The US Supreme Court handed Europe a brief reprieve by striking down President Donald Trump’s tariffs — but the relief may be short-lived. Within hours, Trump pivoted to alternative legal powers to keep duties in place. In an interview with EU Perspectives, economist Kimberly Clausing warns that Europe should be more focused on what comes next than what the court just struck down.
The Supreme Court ruled last week that President Donald Trump had exceeded his presidential authority in imposing sweeping tariffs under the International Emergency Economic Powers Act (IEEPA), a US federal law passed in 1977 that grants the president broad authority to regulate international commerce and financial transactions in response to a declared national emergency. Trump quickly moved to replace them with Section 122 tariffs, while signalling plans to pursue Section 232 and Section 301 investigations to maintain broader trade pressure.
In an interview with EU Perspectives, Kimberly Clausing, former Deputy Assistant Secretary for Tax Analysis under President Biden and now a professor at UCLA School of Law, explained how Europe should be understanding the SCOTUS decision, how it affects the Turnberry agreement, and what comes next.
The Supreme Court ruled 6-3 that the president doesn’t have the authority to impose tariffs through IEEPA. In normal times, that’s a definitive constraint — but Trump responded within hours with Section 122 tariffs at 15%. What does that response tell us about how much the ruling actually constrains him?
I think everyone can breathe a sigh of relief that the court has stood up on the separation of powers, and that is a real constraint, because I think the future authorities will also be subject to court challenge. Now, as you’re aware, it takes a long time to process these things through the courts. This next authority, the Section 122 authority, only lasts for 150 days, which is about five months. I know there are some who are gearing up to challenge it legally, but it may not make it through the courts in that amount of time.
But Europe and others can be reassured that it’s extremely unlikely that this particular authority will be extended because Congress will not support broad tariffs of this type. Further, it’s non-discriminatory, Section 122. So that also gives every country the assurance that according to this section, they won’t be treated better or worse than their peers. So that gives them less worry about relative disadvantage in these bargaining processes with Trump. Now, what comes next, of course, is different trade authorities. And those may be far more discriminatory. So people will still have to keep their eye on the ball about what’s coming down the road in their dealings with the Trump administration.
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One of those, is that the administration has said it will use the 150-day Section 122 window to launch Section 301 investigations — an instrument that’s uncapped, permanent, and already targeting EU digital regulation and state aid. Should Europe be more worried about what comes after Section 122 than Section 122 itself?
I think everybody should keep their eye on those. The two that are really probably coming next are national security, which is Section 232, and these unfair trade practices, which is Section 301. The difficulty with those determinations is while they require reports and processes, which is a real constraint on this administration in particular because they have a hard time doing all the lawyering and detail work that will be required to implement these properly — so they too will be subject to legal challenge. But these authorities do allow a lot of discrimination because you can pick out different trading partners to accuse of unfair trading practices.
“I think everyone can breathe a sigh of relief that the court has stood up on the separation of powers.”
Now it’s a little hard to tell in the European context what the complaint would be. Europe is generally a really open economy with quite low tariffs on US products. The deficit itself that the United States has with EU countries isn’t a trading barrier. It’s a reality that’s driven a lot by US macroeconomic factors, not by anything that Europe’s done wrong. So applying this to Europe, if one did it according to the true principles of the legislation, would be difficult. It’s clear the Trump administration isn’t always adhering to the intent of the law. And so they’ll probably use this in a manner that others might describe as overreach — and which I would describe as overreach — at which point there will be legal challenges to those. But since those sections give a lot of authority to the president, there will be obstacles standing in the way of swift resolution there as well.
You are making the case that the US trade deficit is driven by US fiscal deficits, not by European trade practices. If that’s right, how should Europe be approaching these negotiations with that kind of foundational context?
Europe is in a really tough spot, as is any country dealing with the Trump administration, because they seem unwilling to admit their own culpability in some of the imbalances that they’re so dismayed by. The United States is running a fiscal deficit in the neighborhood of 6% of GDP and has been for some time and will be for some time into the future if projections hold. If anything, the deficit situation may deteriorate in the years ahead. So if you’re going to spend more than you earn year after year after year, that naturally and equally implies a trade imbalance. That’s the only way that you get to spend more than you earn.
