Wrestling over Tariffs

Superpowers and California's Counterpunch

Japanese sumo wrestlers – painting from artist Utagawa Yoshikazu. Image via Ota Memorail Museum of Art website

This is Part 5 in a series by econVue contributor Marsha Vande Berg. It focuses on geopolitical and economic risks driving decisions by government policymakers, business leaders, and global investors––drawing on the risks outlined by the Eurasia Group in its Top Risks 2025 report.

Introduction

I confess to growing impatient with sticky problems that defy logic, problems that given a chance, could yield good solutions. But the on-again, off-again actions characteristic of the ongoing tariff war seem to be defying all rational policy-making. Are we no longer living in rational times? While writing this has done little to resolve my impatience, what follows is my attempt to highlight certain nuances in the current state of play at the international, national and state levels that may well shape the course of events. I especially call your attention to the discussion about the raft of legal challenges now facing the Trump administration.

Superpowers Square Off

The high stakes tariff war between the world’s two economic superpowers brings to mind two Sumo wrestlers about to square off in the ring. The purse each seeks to own represents a claim to dominate the setting of new terms for trillions of dollars in global trade—and ultimately to drive the shape of an emerging new geopolitical and social order.

The stakes are incredibly high. Reverberations reminiscent of how the Covid-19 pandemic halted the workings of global supply chains already are being felt around the world. Supply chain challenges are increasing. Potential shortages in US stores are but a few weeks away. The Financial Times is reporting that the Port of Los Angeles, the main port of entry for goods from China, is expecting a drop-off of one-third in scheduled arrivals starting the week of May 4, while airfreight handlers are forecasting sharp falls in bookings.

Higher inflation and lower tourism to the US is in the offing. There is now a 90% probability of a recession this year, writes the chief economist of Apollo, an international alternatives investor.

The tense tit-for-tat between Washington and Beijing over tariffs on the other’s tradeable goods—the direct result of President Trump’s tariff regime first announced in February—is threatening the entire global order.

Both sides are claiming to be open to talks - and just maybe a breakthrough will happen by the time this column is published. But it’s not likely. There’s just precious little to suggest that an opening is imminent. The two sides appear still to be stuck trying to settle whether representatives are even talking to one another about the possibility of talking with one another. Go figure.

Trump’s remarks during a recent interview with Time magazine only deepened confusion about whether the two sides were even speaking, let alone negotiating. The reporters’ questions are in italics:

Will you call President Xi if he doesn’t call you?

No.

You won’t?

Nope.

Has he called you yet?

“Yep.”

When did he call you?

“He’s called. And I don’t think that’s a sign of weakness on his behalf.”

China’s Response

When asked about the possibility of the call according to Trump, representatives of China’s government flatly denied any talks were happening. For talks to even begin, Washington would have to drop all unilateral measures against China, they insisted.

In the meantime, the two heavyweights also are vying to convince their respective trading partners to side with the one over the other. The US is jawboning to drive concessions against the threat of a blanket 10-percent tariff, set to take effect after a 90-day pause ends in July, in exchange for restricting their Chinese trade and investment. Washington also claims it is ready to start trade talks with at least 70 countries with the possibility of progress as a result of preliminary talks with Japan, South Korea and possibly India, where Vice President J.D. Vance visited recently.

For its part, Beijing has launched a charm offensive to influence market preferences across Southeast Asia and the Global South with specific warnings directed at trade partners against striking deals with the United States at China’s expense. They are vowing reciprocal measures if economies do.

South Korea, which does significant trade with both China and the US, has been told, for example, that if it exports any product containing critical metals it imported from China for use by US military contractors, Seoul will face retributions.

Compromise is not an option, the official language emphasizes: “Negotiating with a tiger will only lead to being devoured by the tiger, and resolute struggle is the only way to win the future.”

Time is Not on Our Side

And chances for progress in reaching a resolution that could offset the economic pain consumers, businesses and state and local governments are facing seem to be narrowing. Even if the verbal battles were to ease and there is an agreement to talk, the outline of the talks must be agreed on. Once that happens, it then typically takes 18 months to negotiate a trade deal – and 45 days to implement an agreement.

While agreements to agree in principle can happen much faster than the trade talks themselves, negotiators still require a detailed script with practical and realizable objectives at each phase that’s anticipated in the talks. Underscoring these complexities is the likely dearth of experience as well as available resources available to the administration in Washington.

Even putting all of that aside, the fact that the stakes are so high and the economic realities all but upon us could have a way of pressing political energies and egos into quicker action. By multiple accounts, the US economy is weakening and cannot afford to decouple from China, the world’s second largest economy and manufacturing floor to the world. By the same token, a still fragile Chinese economy that is lumbering under the weight of much needed economic structural reforms, cannot afford to lose its primary export market.

