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This is your weekly Washington policy

pulse on the Balance of Power podcast.

I'm Joe Matthew. Every Monday, Bloomberg

Intelligence senior policy analyst and

friend of the show, Nathan Dean, shares

his weekly call on upcoming catalysts in

the nation's capital. Listen for the

most recent and relevant policy research

from our team at Bloomberg Intelligence.

Now with today's installment, here's

Nathan Dean.

>> Good afternoon everybody. My name is

Nathan Dean. I am a senior policy

analyst with Bloomberg Intelligence here

in the Washington DC bureau. We want to

say welcome for joining us on the

Washington Policy Pulse. And

specifically for those of you on the

east coast of the United States, we hope

that you are safe and sound. Especially

for those of you up in New York and

Boston, we hear the snow is quite bad at

the moment. But again, I think I'm

hoping this is one of those situations

where the children are more uh not

bothering you as you try to work type of

situation. So what we want to do today

is we want to talk about President Trump

and obviously the Supreme Court ruling

from last week on AIPA. Uh we also want

to talk about the State of the Union

address. But before we do that, let me

bring in Holly from our senior

litigation analyst. Holly is the one

who's been leading Bloomberg

Intelligence's research on the tariffs

and specifically the tariffs ruling. And

so Holly, you know, as the tariff ruling

came out last week, what were your

initial reactions? What was your

thoughts? And as President Trump

subsequently announced that he was going

to increase a or at least levy a 10%

tariff via section 122 and then increase

that to 15% uh uh via executive order.

You know what are your thoughts that

have come out from over the weekend in

terms of President Trump's next steps.

>> So I think the important thing to note

from the Supreme Court's ruling is that

he is not allowed to impose any tariffs

using AIPA. So the Supreme Court found

that the tariffs were a tax and that

taxing power is firmly vested in

Congress and the statute didn't clearly

authorize him to impose tariffs. The

regulate import language um that that

language regulate has never been used to

to to confer a power to tax. So they

said Congress didn't do that here. So

what that means is that any tariffs he's

imposed using AIPA are probably going to

be struck. So the tariffs on India and

Brazil are probably going to be struck

as well. Um I think with respect to

section one, the 122 tariffs, I think

he's probably on good legal footing

there because that's the tariff that's

the statute that the lower court said he

should have used um to to address trade

imbalances. And and what that statute

allows him to do is to impose a 15%

tariff for 150 days if there's a serious

balance of payments deficit. And the

court went into length um the lower

court went into great length to explain

why they think a trade imbalance falls

under that definition a serious um

imbalance of payments issue. So I think

he's on good legal footing there. It can

be challenged if for example you know

people are saying what's happening what

what exists in the world now is is not a

serious balance of opinions issue but

the statute doesn't say who has

discretion to determine that and I don't

think courts are going to be too

inclined to second guessess the

president's determination. Um so that's

what I think about section 122. I think

the waffling though where you know he

put he imposed it via executive order

and said his advisors say a 10% tariff

is necessary and then he comes out the

next day and says actually no 15%. I

think that makes it a little bit shakier

because it doesn't seem justified. But I

think, you know, he he probably will put

out another executive order probably um

on February 24th. I'm expecting and um

if he if he further clarifies why the

15% tariff is necessary, I think that

will ultimately be upheld.

>> So, you know, just to we had a question

in here. you know, you expect the

legality of the 122 tariffs to be

challenged, and I think from your

answer, it's no. Um,

>> well, it could be challenged. It could

be challenged, but I don't think a

challenge would succeed.

>> Okay. Yeah. And I would also just say is

because I've gotten a similar question

on the congressional side, you know,

will you see Congress because the 122

only goes for 150 days till you need

congressional authorization. I don't

anticipate we'll ever see Congress have

to appine on this uh for two reasons.

One is, and this is where I'm going with

my next question, is to explain what 232

and 301 is and whether or not President

Trump will then transfer these tariffs

from 122 to those other statutes. And

secondly, I think Republicans will just

say, look, there is a they're going to

look at the political reality here of

President Trump's actions and they'll

say, look, we don't need to have

authorization on this. So, you know,

that being said, you know, if my theory

is correct, the one that we've been

floating around, uh, is that, you know,

President Trump will then go from 122 to

301. Can you explain the difference

between 232 and 301? And when President

Trump just said just minutes ago that

nations that quote play games with the

United States, and I think he's

referring to the European Union here,

because we saw reporting from just this

morning that the European Union has uh

paused negotiations or paused its uh

ratification of the trade deal. You

know, what does he mean by playing games

here?

