Supreme Court exposes most obvious hidden truth about Trump’s tariffs.

Sign up for the Slatest to get the most insightful analysis, criticism, and advice out there, delivered to your inbox daily.

Last Wednesday, the Supreme Court heard a challenge to Donald Trump’s “Liberation Day” tariffs that were put in place to punish foreign countries running a trade deficit against the United States, against China and Mexico for alleged fentanyl smuggling, and against Canada just for being Canada.

The consolidated cases, Learning Resources v. Trump and Trump v. VOS Selections, challenge Trump’s claim that he has the power to issue tariffs under the International Emergency Economic Powers Act of 1977, which permits the president to regulate transactions involving any property in which any foreign country or national thereof has any interest, in order to deal with an unusual and extraordinary threat.

On this week’s Amicus podcast, co-hosts Mark Joseph Stern and Dahlia Lithwick spoke with Marc Busch, the Karl F. Landegger Professor of International Business Diplomacy at the Edmund A. Walsh School of Foreign Service at Georgetown University. He’s an expert on international trade policy and law, and he signed on to an amicus brief on behalf of trade scholars explaining the history and context of the IEEPA. This transcript has been edited and condensed for clarity.

Dahlia Lithwick: These arguments were, in some sense, a very granular and fact-based parsing of statutory language. But they also played out at the highest level of questions about separation of powers and delegation. It doesn’t often happen that you have such a profound split-screen where you are seeing both micro-analysis of the verbs in IEEPA and at the same time profound questions about the limits of presidential power.

Marc Busch: Yes, but there was also no open, honest discussion about how absurd all of this is from an economics perspective. There was no discussion of that, with the exception of Neal Katyal mentioning that the U.S. has been running a trade deficit in goods since the 1970s, and they’re not persistent in a bad sense; they’re persistent in the sense that goods don’t reflect our comparative advantage. The government tried to cut services out of the calculation on Liberation Day when in fact, like all rich countries, we are a services economy. And that’s really hard to square with what is at stake, and leads us back to the macro perspective.

This case is so much bigger than trade. This is a separation of powers case, and it deserves to be taken very seriously precisely because of that. But there are some basics in economics that would have shed more light on what a power grab this is with respect to wanting a means of raising revenue.

As the plaintiffs pointed out, the DOJ’s submission was in fact the worst possible foot forward, inasmuch as we’ve been hearing since Liberation Day that these tariffs are a tax grab. We’ve heard they’re raising some crazy number of billions of dollars. We’ve heard that maybe we should have an external revenue agency. We’ve heard that maybe these can replace income taxes in the United States. Every deal has led to the president boasting about the haul of revenue he’s getting through tax collection. And that landed them in a morass, going out on a limb with respect to “regulatory” versus “revenue-raising” tariffs, and with the micro largely overshadowing the macro in a way that might have surprised many who listened in.

Mark Joseph Stern: It was so interesting, because a lot of economists who weighed in on this case, including you, through amicus brief, all made the same point, which is Econ 101: that a trade deficit is exactly matched by a country’s net capital inflow. So what the government is calling a deficit could also be described as a foreign investment surplus. It is a surplus that has existed for more than half a century, as Neal Katyal kept saying over and over again. The truth is that it’s neither good nor bad. It’s just the reality of a wealthy nation that buys more from overseas than it sells. There’s nothing about it that is a crisis, let alone a threat or an emergency. The justices didn’t really grapple with that.

Marc Busch: That’s right. Part of the frustration with the amicus brief is that we couldn’t do that either.

I got a Nobel laureate economist to sign off on our amicus brief, Joe Stiglitz, and his first email back to me was, Why stop there? Let’s tell them this doesn’t make any economic sense. Why aren’t you talking about the Constitution? A number of economists who signed our amicus brief begged for more because of the absurdity of the underlying economic logic.

The one thing I haven’t heard in the media played up nearly enough was the logical conclusion of Solicitor General John Sauer’s argument. He said in defense of his spin that this is a foreign-facing tariff, not a revenue-generating tariff, that in the president’s ideal state of the world, there is no revenue collected. Why? Because every business has moved to the United States and is sourcing and doing everything domestically such that the tariff wall is irrelevant and not a revenue-raising mechanism.

Do you realize what that means? That is autarky, and I have to say again, Economics 101. That’s why you’ve never heard the president give a press conference or a speech about what his strategy is with respect to these tariffs, because that is the logical conclusion that Sauer laid out, and no American would vote for that.

The tariffs are not popular. Polls show that 60 to 70 percent of Americans are against them, but I could not believe that Sauer said that. I get logically why he had to concede it, but I wish more in the media would pick up on the fact that he did utter that, and that should be one of the scariest things coming out of this litigation.

Mark Joseph Stern: I think that at least some of the justices realized that, at bottom, these are taxes on American consumers. Did that hearten you at all? Did it make you feel like some of these guys are smart enough to understand that this whole smokescreen is obscuring the reality that the president is simply imposing a tax regime unilaterally on Americans?

Marc Busch: I was elated to hear that line of questioning, perhaps best articulated by Justice Sonia Sotomayor. What a relief to hear them utter that line: “Tariffs are taxes.” In that regard, one of my favorite briefs submitted by anyone about how we pay the tariffs was by the Watch Association, representing those who both make and repair watches, both here and abroad, and they said: We pay the tariffs as a group. You could almost feel their plea, inasmuch as they didn’t engage with the law nearly as much as the other briefs, they just wanted to make that simple point, which Katyal opened with, and which several of the justices then echoed their attacks—there’s no mystery. And while Sauer wanted us to believe that the pass-through rate isn’t 100 percent, and he came up with this far-fetched notion that maybe 70 percent of the tariff is eaten by foreign exporters, which is absurd, the evidence we have both under Trump 1.0 and 2.0 to date is that the pass-through rate is about 80 percent to Americans, maybe 20 percent pricing to market by exporters abroad.

This Content is Available for Slate Plus members only

The Real Reason Kim Davis Never Stood a Chance at the Supreme Court

DOJ Had Its First Big Hearing in a “Trump Enemy’’ Prosecution. The Judge Was Not Pleased.

An Expert on Hamas Explains Why the Group Isn’t Going Anywhere

This Tiny Southern Town Became Famous off a Gruesome Lie. Now It Can’t Let Go.

There’s no way to misunderstand these as anything other than what they are, which is as a tax that disproportionately hurts American manufacturers. You have to keep in mind about half of what the U.S. imports includes intermediate inputs, which are then used for production, including to export. So this manufacturing renaissance that the administration likes to dangle in front of us is far-fetched because we’re handicapping precisely those that we wish to champion.

Dahlia Lithwick: It’s such an interesting problem because we talk all the time about the moments in which the justices substitute their own knowledge for what’s in the briefs and the submissions, or what’s on the record about science, about climate change, about epidemiology, and the justice’s freelance substitutions are so often wrong. You’re saying this was a situation where just having some rudimentary sense of who pays tariffs and how they work was an actual bonus because it got to pierce through what Sauer was saying. We don’t often laud the justices for knowing that which is knowable, but they don’t always find it out. They at least took the time to figure out the stakes of this case.

Sign up for Slate’s evening newsletter.