An Emergency Trade Discussion With Joey Politano

If you don't like today's tariffs, wait a day

Um, wow. A court — a real court, with lifetime judges — has ruled most of Trump’s trade war unconstitutional. It is, but we’re all so cynical that nobody thought it would matter.

So I scheduled a spur of the moment conversation with Joey Politano, who lives and breathes this stuff, poor guy. At the end we expressed hope for a few days before the next wild turn. It was not to be — another court has put a temporary hold on the order canceling most of the tariffs, although this seems to have been more procedural than a rejection of the basic conclusion.

Next week’s interview will, unless disaster intervenes, be something completely different. And I mean completely.

But for now we’re still stuck on tariffs. Here’s a relatively brief discussion, trying to hold the jargon down. Transcript follows.

. . .

TRANSCRIPT:
Paul Krugman in Conversation with Joseph Politano

(recorded 5/29/25)

So hi everyone, Paul Krugman again. This is an activation of the emergency trade policy analysis system. We're recording this on Thursday after Wednesday night when, rather abruptly, everything we thought was happening on US and global trade policy suddenly stopped being true. It was a wild announcement from the International Trade Court, which I wasn't even paying attention to. And I'm bringing back Joey Politano, who's been following trade stuff very closely and following these latest events and is probably being driven completely crazy by the fact that what he’s been tracking keeps becoming irrelevant because everything has changed. But anyway, I could try to summarize what happened, but why don't you tell us, Joey, what just happened to everything we thought we knew about where tariffs were going?

JOSEPH POLITANO: Yeah. And thanks for having me back on again. I'll say in our first conversation, one of the things I mentioned was that Trump can do these sort of tariffs unilaterally because he can declare an emergency, basically, and then activate a bunch of emergency powers and use those to impose tariffs. And I distinctly remember in the conversation we had that I said, I think the courts have got this wrong generally. They give too much deference to the president about what an emergency is.

And in particular, Trump had declared fentanyl an emergency, and that's why we're doing tariffs on Canada, Mexico, China. And then he declared the existence of the trade deficit an emergency. And what this court ruling was basically doing was saying that the authority used, the International Emergency Economic Powers Act, is supposed to be activated for real emergencies. If you look back on the uses, it's wars, famines, trade blockages, sanctions against people who've done horrible crimes. This is not a real emergency. And in particular, the remedy that you're using doesn't make sense. So the Trump lawyers argued in court, like, “Hey, fentanyl is a real thing. It kills people. It's an emergency.” And the court basically said, “That's true. Fentanyl is a bad thing. But the fact that you put a 25% tariff on steel that comes from China, or toys is not actually affecting the Fentanyl trade at all. It's completely unrelated. And so you can't use this economic emergency power to put tariffs on China.”

PAUL KRUGMAN: I mean, the way I always thought of it is, we have a system, US trade tariffs are generally set in negotiations with other countries or have historically. And so we have a set of tariffs and they're not up for continuous revotes by Congress. Congress says yes or no on a trade agreement. But that system is a little too rigid. And so we have rules that allow the president some discretion to do things when the pressure is too great. And, it’s not an alphabet soup, but there's a numbers soup. There's sections 201, 232, 301, and mostly what Trump did in term one was 232s, which are national security, which were themselves fairly absurd but were also relatively limited. But then he invoked this other thing, which is this International Emergency Economic Powers Act. And I guess we all assumed that the relevant people would just roll over as they have on everything else. But it turns out that the International Trade Court is not the same as the people who say up or down on these more limited kinds of tariffs. I've just been going back to look at the 232s, and it's a very, very different process, right?

POLITANO: Right. And so I think it's actually good to backtrack to the first term, like you said. In Trump's first term, he does two sets of tariffs. Section 232 of the Trade Act of 1974 basically says the president has the authority to restrict imports based on national security, they threaten national security. But the key thing is there, you have to do a lot of homework. You have to come in with a 100 page long report that says imports of steel are a threat to national security. And here's the reasons why. And critically, you know, people could go to court and say, “This report, we disagree with it. We think that your reasoning is wrong and blah, blah, blah.” So you have a dispute mechanism there. And then there was a second side, section 301, using the same act, but the basic logic there was that a specific country is doing something unfair. In section 232, imports of steel are threatening national security. Section 301 is China is doing something that we deem unfair. And most of Trump's tariffs in his first term were section 301, the China stuff. And that escalated from a few billion to over 300 billion by the time he was done with tariffs on China. But that also requires a lot of homework. There's a really giant report where they say, “Here's all the things that we think China is doing unfairly.” And China gets to come in and say, “no, we're doing that fairly.”

