Trade Freedom: Is America's Trade Legal?

The Constitution of the United States grants Congress the power to regulate commerce among the several States. This power has been interpreted to include the ability to prohibit certain types of commerce, such as the interstate slave trade or the transportation of diseased livestock. However, the scope of Congress's power to regulate commerce has been debated, with some arguing that it should not extend to prohibiting commerce. The interpretation of the Constitution's Commerce Clause has significant implications for American federalism and the country's trade policies. For instance, the Trump administration's imposition of global tariffs in 2018 was deemed illegal by the US trade court, highlighting the ongoing debate surrounding the constitutionality of certain trade policies.

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The historical interpretation of the Constitution

The US Constitution was created during a convention in Philadelphia in 1787, with General George Washington elected as president of the convention. The Constitution was then presented on 12 September, with the final vote taking place on 15 September. The convention was convened due to political dissatisfaction with the economic situation at the time. The Articles of Confederation, in force since 1781, were seen as inadequate by some, including James Madison, who believed that the central government was too weak to regulate commerce, tax, or set commercial policy.

The Constitution addressed debtor relief laws with the Contracts Clause of Article I, Section 10, which barred states from "impairing the obligation of contracts". The Commerce Clause, however, did not include the power to regulate economic activities like manufacturing or agriculture. The interpretation of the Commerce Clause has been a topic of debate, with questions arising over the meaning of "commerce", "among the several states", and "to regulate".

The Supreme Court has played a significant role in interpreting the Constitution, with cases such as Penhallow v. Doane's Administrators (1795) and Ware v. Hylton (1796) influencing the understanding of the federal government's powers before the adoption of the Constitution in 1788. The Supreme Court has also used judicial review to interpret the Constitution among individuals, states, and federal branches. The power to regulate commerce, including the power to prohibit it, has been a subject of protracted debate, with the decision in United States v. Darby in 1941 sustaining the Fair Labor Standards Act and concluding this debate.

The Commerce Clause and its interpretation

The Commerce Clause is an important source of the powers delegated to Congress, and its interpretation is crucial in defining the scope of federal power in controlling various aspects of American life. The interpretation of the sixteen words of the Commerce Clause has been a subject of long and intense political controversy, with some scholars arguing that a broad interpretation of the word "commerce" was never intended by the Founding Fathers.

The Commerce Clause emerged as a response to the absence of any federal commerce power under the Articles of Confederation. For the first century, the primary use of the Clause was to prevent discriminatory state legislation. However, with rapid industrial development and an increasingly interdependent national economy, Congress began to assert more authority over interstate commerce and economic matters. The interpretation of the Commerce Clause has evolved over time, with the Supreme Court playing a significant role in shaping its scope.

In Gibbons v. Ogden (1824), the Supreme Court held that intrastate activity could be regulated under the Commerce Clause if it was part of a larger interstate commercial scheme. This decision set a precedent for a broad interpretation of the Clause. However, during the Lochner era (1905-1937), the Court narrowed its interpretation, experimenting with the idea that the Clause does not empower Congress to pass laws impeding an individual's right to enter into business contracts.

The Constitutional Revolution of 1937 marked a shift in the Court's jurisprudence, with NLRB v. Jones & Laughlin Steel Corp expanding the grounds for using the Commerce Clause to regulate state activity. The Court held that an activity could be considered commerce if it had a ""substantial economic effect" on interstate commerce or if the "cumulative effect" of an act could impact such commerce. This decision, along with others like United States v. Darby and Wickard v. Filburn, demonstrated the Court's willingness to interpret the Commerce Clause broadly.

In United States v. Lopez (1995), the Supreme Court attempted to curtail Congress's broad mandate under the Commerce Clause by adopting a more conservative interpretation. The Court held that Congress's power under the Clause was limited to regulating the channels of commerce, the instrumentalities of commerce, and actions that substantially affect interstate commerce. This decision marked a partial departure from the liberal interpretation of the Lochner era but did not signal a complete return to it.

The interpretation of the Commerce Clause continues to be a subject of debate, with some arguing that certain laws contradict the original intended meaning of the Constitution. The balance between federal and state powers remains a central issue in the interpretation of this clause.

The power to regulate vs. the power to destroy

The Commerce Clause in the US Constitution gives Congress the power to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes". However, the extent of this power has been a subject of debate, with some arguing that the power to regulate commerce does not include the power to prohibit it.

One of the earliest examples of this debate was "Jefferson's Embargo" in 1807-1808, which cut off all trade with Europe. This was challenged on the grounds that the power to regulate commerce was intended to preserve it, not destroy it. However, Judge Davis of the United States District Court for Massachusetts rejected this argument, stating that the Constitution creates a national sovereignty with limited powers, and that the power to regulate commerce is one of those specified powers.

