the legislation.

Bold executive actions cited by supporters of Mr. Trump doing same include President Nixon’s 1971 suspension of the convertibility of the U.S. dollar to gold, and placing a 10% ad valorem supplemental duty on all dutiable goods entering the United States. 

Three years earlier President Johnson used a 1950 declaration of emergency by President Truman to limit direct foreign investment by U.S. companies,  to strengthen the balance of payments of the United States after the British devalued the Pound. 

Check & Balance?

As the Brennen Center points out “in order to terminate an emergency, Congress has to essentially not only pass a bill to terminate this emergency, but also send that bill to the president for signature. You can imagine that a president who has declared the emergency will most likely not sign that. They will veto that type of bill. And then you need a supermajority in Congress to override that veto.”

President Trump’s first term saw several instances where IEEPA authority was used "in a troubling fashion," according to the Brennan report,  including sanctioning staff of the International Criminal Court for their work investigating war crimes. 

“The most salient recent example of why this is problematic was President Trump’s declaration of a national emergency in order to invoke certain powers to fund the construction of the border wall," they write.

"Twice, bipartisan majorities in Congress voted to terminate that emergency, and twice he vetoed that bill to terminate the emergency, and Congress wasn’t able to muster a veto-proof majority.”

Alan Wm. Wolff, former deputy director-general of the World Trade Organization and visiting fellow at the Peterson Institute for International Economics is skeptical that Trump has the authority to impose sweeping tariffs under IEEPA. 

“All of Trump’s tariffs, however, as well as those imposed later by President  Biden, were put into place under what was claimed to be a delegation of tariff authority to the president from the Congress,“ he writes.

"Can it be used against trade with all countries, our allies and friends in Europe and Asia, in the Americas, not to mention the poorest countries in Africa? That would simply be too large a power grab to have been within what Congress intended in this statute.

"The Act says, “Any authority granted to the President by … this title may be exercised to deal with any unusual and extraordinary threat … if the President declares a national emergency with respect to such threat.   All our trading partners pose an unusual, extraordinary threat?" Wolff asks.

”There is no scope for determining that Trump can impose blanket tariffs (the equivalent of taxes on the American people). The wholesale transfer of authority from the Congress to the president would be going too far. Even King George III needed the British Parliament to pass the Stamp Act in 1765.”

Wolff’s  September 3, 2024 essay concludes “Such a tariff would not stand unless the pro-Trump Republicans gain control of both houses of Congress, in which case, all bets are off.”

During the 119^th Congress, the Trump administration will be unencumbered by judicial or congressional restraint, and the new team’s stated intent is to make full use of that accommodation.  

With the IEEPA embraced by Elon MusK and Vivek Ramaswamy in their manifesto last week in The Wall Street Journal,  and its citation by cabinet nominees and influential financial writers, messieurs-dames, faites vos jeux!