There's a whole process you’ve got to go through. And the process is very deferential to the president. That's the key thing that I would get across here. With Section 232, if you read them, I happen to think those arguments are really bad. But they're arguments. The courts are like, “You put text to page here and we can see what your logic is. We're going to give you some latitude here.” But this was like, “You didn't do any homework. This is so far out of left field.”

KRUGMAN: With 232, there's a flow chart. The secretary of commerce launches an investigation. The investigation produces a report. The report's conclusions are like a hearing and then the president decides whether to accept the recommendations. Most of which went pretty much by the wayside. It was kind of, you know, “this is the Trump administration. If Trump wants your opinion, he'll tell you what it is.” It was still at least a little bit of a process. There were some absurdities in there. “Aluminum from Canada is a national security threat.”

But then that wasn't enough. So they went to this IEEPA, International Economic Emergency Powers Act which basically, if successfully invoked, gives him the ability to practically do anything. And that's what happened here.

POLITANO: Kind of. And part of the court's ruling here was that the Economic Emergency Powers Act has only ever been invoked to do smaller things. With Libya, we invoked IEEPA, or like against Russia, we invoked it. And the point is to allow the president authority to respond to a national emergency with some sort of restrictions, but never tariffs and never tariffs this broad. And so this was kind of a test, like what is the actual authority we can use here?

And the court partly ruled that tariffs are supposed to be more the lane of Congress. They didn't put an exact cap on the authority. They said, “you have some of authority.” And they also said, “there are other things that you're supposed to do for tariffs.”

So I'm trying to write this down because you're right. It's like a number soup to try to keep up with this. But section 122 is an example here. So in the second IEEPA declaration, they said “the trade deficit is an emergency. That's why we're putting tariffs on the European Union. The trade deficit is an emergency.”

And the court basically said, “Hey, there's already an authority in Section 122 for balance of payments crises. That's what you're supposed to use. And that authority is restricted. You can only go up to 15% tariffs. You have to do it on every country equally. And critically, it goes to Congress if you want to do it for more than 150 days. So you have to get congressional approval if you want to do it for more than four or five months. So go use that. The IEEPA doesn't give you this authority because it was already this other authority in law.”

KRUGMAN: Traditionally, there is a quasi-judicial process, but it all takes place inside the Commerce Department. It takes place among people who work for the president. It kind of mimics something that would happen in a courtroom, but it doesn't actually happen in a courtroom and it doesn't involve real judges. But IEEPA, apparently goes to this international trade court, which I'm ashamed to admit I had never heard of before, which is a real court with real judges who are

appointed for life and are not basically just Trump employees. They're not (sorry, politics is unavoidable) but they're not former Fox News hosts or something like that. And it must have been in the works, but they suddenly came down and said, “hey, none of the reasons that you gave could justify invoking this. It actually doesn’t apply here.” Is that it?

POLITANO: Yeah. And I think that you're right when you say most people don't

deal with this court because most of the time they're doing really boring and small, small, stuff. And I think this ruling came as a shock to me and a shock to a lot of other people, because I expected courts to be extremely deferential to the president on emergency powers as they have been in the past. And the fact that the justifications were so bad that they weren't deferential anymore really tells you something.

KRUGMAN: What kind of things do they normally do? If I had ever paid attention to the ITC before, what would be a typical case on their docket?

POLITANO: My understanding of this is very limited because I'm econ, I don’t specialize in law, but my understanding is, it's much more narrow stuff about, like, the anti-dumping tariffs. So there are times where the US government says, “hey, we think Vietnam is dumping solar panels into the United States. We’ll give an argument there.”

KRUGMAN: Dumping in this parlance means selling below cost. There's another economic definition but nevermind. Instead of saying, “thank you for selling us stuff cheap,” we say, “That's evil. That's unfair competition.” But they would be handling things like that, like a claim that Vietnam was selling us some stuff below production cost. And then, recently, all of a sudden it's like the president's entire economic agenda is on their docket.

