In late July 1933, President Roosevelt enacted one of the most destructive economic policies in all of American history. The President’s Re-employment Agreement mandated an immediate 20% rise in hourly nominal wages. The stock market crashed.
This action aborted a promising economic recovery that had raised industrial production by 57% between March and July 1933. By May of 1935, industrial production was actually lower than on the day the wage policy was enacted.
Almost exactly 90 years ago, on May 27, 1935, the Supreme Court saved FDR from his folly. The entire NIRA was ruled unconstitutional, including its wage-fixing provisions. Industrial production almost immediately began rising rapidly, and FDR won a historic landslide victory in the November 1936 election.
In other news, this caught my eye:
The Trump administration’s threat to impose 50 percent tariffs on the European Union and steep tariffs of varying sizes on other critical American trading partners hung in limbo on Thursday after a panel of U.S. federal judges blocked a set of across-the-board charges.
But both trade experts and America’s trading partners around the world greeted the news with caution, not celebration.
Stocks rose internationally as investors hoped the decision, handed down by the U.S. Court of International Trade, might restrain the assault that Washington is waging on world markets.
Of course, the decision will be appealed.
It might seem unreasonable that an obscure lower-level court could veto a massive change in American global trade policy. The court was set up to rule on minor trade issues. Aren’t we a democracy?
But it’s equally true that the president has no legal authority to enact a massive change in American global trade policy. His recent tariff actions have been based on laws allowing narrowly targeted adjustments in trade policy reflecting issues such as national security. The law does not allow the president to determine US fiscal policy (which is the prerogative of Congress), nor does it allow the president to change America from a free-trading nation to a protectionist nation. It only looks like the court overstepped its role because it was pushing back against a presidency that had also overstepped its role.
If Congress had enacted massive tariffs, and then the court ruled they were illegal, then it would in fact be overstepping its role. The GOP-dominated Congress is perfectly free to enact any tariffs proposed by President Trump. The courts would have no justification for overturning such tariffs.
PS. This is from a very informative article by Ilya Somin:
It is worth noting that the panel include judges appointed by both Republican and Democratic presidents, including one (Judge Reif) appointed by Trump, one appointed by Reagan (Judge Restani), and one by Obama (Judge Katzmann).
READER COMMENTS
David Seltzer
May 29 2025 at 3:35pm
Scott: Excellent post! Thanks!
Craig
May 29 2025 at 4:58pm
“obscure lower level court could”
While its subject matter jurisdiction is limited, its powers within that scope are quite broad. It is an Article III court.
Scott Sumner
May 29 2025 at 5:01pm
Thanks for that information. I did not mean to denigrate the court, rather to suggest it was a court that many people were unaware of.
Craig
May 29 2025 at 5:40pm
I had to look it up. I had forgotten about it. If it was located in the same building in Manhattan where it is located now back in the 90s I’ve been to it as a student visitor. The ultimate destination was the Thurgood Marshall courthouse across the street which is a majestic building. I guess we figured we’d check it out too but the memories are vague at best.
Jon Murphy
May 29 2025 at 5:29pm
Tangentally related to this comment:
At The Dispatch, Adam White makes a similar point regarding nationwide injunctions. As Congress delegated more and more power to the Executive branch, it opened the door for broad, unlegislated changes, which in turn puts judges in a position where millions of Americans may be affected by their decisions, not just the people in the case. The choice (and consequence) of nationwide injuctions becomes all the bigger:
It’s difficult to say the judges overstep their role, especially when you have a President who acts as arbitrary and contradictory as Trump does.
Craig
May 29 2025 at 5:43pm
Well the appeals court stayed the order pending appeal but imagine if the trial level court’s injunction onky apploed in the Southern District of NY (I think that is where the case is being heard). That would result in the tariffs bei g void in NY but in effect everywhere else.
Jon Murphy
May 29 2025 at 5:52pm
It’s an administrative stay (meaning the Appeals Court has stayed the order so it can have time to consider the legal arguments). It’s not a statement on the merits of the argument or the court order.
More precisely, it would only matter to the companies involved.
Craig
May 29 2025 at 6:05pm
I’m thinking in terms of districts because that is the typical structure of the federal court system but this is a specialty court and now I’m not thinking its in a district at all.
Mactoul
May 30 2025 at 6:20am
And who will overturn the EU carbon tariffs CBAM that are due by next January? The EU is picking a trade fight with the rest of the world and it is not the nationalists or the populists that are doing it but liberal climate zealots.
The European populists remain the best hope of overturning the carbon tariffs.
Jose Pablo
May 30 2025 at 11:44am
The CBAM was initiated by the European Commission in July 2021, almost four years ago.
The European Parliament reviewed, amended, and approved the proposal on April 18, 2023.
The Council of the European Union later adopted the regulation.
The CBAM is being implemented in phases, with a transitional period lasting from April 2023 to June 2026.
To compare this four-year-long legislative process (plus two and a half years transition period), which followed every legal step required to enact law in the European Union, with the Trump administration’s swift and unilateral imposition of tariffs is an insult to the reader’s intelligence.
Only an economic illiterate would treat trade deficits as a “problem.” But it takes more than ignorance; it takes a would-be monarch with an inflated, unconstitutional view of presidential authority to declare a trade deficit an “unusual and extraordinary threat” justifying emergency powers.
If that’s the standard, then adjectives might as well be banned from the English language; they’ve been rendered completely meaningless.
Mactoul
May 30 2025 at 10:42pm
So, you have no problem with tariffs as such, with all that implies, but with the style Trump imposed them?
When EU asserts its ownership of the European people and instigates a global trade war, it is fine because it is done with committees?
Jose Pablo
May 31 2025 at 9:28pm
Tariffs are an economic mistake. Their imposition will make America worse off. Every sensible person I know agrees with that. Trade deficits are a nonissue.
Climate change, by contrast, is a very serious problem. And a cap-and-trade mechanism such as the European Union Emissions Trading System, which underpins the CBAM, is not the worst way to address it. It’s still too centrally designed for my taste, but many reasonable people consider it a suitable solution.
But none of this is the issue at hand. What we are discussing is that Trump lacks the political authority to make the economic mistake of imposing tariffs.
What we are discussing is that, even if you defer to the executive the judgment on whether trade deficits constitute a “threat” (a remarkably polite and borderline implausible kind of deferral), considering them an “unusual and extraordinary” threat renders the adjectival capabilities of the English language completely useless.
No one doubts that Congress has the authority to make the economic mistake of imposing tariffs, just as no one doubts that the European Parliament has the authority to enact the CBAM, even among those who disagree with the mechanism itself.
This (not particularly subtle) distinction should be well within your grasp.
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