The Supreme Court has also weighed in on the debate, with the 1937 case of NLRB v. Jones & Laughlin Steel Corp. marking a shift towards a broader interpretation of the Commerce Clause. The Court held that any activity with a "substantial economic effect" on interstate commerce could be regulated by Congress under the Commerce Clause. This interpretation was further reinforced by the Fair Labor Standards Act, which was upheld by the Court in United States v. Darby in 1941.

However, in United States v. Lopez (1995), the Supreme Court attempted to curtail Congress's broad legislative mandate under the Commerce Clause by adopting a more conservative interpretation. In this case, the Court held that Congress only has the power to regulate the channels of commerce, the instrumentalities of commerce, and actions that substantially affect interstate commerce. This decision was influenced by the belief that a broad interpretation of the Commerce Clause could lead to a weakening of individual liberties.

The Commerce Clause has also been invoked in cases involving intrastate commerce, such as Gonzales v. Raich, where the Court upheld a federal law regarding marijuana grown and consumed within a single state. The Court found that Congress may regulate intrastate economic goods as part of a comprehensive scheme to regulate interstate commerce.

In conclusion, while the Commerce Clause grants Congress significant power to regulate commerce, there are limits to this power. The Supreme Court has provided guidance on the interpretation of the clause, but the debate over the extent of Congress's power to prohibit commerce continues to evolve through legal challenges and changing political landscapes.

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The role of the federal government vs. state legislatures

The US Constitution gives Congress exclusive power over trade activities between the states and with foreign countries. Trade within a state is regulated exclusively by the states themselves. The Commerce Clause, which grants Congress this power, has been the topic of protracted debates over the extent of congressional power. For instance, in 1841, Henry Clay brought up the prospect of an act of Congress forbidding the interstate slave trade. This debate was concluded in 1941 with the Darby Case, which sustained the Fair Labor Standards Act.

The Commerce Clause did not originally include the power to regulate economic activities like manufacturing or agriculture that produced the goods to be traded or transported. However, the Court has since stretched the meaning of commerce to include economic activities, giving Congress plenary authority over economic but not non-economic activity.

The federal government has several agencies that help regulate trade, including the Department of Commerce (DOC) and the International Trade Administration (ITA). The DOC is an executive branch agency that promotes international trade, economic growth, and technological advancement. The ITA is a branch of the DOC that works to improve the international trade position of the United States.

The United States Trade Representative is responsible for identifying countries with which the United States can negotiate agreements to obtain export market access for American workers, farmers, and businesses. They also review the impact of all trade agreements on the volume of federal procurement and make recommendations to ensure that such agreements favour domestic workers and manufacturers.

State legislatures control their own commerce, but they cannot enter into credible trade agreements with foreign powers. This has, in the past, resulted in a nationwide economic downturn. The Contracts Clause of Article I, Section 10, of the Constitution, bars states from "impairing the obligation of contracts."

The impact on national security and the economy

While it is unclear what is meant by "American trade", this answer will assume it refers to trade with and within the United States.

The Impact on National Security

The United States' reliance on foreign producers for goods has left its supply chain vulnerable to geopolitical disruption and supply shocks. This vulnerability was exposed during the COVID-19 pandemic and later with Houthi attacks on Middle Eastern shipping. From 1997 to 2024, the US lost around 5 million manufacturing jobs and experienced one of the largest drops in manufacturing employment in history.

To address these issues, President Trump declared a national emergency in 2025, imposing tariffs to strengthen the international economic position of the United States and protect American workers. These tariffs were meant to reduce the country's dependence on other countries to meet its key security needs and to level the playing field for American businesses and workers by confronting unfair tariff disparities and non-tariff barriers imposed by other countries.

The Impact on the Economy

The impact of illegal American trade on the economy is complex and multifaceted. Illicit trade, such as the drug trade, has been linked to increased drug use, high relapse rates, and the contamination of food and water supplies, all of which impose significant economic costs on communities.

On the other hand, illegal immigration to the United States has been associated with both positive and negative economic impacts. Research suggests that immigrant workers increase the opportunities and incomes of Americans, with some studies indicating that illegal immigrants contribute more in tax revenue than they collect and benefit consumers by reducing the prices of goods and services. However, other studies have shown that certain groups, such as low-skilled native workers, may experience adverse effects on their wages.

Overall, while illicit trade can have detrimental effects on the economy, the impact of illegal immigration on the US economy appears to be nuanced and subject to varying interpretations.

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