Trump’s Unconstitutional Export Tax Is Probably Here to Stay
The only people who could challenge it in court probably won’t.
THE TRUMP ADMINISTRATION HAS IMPOSED a “deal” on chip manufacturers Nvidia and AMD under which they are required to pay the U.S. government 15 percent of revenue earned from computer chip sales to China. Nvidia will do so on sales of its H20 chip, while AMD will be required to pay that percentage of sales of its MI308 chip. This arrangement is likely unconstitutional and sets a dangerous precedent for unilateral executive imposition of taxes without legislative authorization. But it may not be challenged in court anytime soon.
Article I, Section 9 of the Constitution states that “No Tax or Duty shall be laid on Articles exported from any State.” The Supreme Court has interpreted this broadly to require “not simply an omission of a tax upon the articles exported, but also a freedom from any tax which directly burdens” exports. Trump’s appropriation of 15 percent of the two firms’ revenue from chip sales to China surely qualifies as such a tax.
The Supreme Court has held that the Export Clause “does not rule out a ‘user fee,’ provided that the fee lacks the attributes of a generally applicable tax or duty and is, instead, a charge designed as compensation for government-supplied services, facilities, or benefits.” But the payments imposed on the two chip manufacturers pretty obviously aren’t user fees, as they are not charges for the use of any government facilities or services.
Clark Packard suggests that the Trump export tax may be permissible under Peck & Co v. Lowe, a 1918 case in which the Supreme Court concluded that a “general tax” can be applied to export income, but only if it is “not laid on income from exportation because of its source, or in a discriminative way, but just as it is laid on other income.” In this case, however, the tax is not a “general” one and clearly targets the two firms’ export revenue from chip sales in an obviously discriminatory fashion.
The fact that the payments are part of a “deal” with the Trump administration also does not make them constitutional. The executive cannot impose an otherwise unconstitutional tax merely because it has reached an agreement to do so, in this case in exchange for authorizing export licenses. Otherwise, the government could impose taxes in exchange for a variety of discretionary decisions. For example, it could require payment of extra taxes in exchange for providing military protection against foreign attack, law-enforcement protection against criminals violating federal law, and much more. Part of the point of giving the power to tax to the legislature instead of the executive is precisely to prevent this kind of extortion.
The purpose of barring chip sales to China in the first place was, supposedly, to prevent that country’s government from acquiring materials that might endanger U.S. national security. If these chip sales really do imperil security, then the 15 percent tax does little to stave off the threat, as the Chinese government will surely pay the extra money needed to secure an important military advantage. And if they do not, then the Trump administration cannot constitutionally use an imaginary threat as a pretext for imposing an illegal tax on exporters.
The imposition of this unconstitutional export tax must be viewed in the context of Trump’s broader effort to usurp the power of taxation from Congress with respect to international trade. He has also tried to illegally use the International Emergency Economic Powers Act of 1977 (IEEPA)—a law that does not even mention tariffs—to impose the most extensive tariffs since the Great Depression, potentially costing Americans trillions of dollars in tax payments. The U.S. Court of International Trade struck down these tariffs in a ruling covering cases brought by five small businesses and twelve state governments (I am co-counsel for the plaintiffs in the former case). The CIT rightly ruled that IEEPA does not delegate such sweeping power to the president, and that it would be unconstitutional if it did. The case is now on appeal before the U.S. Court of Appeals for the Federal Circuit.
BLOCKING THE EXECUTIVE from usurping the power of taxation was a major concern of the Framers of the Constitution, who recalled the “Ship Money” abuses of King Charles I, which helped precipitate the English Civil War. Like King Charles, Trump is abusing emergency and national security powers to try to impose massive taxes unauthorized by the legislature, except that in the case of Trump’s export taxes , the written Constitution explicitly forbids his taxes. In that respect, Trump is even more abusive than King Charles was. At least “ship money” taxes (payments intended to finance protection against imminent naval attacks) were not completely unconstitutional. They could be enacted by Parliament, though not by the king acting on his own.
The Trump administration’s export taxes may not be limited to these two firms. Apparently, there are plans to impose similar unconstitutional taxes on others.
In addition to undermining the constitutional separation of powers, such executive usurpation of tax authority is a menace to the rule of law. If the president can unilaterally impose tariffs or export taxes whenever he pleases, that destroys the stable expectations on which businesses and consumers depend and creates obvious opportunities for political favoritism.
Unlike in the case of the IEEPA tariffs, Trump’s illegal export tax may not be challenged in court, at least not in the near future. To file a lawsuit, plaintiffs must have “standing.” Among other things, that requires them to demonstrate that they have been “injured” by the defendants’ illegal actions. The most obvious injured parties in this case are the two chip exporters. But they appear to have decided to accept the “deal” offered by the administration rather than risk again being barred from exporting chips to China entirely. Perhaps they also fear other types of retribution by the White House if they sue.
There may be other parties who can get standing. Perhaps competitors of the two firms (who remain barred from exporting chips to China) could challenge the “deal” on the grounds that it imposes a competitive disadvantage on them. It may be that one or more state governments could secure standing based on some type of indirect harm. The Supreme Court’s standing jurisprudence is far from a model of clarity on such issues, particularly when it comes to state standing. It is also possible that Nvidia or AMD might change their minds and decide to sue in the future. And if the administration proceeds with plans to impose similar export taxes on other firms, they might sue, even if Nvidia and AMD do not.
For the moment, however, it looks like Trump is likely to get away with this export tax power grab. If he continues to do so, that might incentivize him to engage in further “pay to play” schemes of this type—and to further erode the constitutional separation of powers.
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