>> Okay. Well, with respect to 2011, uh,

301, he's allowed to impose tariffs if

he finds a country isn't honoring trade

agreements or is treating America or is

discriminating against US commerce. Um,

he's used this before in 2018 against

China on 300 over $300 billion worth of

goods from China. Um, when he said that

they were violating trade agreements

with respect to intellectual property.

Um now with regard to 232

that is a tariff that that's a statute

that allows the president to impose

tariffs if um he if imports threaten to

impair national security. So he can use

this statute but he can't he probably

can't use it on a countrywide basis. It

probably has to be sector specific. So

we've seen him use it on autos for

example um steel and aluminum. Both of

these require investigations. 301

requires an investigation by the uh US

trade rep and 232 requires an

investigation by the Department of

Commerce. Um but he's already begun some

of those investigations. Um so

it's not like a clean slate with respect

to all tariffs that he could impose via

uh 301 and 232. He's started some

investigations already. So that those

could be, you know, on the horizon. Um

but with regard to you know playing

games in the EU trade deal um the EU

trade deal I believe it was at uh I

believe it was at 10%. Um and so the

increase to 15% is something that they

won't accept. The question is whether um

if they say that they won't accept

anything now like a 10% or or or 15%. Um

uh well, you know, I if they won't

accept the 10% that they previously

agreed to, the question is

does the president have legal authority

and under section 301 to say they're not

honoring trade agreements? And it's not

clear because the trade agreement was

entered into under section under the

AIPA ter um statute, which the Supreme

Court says is unlawful. So arguably

there's no legal basis for that trade

agreement. Congress hasn't approved it.

That's another reason why it could be

suspect um and may not be subject to 301

tariffs. But um but with regard to

section um 122, he could still impose

the 15% tariff.

>> Gotcha. Okay. We had a couple of

questions come in and I actually think

the easiest way for me to answer some of

these questions is to share my screen

and show you an analysis that Bloomberg

Economics put out. Uh so if you just

bear with me for one second. Um these

are from our friends over at Bloomberg

Economics. Uh let me go ahead and hide

that. Sorry. Uh let me get that. Okay.

Um everybody can see my screen. Thank

you very much. Um so you know section

122 plan falls short of replacing AIPA.

You know we see here 2024 we see the

pre-ruling section 122 IPA tariffs. And

then if you go to the section 122 IPA

replacement plan, you can see that the

effective US tariff rate has decreased

slightly uh because of the pre-ruling

versus the 10 or just the uh the 15%

ruling. And for those of you who are on

the uh Bloomberg uh balance of power

podcast, I just realized you can't see

this screen. Uh so that if you do feel

that you need to see this charts, please

feel free to come back. We will actually

be happy to show this to you. I

apologize that we're doing this spur of

the moment. And then if you come down

just a little bit and we for those of

you on the terminal just ping me. Uh the

analyst who's leading this is Nicole

Gorton Keratelli uh over at Bloomberg

Economics. Feel free to reach out to

her. Feel free to reach out to me. I

will make sure that you get this uh

insight into uh your uh into your inbox.

But you can see here on a country

bycountry basis we have the pre-ruling

which is the white dot, the section 122

AIPA replacement plan which is the

yellow dot and then the uh or the

Bloomberg orange dot and then we have

the 15%. So you can see in some cases

obviously there was some increases in

some cases in China there's a

significant decrease here and so I think

this is a lot of the information that's

going to be played out over the next

couple weeks because there are winners

and losers to President Trump's plan

here. So I'm going to ahead stop my

sharing uh come back um and just check

the questions real quick. You know Holly

there was a question about legal

challenges to the new tariffs. you know,

could courts pause their implementation

unlike what we saw through AIPA

>> um with regard to the 122 tariffs? Well,

>> yeah, I think there was one.

>> I don't think they do that. Um because

they didn't do that with the AIPA

tariffs even though even when they ruled

that they were unlawful. So, the lower

court said they're unlawful, but we're

going to stay our ruling until this goes

all the way up. And and um the federal

circuit did the same thing. we find this

unlawful. But the ruling was stayed um

the Supreme Court stayed stayed um

application the federal circuit's ruling

until they ruled. So even when you have

a challenge that's successful, they

stayed it until the Supreme Court could

rule. So I don't think I don't foresee

that happening.

>> Okay. No, that uh sounds good. Let me

just make sure. um

you know and what would you think you

know another question came in is like

would he be able to keep the average

tariff rate around that 15% level once

the 122 tariffs expire? What's the uh

what's the limit on 301? There is no

limit on 301, but but he'd have to find

every country that he imposed this 15%

tariff on or his US trade rep would have

to find every country that he's used 15%

against has discriminated against US

commerce or violated a trade agreement.

