‘GAME OVER’: Economist says Trump still has options if tariffs struck down

Key Concepts

• Tariff Evasion Strategies: Methods President Trump could employ to maintain tariffs even if struck down by the Supreme Court.
• Statutory Authorities for Tariffs: Specific sections of U.S. law that grant the President power to impose tariffs (e.g., Section 201, Section 122, Section 338, Section 301, Section 232).
• Limitations of Statutory Authorities: Constraints associated with using these legal avenues, such as the need for government investigations, temporary nature, or percentage caps.
• Congressional Delegation of Authority: The possibility of Congress passing a law to grant the President permanent tariff authority.
• Labor Market Softening: Factors contributing to a decrease in labor demand and potential wage stagnation.
• Deportations and Self-Deportations: The impact of individuals leaving the U.S. on labor supply.
• Artificial Intelligence (AI) and Labor Demand: The debated effect of AI on the need for human labor.
• Economic Growth Factors: Influences on the U.S. economy's growth rate, including government shutdowns and stimulus.
• Productivity Surge from AI: The potential for AI to significantly boost economic productivity.

Tariff Evasion Strategies Post-Supreme Court Ruling

Anthony Chan outlines five potential avenues President Trump could pursue to maintain tariffs if they are invalidated by the Supreme Court. These options leverage existing statutory authorities:

• Section 201: This section allows for tariffs on imported goods that are determined to be causing serious injury to domestic industries.
• Section 122: This provision grants the President authority to impose tariffs to address balance of payments deficits.
• Section 338: This section allows for retaliatory tariffs against countries that discriminate against U.S. commerce.
• Section 301: This section is used to address unfair trade practices, particularly those involving intellectual property.
• Section 232: This section permits tariffs on imports that threaten national security.

Key Challenges and Limitations:

Chan highlights that many of these statutory authorities are not as flexible as direct presidential action. The primary catch is that most require a government entity to conduct an investigation to demonstrate the necessity of the tariffs. This process can be time-consuming and may not offer the same immediate flexibility. Furthermore, some of these provisions are temporary, which President Trump may find undesirable as they limit his negotiation leverage. Additionally, certain sections have percentage caps on the tariffs that can be imposed, which might also be a constraint.

The "Game Over" Scenario: Congressional Action

The ultimate, most inflexible solution, according to Chan, would be for President Trump to appeal to Congress. He could request that Congress pass a law specifically delegating tariff authority to the President. Chan suggests that if the President's party controls Congress, this could be a viable, albeit potentially controversial, path. He notes that with a simple majority in the House and the ability to "pass the nuclear option" in the Senate (requiring only 50 votes), such a law could be enacted.

Factors Contributing to Labor Market Softening

The discussion shifts to the reasons behind a softening labor market and potential wage stagnation. Chan identifies several contributing factors:

• Deportations and Self-Deportations:

  • Deportations: Approximately 527,000 individuals have been removed from the country.
  • Self-Deportations: An additional 1.6 million individuals have voluntarily left the country.
  • Combined Impact: This totals around 2 million individuals, significantly reducing the available labor supply.

• Artificial Intelligence (AI):

  • Uncertain Impact: Chan acknowledges that AI is contributing to the softening labor market, but academic studies offer mixed conclusions.
  • Conflicting Views: Some studies suggest AI is reducing labor demand, while others indicate it is not significantly impacting it.
  • Common Sense Expectation: Chan believes common sense suggests AI will make the labor market more efficient, implying a potential reduction in labor demand over time.

• Slower Economic Growth:

  • Second Quarter Growth: The economy grew at 3.8% in the second quarter.
  • Third Quarter Projection: The Atlanta Fed is forecasting 4% growth for the third quarter.
  • Fourth Quarter Outlook: Growth in the fourth quarter is projected to be less than 1%.
  • Government Shutdown Impact: The primary cause for this slowdown is attributed to the government shutdown, which has removed approximately 100,000 workers from the payroll, with projections of 250,000-300,000 by year-end. This directly reduces the number of people employed.

The Interplay of Labor Demand and Supply

Stuart raises a crucial point: if there is less demand for labor, wages are unlikely to rise. Chan agrees with this premise but emphasizes the simultaneous reduction in labor supply.

• Balancing Effect: The decrease in labor supply, particularly the estimated 2 million individuals no longer in the U.S. labor force (with 1 to 1.25 million potentially having been employed), acts as a counterweight to reduced demand.
• Preventing Unemployment Surge: This dual effect of lower demand and lower supply is why Chan does not anticipate a significant surge in the unemployment rate, despite the economic slowdown.

Prospects for 4% Economic Growth

When asked about the possibility of achieving 4% economic growth next year, Chan offers a nuanced perspective:

• AI-Driven Productivity Surge: He believes 4% growth is achievable if there is a significant surge in productivity driven by AI.
• Challenging but Not Impossible: While acknowledging it will be challenging, he does not consider it impossible.
• Near-Term Slowdown: Over the near term, a drop in economic growth is expected.
• Stimulus Impact: The "one big, beautiful bill" (referring to potential stimulus legislation) is expected to add further stimulus to the economy.
• Overall Expectation: Chan does not expect 4% growth in the immediate future.