It seems very weird to an economist that the Trump administration is busy scolding all those trading partners when really the fault lies in ourselves. The United States really needs to get its fiscal house in order. So I don’t know how the Europeans handle that cognitive dissonance between the macroeconomic reality and what the Trump administration is demanding. It’s a really difficult line to walk, especially because Europe has an interest in getting along with the Trump administration for military and security reasons, especially with Russia’s ongoing invasion of Ukraine and the subsequent many years of war thereafter. It’s a really tough situation to be in.
And the investment commitments that were made by the EU in this original trade agreement — based on the premise of these potential tariffs that could be imposed on them — do you think that these commitments still have legitimacy that Brussels should be treating as a baseline, or should they be walking away from this and completely reevaluating based on this SCOTUS ruling?
This is a very interesting question. So if Section 122 were going to be the approach from now on, one might expect every country to walk away from some of these commitments. One, the commitments aren’t real agreements — they’re kind of like press opportunities without a lot of teeth behind them. And two, I think part of the reason that Japan and Korea and the EU and others were willing to make the agreements is they were hoping to do slightly better than the others. And so there was a sort of collective action problem where if they had all worked together, they wouldn’t have agreed to a lot of this stuff. But because they were thinking, well, maybe we can get a little better deal than these others, then we ended up in this sort of prisoner’s dilemma outcome where everybody gave a little too much.
“It seems very weird to an economist that the Trump administration is busy scolding all those trading partners when really the fault lies in ourselves.”
In part, the issue is coordination. And if you look towards folks like Prime Minister Carney in Canada, his take would be that it’s time for the rest of the world to wake up a little and work together on leading in areas like trade liberalization and climate cooperation and other areas where to sort of be more resilient in the face of these types of threats. That’s a really nice sentiment, but it’s a little hard to put into practice without strong leadership of the type that he demonstrated in that speech. So it remains a really difficult go-forward for Europe.
Germany’s auto sector is still facing Section 232 tariffs the ruling didn’t touch — a live, immediate threat. France’s exposure looks quite different, centered on its Digital Services Tax as a likely Section 301 target. And defense-heavy member states are watching procurement dynamics closely. With member states reading this situation so differently, is the Commission’s single negotiating voice a source of strength or a structural weakness?
I feel a bit hesitant to speak on European institutional detail as an American, but as an outsider, it seems like speaking with one voice is to Europe’s advantage at this moment, for the same reason that greater coordination among countries is useful in this moment. If you’ve got each country with this implicit veto on what the stance is, it’s much harder to stand up for Europe’s interests at this moment. But that’s just an outsider’s perspective. I’m sure there are a lot of elements of individual European circumstances that really need to be weighed heavily at this time. But I think it’s really hard to deal with the Trump administration one-on-one as a small country.
The Sanctioning Russia Act — with 84 Senate co-sponsors and Trump’s backing — would authorize 500% tariffs on any country buying Russian energy. But Trump has already exempted Hungary from existing Russian energy sanctions as a personal favour to Orbán. If the bill’s enforcement is determined by political relationships rather than consistent legal application, what does that tell Europe about the reliability of any trade framework Washington offers?
I’m hopeful that the US Congress will realize that this is not a good time to give any tariff authorities to the president. He’s already shown a willingness to use this sort of mechanism inappropriately. If you look at the treatment of India with respect to Russian oil in isolation, that may make good sense. But when you’re not doing similar things with China and others, one wonders whether this tool is going to be applied with the seriousness with which it was intended.
Of course everyone agrees that we need ways to influence Russian policymaking and the threat of sanctions and tariffs is useful. And secondary ones are appropriate. But this is just a really bad time to be giving the president new tariff authorities that are so broad and subject to easy discretion and manipulation. So I would worry that these would be misused. And I think Congress should find other tools to pressure Russia.