>> Okay. So, and that would come through a

notice and comment period uh or at least

the investigations go via a notice and

comment period. Correct. And but

investigations have already started. I

just want to clarify so for the folks

listening investigations so 122 only

goes for 150 days we don't anticipate

congressional authorization they have

already started investigations on via

301 correct

>> right on China

>> on China but what about like let's just

say I'm going to just pluck out

Argentina cuz I had Jimmy Tur this past

weekend you know if there was an

investigation on Argentina would they

have to do a separate notice and period

comment period for that or could they

lump that in with something

I don't know that there's any existing

um investigation that they could lump

that in with. Um but you could see all

the investigations that they've done

that they've opened and that's on the um

uh I think it's a business industries um

web page. Um it's a it's a division of

the car department of commerce. Um so

you can see all the ones that have been

open. I don't think there's one that

they could lump Argentina into. Um but

uh so so if if it was an investigation

that you know it's a it's a a new issue,

they'd probably have to open a new

investigation for that.

>> Okay. So, it's not one of those

situations where they can just blanket,

you know, there's got to be an

investigation and and I guess that that

brings some clarity to the markets

because like, you know, yes, I'm not

going to say that there's clarity post

this ruling, but if we at least know

that there has to be a notification

period for an investigation. We can at

least go back and say, here are the

investigations that are taking place.

Here are the ones that aren't taking

place. And, you know, we can, you know,

at least try and get some uh ideas

there. So, okay, Holly, last question I

have for you is let's talk about

refunds. You know, the court didn't

address refunds. You know, Treasury

Secretary Scott Bessant said, "Look, you

know, and I'm paraphrasing here, you

know, refunds aren't really in the cards

right now." How is this refund chaos

going to play it out? I presume it would

have to go back down to a lower court

and somebody would have to sue uh to get

that refund. Uh am I right?

>> So, that's probably what's going to

happen. they can try to apply to the

customs agency, but if the customs

agency doesn't refund their money, then

they would have to go to the court. And

so typically, so and so they think there

there is this existing case that's been

filed by a bunch of companies. Uh they

were consolidated into one lawsuit

before the International Trade Court.

And that may be the vehicle uh that the

court uses to explain how these refunds

should be sought and h and what

procedures are necessary. Um but there

was this thinking that they may just use

the old procedure which is the procedure

used for um challenging any uh duty that

they think that you think is was

wrongfully paid. So there's a procedure

whereby the um importer when the

importer enters goods or imports goods

um on the date of entry they have to um

say to the customs agency what they

think the these good what they think the

right amount uh to pay is. And so that's

based on what the classification of the

goods are, what the duty rate is. And

within 314 days of entry, the customs

agency decides whether that that was the

right amount or not, whether they owe

more. And that's called liquidation. And

when that's finalized, when the duties

liquidate, it's called the the amount is

finalized by the customs agency, the

amount they owe. The importer then has

180 days to challenge that. Um it's by

by by via a protest.

Um, and so they think they're thinking

that they're going to have to do

something like that. Um, so they're

going to have to file some kind of, you

know, application procedure and say

we've paid this, we shouldn't have paid

it and see if customs remits. And if

they don't, then they would probably

have to file a lawsuit.

>> So just some so some lawyers are

recommending to their clients, you know,

do both because there are these

deadlines and they don't want the

deadlines to expire. So do both. apply

to a customs agency and and file a

lawsuit. And some of them recommended

they do that before the Supreme Court

even rules because some of the deadlines

are passing.

>> So, what I'm hearing for you is that if

you're a trade lawyer who's about refund

litigation or section 301, you're

probably going to have really good job

security for the next three years, I'm

guessing, because it sounds like all

this is just headed to the courts. Yeah,

we're def there's de definitely going to

be like litigation that well not not

definitely but I think there's going to

be litigation that arises out of this.

>> So, okay, sounds good. Thank you, Holly.

Um, I don't see any more questions about

tariffs. We do have a webinar tomorrow

at 10:00 a.m. Eastern uh that is going

to have Holly, our friends from

Bloomberg Economics, the Nicole who

wrote that piece on the countries. We're

also going to have other analysts

talking about the sectors like retail

and technology. So, if you do want to

attend that webinar, just feel free to

reach out to me. I'll make sure that you

get that link. That's at 10 a.m.

Eastern. And if you missed that, uh

there is going to be a replay. But

Holly, thank you very much for joining.

I know you got a busy day, so I'll let

you go. Um and then, uh I'll just talk

about State of the Union, and then we

will let everybody get back to their day

jobs. So,

um, so, State of the Union, uh, there

are really, I think, three themes that

we're going to see tomorrow. Uh, this is

tomorrow night, uh, around 8:00 p.m.