POLITANO: Yes, that's my understanding. Most of the stuff they do is very small and boring. And then suddenly they got like, the biggest case you could possibly imagine.

KRUGMAN: And one of the strange things about it was, we're declaring this emergency requiring drastic action in an economy that doesn't look like it's having an economic emergency. I didn't actually read all the way through the opinion but, I mean, we still have low unemployment, inflation is still low, give the tariffs a little while to work their way through, but… I think that in effect the report said, “first of all, where's the emergency?”

POLITANO: Right. So the second round of tariffs, like I said, the fentanyl stuff is very ridiculous because it's not targeted towards the emergency. Obviously, fentanyl is a real thing, but fentanyl was a real thing in 2023, and it was a real thing in 2017, and tariffs are not going to affect that at all. And then secondarily, the authority that they're trying to direct Trump to is saying, “if you have a balance of payments crisis, things are falling apart. this is what you can use.” And as far as I'm aware, the only time that those things have been invoked was when Nixon tried to prevent a balance of payment crisis in the 70s for very short periods of time, like two to three months when he was facing what at the time was actually a genuinely historic shock to the US economy from trade. You know, generally the deficit's been expanding, but it's not like it's shot up except for the fact that people were front running these tariffs. Like if the tariffs weren't there, the deficit wouldn't be low.

KRUGMAN: So, balance of payments crisis actually is a funny thing because traditionally a balance of payments crisis is that you're running out of foreign currency, running out of foreign exchange. And it's not simply having a trade deficit because that can happen for all kinds of reasons. It's literally that you're in,

I don't know, Argentina in 1957 and you're trying to peg the peso to the dollar and you're running out of dollars. That's a balance of payments crisis. The United States doesn't really have that. We're not trying to peg the dollar to anything.

We don't actually hang onto foreign currency. So we almost can't have a balance of payments crisis in the traditional sense. I'm not sure when the law was written

or what they had in mind.

But we do have a trade deficit, but as long as foreigners are happy to invest in America and cover the trade deficit, where's the crisis?

POLITANO: Right. And I think the law is written with this intention of, like, when we had the international peg to the gold standard, and we were worried that the French are going to show up with a battleship in New York and ask for all of their gold back, and then we'd have a real problem. That can't happen anymore. And obviously, it was not happening in March of this year to inspire this use of IEEPA. I think the core thing here is, there was no inciting incident. The way that most activations of IEEPA are supposed to work is there's a war, there's a natural disaster, there's a balance of payment crisis.You get emergency powers. You know, the court here is like, “where's the emergency? Where's the urgency?”

KRUGMAN: Actually, though, I think the French battleship, aside from the fact I'm not sure that they have any, that actually kind of could happen because we do have a bunch of French gold, which is not in Fort Knox. It's actually in the basement of the New York Fed. So I guess the French could show up and say,

“we want our gold from the basement.” But that's not something that's going to be a real issue here.

And Nixon basically did this to force countries to revalue their currencies against the dollar and it was short-lived. It had a very specific goal. By the way, I think you said something on your social media about Scott Bessent, the Treasury Secretary talking about the dollar against other currencies.

POLITANO: Oh yeah, when he was like, “the dollar isn't losing value, other currencies are gaining value.”

KRUGMAN: That has got to be one of the classics.

So do you know what day it was when IEEPA was actually invoked?

POLITANO: February 4th was the day it was actually imposed. I don't remember the exact date the executive order was signed, but it was like February. It was very early on he invoked this, but then they really took advantage of it on “Liberation Day” on April 2nd with this vast array of tariffs on everybody.

KRUGMAN: And all of it justified by the claim that there was an international economic emergency. And then do we even know who brought suit with ITC? Was it self-generated? Did somebody actually complain to the international court?

POLITANO: I can’t remember who all the claimants are, but it includes a coalition of groups. I believe California, Washington, Virginia, some other states.

And it's a coalition of importers like people who paid the tariffs and, in view that it's unfair, they have standing before the court. And then it's also a bunch of academics and maybe policy advocacy groups. There’s the Cato Institute who are like very libertarian. It’s a law group attached to Cato. They were the ones working on this. And so I think they feel very proud right now of the result.

I will say, and maybe we should have said some of this earlier, but to temper expectations. The Trump administration is going to appeal this. So my view is they have 10 days as of right now to rescind the tariffs completely. My view is that they're probably gonna appeal this and the appeals court is going to say you have longer than 10 days but then the appeals court is going to judge something like this.