But hope alone is unlikely to be enough.

A Counterpunch at US tariffs

A new player has stepped into the proverbial ring, namely the state of California. Gov. Gavin Newsom together with his State Attorney General Rob Bonta has sued the Trump administration in a San Francisco federal district court seeking to halt the flurry of Trump tariffs. The lawsuit argues the actions threaten untold financial havoc in a state already beset by serious economic challenges, notably the billion-dollar losses due to the January wildfires in Los Angeles.

This could end up being just another of the multiple lawsuits filed against the Trump administration over immigration, higher education and other issues since his second term began some 100 days ago. That is except for the fact that in this instance, the plaintiff is America’s biggest economic player and now the fourth largest economy in the world – as announced recently when the IMF reported that California’s GDP is now larger than Japan’s.

California’s Legal Challenge

California is a vital engine for US economic growth, handling $675 billion in total traded merchandise. It is the number one state for imports – and the second largest exporter - while importing 2.7 times more goods than it exports. It’s lead trading partners are Mexico, Canada and China.

The ports of Los Angeles and Long Beach are the largest container port complex in North America, responsible for handling over 40 percent of US containerized imports and nearly 30 percent of exports. In 2022, the ports supported three million jobs nationwide and generated $7.5 billion in combined state and local and federal tax revenue.

Tariffs could hit one of California’s most important economic drivers, the twin ports of LA and Long Beach and the warehouse complexes in the state’s interior – really hard, reports Dan Walters, CalMatters. Economic harm to California will translate into economic harm across the country.

In the lawsuit announced on April 16, Newsom described the White House’s actions on tariffs as threatening an escalation of the global trade war and an outcome that will result in “immediate and irreparable harm” to the state’s already challenged economy. The suit also alleges imposition of the tariffs was tantamount to presidential over-reach on two fronts.

The first is Trump’s citing the International Emergency Economic Powers Act (IEEPA) when he ordered tariffs, exceeding his authority to do so under the 1977 law. That law grants a president sweeping authority to address national emergencies with specific economic measures but without referencing tariffs. The suit also charged the president usurped the authority of Congress delegated specifically to the Congress by the US Constitution under Article 1, Section 8.

While the private sector’s response to the lawsuit has been muted, reports suggest that business, trade and technology organizations in the state, perhaps fearful of retribution, are voicing their dissatisfaction privately about tariffs and offering information in the lawsuit’s support. At the same time, these same private sector representatives are seizing the opportunity to spotlight perennial complaints that California’s over-regulation is throttling growth.

Legal Stakes and Supreme Court Outlook

Could the lawsuit serve to upend Trump tariffs – or will it amount to tilting at windmills? Legal experts point to the lawsuit’s strong statutory and constitutional arguments, citing the US Supreme Court’s recent skepticism toward expansive executive actions in cases involving President Biden’s Clean Power Plan and student loan forgiveness plan — both struck down under the Court’s application of the “major questions doctrine.”

By the same token, were the lawsuit to reach the US Supreme Court as is likely, it will face a majority-conservative court with six of nine judges, three of whom were appointed by Trump, identified as favoring conservative legal findings. The court majority may therefore be inclined to defer to executive authority when it comes to trade policy.

Within days of the lawsuit filed by Newsom and Bonta, attorneys general in another dozen, mostly politically blue states jointly challenged the legality of Trump’s tariff regime in a separate legal filing with the US Court of International Trade. “These edicts reflect a national trade policy that now hinges on the president’s whims rather than the sound exercise of his lawful authority,” the filing charges.

Other Plaintiffs Join In

“These tariffs hit every corner of our lives – from the checkout line to the doctor’s office – and we have a responsibility to push back,” said Dan Rayfield, attorney general for Oregon, the lawsuit’s lead plaintiff, in a statement.

Two members of the Blackfeet Nation also have sued the Trump administration, alleging in a Montana federal lawsuit that tariffs against Canada violate their tribal treaty rights. And two legal organizations, the Liberty Justice Center suing before the US Court of International Trade on behalf of five owner-operated, small businesses in five different states, and the New Civil Liberties Alliance in a Florida federal district court, are challenging the tariff’s legality.

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The common denominator is the allegation of presidential overreach and usurping Congress’ constitutional authority. Each of the states’ lawsuits also claims the tariffs will result in severe financial losses and economic harm for state and local governments as well as citizens.

Why it Matters

As the New York Times noted recently:

“The lawsuits carry great significance, not just because the tariffs have roiled financial markets and threatened to plunge the United States into recession. The legal challenges also stand to test Mr. Trump’s claims of expansion president power…”

As the lawsuits proceed, what’s at stake is far more than tariff schedules—it’s the balance of powers and the future stability of the global economy itself.

📍San Francisco