Eastern. Uh, obviously, President

Trump's going to come in. He's going to

address the, uh, Congress. The Supreme

Court's going to be there. Kelshi

already has on the betting markets. Is

he going to shake, uh, John Roberts hand

or not? Uh, right now the, uh, the nos

have it. Uh, I didn't look at the

number, but the nos are saying that, uh,

they think President Trump's not going

to shake his hand. But anyway, there's

three themes that I think you should

keep in mind. One is geopolitical. Uh,

let me get this right. There we go. Uh,

one is geopolitical. Obviously, the

question about Iran. Now, I'm not going

to talk about this because obviously I

focus on US domestic policy, but again,

my friends over at Bloomberg economics

have a great piece of scenario analysis

of what could come out. Now, President

Trump is been at least according to

Bloomberg News, the latest from

Bloomberg News is that President Trump

was thinking about a limited strike on

Iran. the negotiations are scheduled for

Thursday and then you would have a much

more intense strike sometimes later if

negotiations falter so forth but again

that's the Bloomberg news but if you do

need a geopolitical analyst to discuss

this in greater detail please let me

know uh and we'll get you in touch with

Jenny and her team now the two domestic

themes that you're going to speak you're

going to hear is one is my colleague

Dwayne Wright put out a great note on

healthcare you know talking about

changes to the affordable care act now

the reason why there's going to be talks

about the affordable care act is because

republic Republicans are talking about

another bite of the apple via

reconciliation. Now this is think of one

big beautiful bill part two and this is

the process that allows Republicans to

do it once per fiscal year. You avoid

the Senate filibuster. So majority vote

in the House, majority vote in the

Senate. Now there a lot of healthcare

changes have been discussed about this

tax changes, things about you know

increasing home um home builders, you

know, decreasing taxes associated with

home uh building. But also just recently

in light of Friday's ruling, you have

some Republicans out there saying that

they should reinstitute tariff authority

via via reconciliation. All you need to

know is is that if President Trump talks

about things last night or tomorrow

night regarding that require legislative

change, if it's via reg reconciliation,

we have a 20% chance of that happening

this year. The votes just aren't there.

you can't get the House of

Representatives align when you only have

a margin of one and when you have

certain Republicans out there who are

just pretty much at the point where

they're not on board with the

president's agenda, it just doesn't seem

like it's going to happen. So whether

it's for a tariff authority or maybe

some of the healthcare changes, etc. But

again, if you need a copy of Dwayne's

note, please let me know. The third

thing you're going to hear about

tomorrow is in addition to tariffs,

which we already discussed, but the

third thing we'll hear about tomorrow is

affordability. Now, President Trump is

going to make a lot of repeat statements

of what he's said over the last couple

of weeks. He'll probably call for a

credit card interest rate cap, probably

call for the banning of corporation

purchases of single family homes. But

the story here is that if it requires an

act of legislation, it's very difficult

to come by. Even that corporation ban,

there's bipartisan warmth to it. And out

of all the things that he said, that's

probably the one that's going to drive

the most headlines because this week you

are going to see the Senate work on

housing reform. And the White House is

pressuring to get that attached as an

amendment to the housing bill. I don't

think it's going to work. Um, but again,

that's something that we're going to

keep an eye on. Where I'm going with

this is is that tomorrow on

affordability, you're going to hear a

lot of statements about it. It's going

to lead to a lot of headline risk. But

think of this. If it requires an act of

legislation, it's probably not likely to

happen. And if it requires regulation,

it's a new idea, it's going to be

quarters, if not years to happen. And if

it requires the executive order, then

it's either going to be tested in the

courts or he's going to try and do it

via the bully pulpit. And that's most

likely what you're going to see here is

President Trump trying to use the bully

pulpit. Think of things like, you know,

pressuring these banks to issue these

credit cards or just over the weekend he

was pressuring Netflix over, you know,

Susan Rice, one of their board members.

So the bully pulpit is what most likely

is the thing to keep in mind for the

State of the Union address. So I

apologize that we've gone a little bit

longer, but you know, we've got a lot

going on. I know this was really quick,

so if you do any need any deeper dive

conversations, please feel free to reach

out. Again, my email is nding10

bloomberg.net. Be very much happy to

have a conversation with you. Again, all

this here is available for you on the

Bloomberg terminal. Stay safe, stay

warm, and uh we will talk to you soon.

Thank you very much.

>> Our thanks to Nathan Dean, Bloomberg

Intelligence, senior policy analyst,

bringing you the latest installment of

his weekly Washington policy pulse. For

more from BI or to join this call live

each week, you can email Nathan at ndeb

bloomberg.net. That's nde an

bloomberg.net. And come back to the

podcast later today for the latest

edition of Balance of Power.