And like we were discussing before, they have a lot of other authorities to enable them to raise tariffs. If people remember a few days after “liberation day” on April 9th, when Trump first paused the tariffs, the stock market jumped 7%, 8% in the middle of the day. And if you look at the stock market today, it's up 1%. The stock market is not the economy. But I'm saying if people thought the tariffs are done, they're never coming back, there's no way that any of these are going to be as

high as they were even a few days ago, the stock market would be up in the vein of April 9th and not just a middling (though not insignificant) amount.

And so there's some sense where, this is much more likely to get struck down and they're going to have to go back and say, “okay, we're going to use different powers that are more limited. We're going to have to take a lot of time to do a bunch of annoying homework. We're going to have to appeal this to higher courts.” But they're probably going to still impose a decent amount of tariffs.

By the way, the tariffs on cars, because those are section 232, and the tariffs on steel and aluminum, those are all staying. And that's about 500 billion in imports a year. So that's bigger than the first term trade war by a decent margin. And that's if this court ruling holds and if they do nothing else to restore those tariffs.

KRUGMAN: Wow. Then, as I said, there can be more 232s. There are some more exotic numbers that I don't even know that they can invoke as well. So your guess is that they will, first of all, manage to stretch it out a bit and then claw back a fair bit. But it's still a pretty amazing setback. It has to have an effect on

trade negotiators with other countries, right?

POLITANO: Yeah.

KRUGMAN: What’s your version of what that does, because I'm trying to imagine it.

POLITANO: So the initial tariffs and all of the revisions were under IEEPA. So when we raised tariffs on China to 145% and then we lowered them back down to 30%, that was all under IEEPA. And some of these other authorities just don't give you that flexibility. The Section 301 tariffs on China, like I said, you have to do a ton of homework before you can activate the tariff authority. You have to say China is doing these unfair things and we're going to punish them for being unfair.

You can't then credibly threaten, like, “we're going to send tariffs to 190% tomorrow because we hate you.” Or “we're going to drop them to 10% tomorrow because now we love you.” So we're talking about the number soup again.

If they use 122, the one that's universal, they have zero.

KRUGMAN: 122 is the balance of payments, right?

POLITANO: Right, right. The one the court told them they should use. They would have zero flexibility because it has to be uniformly applied to all countries.

So they couldn't then say, well, we're going to give you an exception. Mexico and Canada have much lower tariffs right now. They couldn't go back and say, we're going to give Mexico and Canada the exception that we gave them on the IEEPA tariffs because it's a different authority.

There's other ones that are totally untested. I have written down section 338 of the 1930 trade act. So, digging up a hundred year old law that’s never been used before that plausibly could be used to recreate what they just did.

But I think if the courts are saying, “hey, this emergency power is not right.”

And then you go, “well, I actually have another emergency power that does the exact same thing.” I think they're going to be less sympathetic to that argument.

Because why wouldn't you have led with that power if it was the one, if it was the real one that had the legal authority?

And like I said, it's just as untested as IEEPA stuff. So either the Supreme Court is going to have to rule that “yes, Trump does have this emergency authority under IEEPA,” or they're going to have to go do a ton of homework to do industry specific tariffs that give them a lot less flexibility in negotiations than the tariffs.

KRUGMAN: And this means also that if you're like the prime minister of Great Britain thinking that you’re going to flatter Trump and do something or other…I don't know…Britain's probably not the right example of this. But maybe give him a used jet as a gift in order to get lower tariffs, The problem is that now, even if

Trump can reconstruct a lot of the tariffs. He probably doesn't have the kind of discretion over tariff setting that he appeared to have 24 hours before we had this conversation.

POLITANO: Right. And that would be located in much more limited industries.

So I think if you did a section 232 investigation into copper, that's one of the ones they're doing right now, it's plausible that a court is going to look at that and say, “yeah, we need copper for electrical wires.” These arguments I think are wrong, but they don't have to be right in the eyes of the court. They have to be plausible.

They might give deference to the president again. But they're not going to give deference to the president on very small agricultural tariffs, like fish or whatever.

So if you're a big agricultural exporter, and those are a lot of countries, Trump loses a lot of ability to threaten you in the immediate short term because it would be a lot harder to write a section 232 investigation on banana imports.

