SCOTUS Removes IEEPA Tariffs From Toolbox, Now Is Time for the BAT
Miles Pollard /
In a 6 to 3 decision, the Supreme Court has ruled Friday that President Donald Trump’s attempt to impose tariffs under the International Emergency Economic Powers Act, IEEPA, lacked constitutional footing because the statute does not clearly authorize tariffs of unlimited amount, duration, and scope.
However, that does not mean that the presidency has been stripped of all trade policy tools.
Justice Brett Kavanaugh rightly points out in his dissent that “numerous other federal statutes authorize the President to impose tariffs and might justify most (if not all) of the tariffs at issue in this case—albeit perhaps with a few additional procedural steps.”
But there are several legitimate delegated, and often used, presidential authorities to address trade concerns.
For example, Section 301 of the Trade Act of 1974 addresses issues like unfair practices, forced technology transfer, and intellectual property abuses. Additionally, Section 232 of the Trade Expansion Act of 1962 allows for tariffs pursuant to Commerce Department investigations on national security concerns.
To address balance of payments issues (which were the crux of the Liberation Day tariffs), Trump has announced that he will use Section 122 of the Trade Act of 1974 to implement a 10% universal tariff. However, this tariff, if upheld, can only last for 150 days unless Congress reauthorizes it.
Now, this is not to advocate for or against any of these tariffs; merely, that these are the options that the public should be aware of. This constitutionally legal toolset, even with IEEPA removed, is still useful to hold bad actors like China to account considering that they spend more than $400 billion in industrial subsidies, operate roughly half a million state-owned enterprises, and steal $600 billion in American intellectual property annually.
Worryingly, China has also used its “government guidance funds” to keep almost a third of deeply unprofitable Chinese manufacturers alive from their market manipulation on key sectors like critical minerals.
Rather than engage in a pyrrhic subsidy war like the Biden administration, it is more prudent to use properly calibrated tariffs to realign supply chains away from adversaries. However, while tariffs may be strategically necessary, they are still a blunt tool.
For example, tariffs can “stack” by adding compounding costs on intermediate goods as they cross borders multiple times. As tariffs can hit this same value chain repeatedly, either foreign companies, import-exporters, domestic companies, or the consumer will end up paying for these taxes in ways that policymakers often do not intend and economists struggle to estimate in real time.
Given that the Section 122 tariff, if upheld, will need continual reauthorization and still suffers from the stacking issue, The Heritage Foundation has advocated for a more balanced tool to adjudicate trade issues adroitly and fairly with limited market distortions.
In fact, such a tool was remarked upon positively by Peter Navarro, current presidential senior counselor for trade and manufacturing, in his Project 2025 Trade Chapter and by Bob Lighthizer, former U.S. trade representative from 2017-2021 in Chapter 17 of his book “No Trade Is Free.”
A congressionally passed Border Adjustment Tax, BAT, which taxes imports (like tariffs) but credits exports could reindustrialize America by addressing a key issue.
Consider a grossly simplified example.
Sweden applies a value added tax (similar to a sales tax) at the point of consumption, so an imported American Ford F-150 faces the VAT just like a locally sold vehicle. Now compare that to how VAT countries treat their own exporters.
When Germany exports a Volkswagen to Sweden, Germany’s VAT is rebated at the border, and Sweden applies its VAT on import. This is called destination-based taxation where consumption is taxed where it occurs and zero rates exports. The United States with its origin-based system does not have a comparable border adjustment built into its tax system.
Therefore, a BAT would move us closer to the model most of the world uses as it would tax imports, credit exports, and would do so through Congress rather than through emergency tariff authorization.
If Congress is serious about addressing trade deficits and creating a low but broad tax on external consumption, then a BAT is the least damaging way to address these concerns.
It can raise revenue in a predictable way that international businesses are more familiar with, and the resulting revenue can be paired with reforms like permanent full and immediate expensing for structures that rebuild industrial capacity, rather than simply punishing imports.
If we want a Golden Age of American industry, trade enforcement must be married to domestic competitiveness. That means tax and regulatory reforms that make it easier to build, invest, and scale.
As China’s statist model is not going away, the U.S. cannot afford legal ambiguity, whiplash policy, or temporary fixes.
Make no mistake; the Supreme Court did not change the principle, simply the set of tools. Now Congress should do its job and build a trade and tax framework that lasts.