KRUGMAN: Yeah, that's actually one of the ones I was wondering because the

I'm not particularly all that fond of bananas, but there are other things, like coffee would be catastrophic if I lost it. And those are really hard to justify under anything else other than tariffs. So a lot of the consumer goods that people can’t live without are actually probably not coming back.

POLITANO: I wouldn't say probably yet. But if the appeals court supports this, then yes. Like I said, when we had the conversation two weeks ago, I did not think this was a possibility that any court was going to rule that he was using the emergency powers unlawfully, even though I thought that would be the correct legal opinion. And I'm still skeptical that, like, appellate courts and the Supreme Court are going to agree with me and disagree with Donald Trump. But this is like a lot more faith in the courts than I had just a couple of weeks ago.

So that’s context of where I am right now.

KRUGMAN: Okay. So if you were a business person planning some international trade, what would you be doing right now?

POLITANO: I have no idea. And this is kind of the core problem with these tariffs from the start. Tariffs are bad, but the worst part of a lot of this is how unmanageably complicated it is. I have a chart that I've been updating since the start of this year on every change to the tariffs. And I swear, if people go look at that chart, I'm struggling to fit the text in because there's been so many changes.

And if you're going back and saying, “well now, all of the tariffs previously are invalid,” They still want to do tariffs. They're going to do something. But I have even less idea of what that something is because all of the information that I've seen thus far from the Trump team is invalid. Like, I don't know how you plan around that.

And I do feel for small businesses who have to import just a few things from China or Europe or Japan. They're constantly stuck in this loop where the most important news of the day is like whatever Donald Trump says about tariffs and not the other 99% of things you have to focus on running a business.

KRUGMAN: And now all of a sudden it's not just what Donald Trump happens to say. It's not just his whims, but now it's the courts. So there's a whole new layer of uncertainty.

POLITANO: Right. For the record, obviously not blaming the courts. I’m blaming the incompetent legal proceedings from the Trump administration. But this is why previously in his first term, there were more people who were, for lack of a better term, serious protectionists. They wanted to win a trade war with China. They were constantly optimizing “how do we win a trade war with China?” And I think they lost. So that's the first place.

I think also the idea of “winning a trade war” is a bit of a wrongheaded way to think about trade. But coming from that perspective of “we need to win a trade war with China,” they were very strategic. “We need to exclude smartphones because people will notice that. We need to include all these key parts that go into automobiles because we don't want to be dependent on China for that. They came up with long lists and justifications and they went to industry associations and said, “tell us what your problems are. We’re working on China right now.” And again, like I said, not successful, but at least there was an intense effort, a lot of homework done on that issue.

And the fact that the April 2nd tariffs were just a random number from a formula

and we put 50% tariffs on Madagascar and Lesotho is emblematic of how not serious this is. And now the fact that the not seriousness is catching up to them in the courts and nobody knows where it's going to end up because the people who said, “let's make sure we have this on a good legal footing” in 2018 are not in the administration anymore. So even at the base level, they don't have people working on this seriously.

KRUGMAN: Okay, so maybe the best news about this whole thing is we're actually possibly starting to enter a time when not being serious about policy actually does carry some cost with it.

POLITANO: Let’s hope so.

KRUGMAN: Amazing. It's definitely a Politano full employment act, right? I mean, you're going to be busy on this stuff for quite a while. I've been kind of ready to move on, but all right, here we go.

POLITANO: I thought I was getting a reprieve. The longest the administration has gone without a change in tariffs has been one month. That was between February 4th and March 4th. And they have not gotten a month since. And we were closing in on a record here. We had three weeks where nothing happened.

And of course you can't have that.

But like, remember the 50% tariff on films? Nobody's talked about that in like a month. Remember the 50% tariff on the European Union? Everybody's forgotten about that one.

KRUGMAN: That's still stated to go on July 9th, but maybe not.

POLITANO: July 9th, but no, there's never been an executive order. It's just tweets. So is that real? Is that not real? Are the courts going to agree with that one? I’ve got no idea.

But yes, it does keep changing. And so I will take the Politano Full Employment Act of keeping up with tariffs.

KRUGMAN: Okay, well, thanks for talking with me. We'll consult again with the next major change in policy, probably about six hours from now.

Follow Joey Politano’s work at Apricitas.io