Are Trade Deficits an Emergency?
Thomas Jefferson warned us that “the natural progress of things is for liberty to yield and government to gain ground.” The growth of government in the past century has certainly vindicated his assessment. There are multiple explanations for this, but one of the most relevant today is the tendency of emergencies, both real and imagined, to create permanent increases in government’s size and scope. The “War on Terror,” “The Great Recession,” COVID lockdowns and mandates, the “Student Loan Crisis” and now President Trump’s tariffs are all recent examples of this tendency. It is not our intention to discuss the wisdom of these policies. Nor are we suggesting that emergency powers do not have a place in our republic. Our only aim here is to draw attention to the threat to liberty that a too broad interpretation of emergency powers represent.
The Constitutional Tradeoff
The question of emergency powers has been part of American politics from the beginning. At the Constitutional Convention in Philadelphia in 1787, Gouverneur Morris of Pennsylvania proposed inserting a clause giving the president temporary dictatorial powers during times of invasion, but it was unanimously opposed by the other delegates. Their clear intention was to give legislative authority wholly to those elected representatives closest to the people: the members of the House and Senate.
Ultimately, the Constitution provided a legislative process that is slow and arduous. Laws are meant to pass only after careful deliberation, adequate debate and consensus building. This isn’t a design flaw — it’s a design feature, built in as a safeguard for liberty. The Founders loved liberty and hated tyranny, and the Constitution reflects their priorities.
And yet, there are circumstances where a slow deliberative process is inadequate. A quick decision in time-sensitive matters can make a huge difference in the outcome. Today the vast majority of democracies grant the executive temporary emergency powers. Most of these have explicit boundaries for when these powers may be used (e.g., war, insurrection, disaster) as well as strict time limits requiring legislative renewal after several days or weeks. Ultimately, the U.S. too, passed laws delegating emergency powers to the president, but unfortunately without the clear definitions and time limits as some others do. Indeed, Benjamin Franklin tried to warn us of the possibility of the broad expansion of executive power and the dangers it would pose to society “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”
Some Historical Background
You might think that Donald Trump is the first president to use his emergency powers to raise tariffs across the board, but that distinction actually belongs to Richard Nixon. In August 1971, the U.S. was facing a balance of payments problem, which Nixon attempted to resolve by imposing a 10% surcharge on all imports. He justified his policy by invoking the Trading With the Enemy Act, a World War I law that was meant to blockade hostile nations in time of war, certainly not our allies in time of peace. But Nixon wanted to force our allies to revalue their currencies upward, in order to prop up the overvalued dollar and save the Bretton Woods system of fixed exchange rates. This he ultimately failed to do. But he succeeded in raising concerns in Congress about presidential overreach. In response, Congress passed the National Emergencies Act to set procedures for declaring and ending emergencies, and the International Emergency Economic Powers Act (IEEPA) to replace the Trading With the Enemy Act with narrower peacetime authority. The reforms were supposed to restore constitutional balance. They failed.
There’s a famous line from the movie “The Princess Bride”: “You keep using that word. I do not think it means what you think it means.” That’s essentially the problem with presidential emergency declarations. IEEPA lets presidents act against any “unusual and extraordinary threat” to national security, foreign policy, or the economy — language broad enough to cover almost anything. A trade deficit that’s been building for decades? An emergency. The opioid crisis that’s been developing for 20 years? An emergency. Student loan debt accumulated over decades? An emergency. Pretty soon “emergency” doesn’t mean what most of us think it means — it just means “something the president wants to do without congressional approval.” All of these problems represent ongoing policy challenges that could be addressed through normal legislation. They are serious, but calling them emergencies doesn’t make them so — it just gives presidents a way around the legislative process. The Founders of our republic never intended the executive branch to function this way — quite the opposite. James Madison points this out in Federalist Paper No. 47: “accumulation of all powers…in the same hands…may justly be pronounced the very definition of tyranny.”
The duration problem is just as bad. Emergencies automatically renew yearly unless Congress passes a joint resolution to end them — a resolution the president can veto. Overriding a veto requires two-thirds of both chambers. In practice, a president needs only one-third-plus-one loyalists in either house to keep any emergency alive forever.
Result: 42 active national emergencies as of 2025. The 1979 Iran hostage emergency is 46 years old; the hostages came home in 1981. The post-9/11 emergency, now 24 years running, sustains surveillance and detention policies that have become permanent.
The Ratchet Effect
This combination of vague definitions and indefinite duration creates ideal conditions for permanent government expansion. Economist Robert Higgs described this pattern in his 1987 book Crisis and Leviathan. Government grows in spurts during crises but never fully contracts afterward — like a ratchet wrench that turns easily in one direction but locks in reverse.
The mechanism is predictable. First, a crisis arrives — or something gets labeled as a crisis. Public fear spikes and politicians face pressure to act. Second, government expands dramatically through new agencies, regulations, and claimed powers. Third, the crisis passes, but government only partially contracts. Bureaucracies develop interests in their own survival. Beneficiaries organize to defend new programs. The legal infrastructure, once created, proves easier to maintain than dismantle. Most importantly, attitudes shift and what seemed like dangerous overreach becomes the “new normal.”
Higgs uses war as one of his prime examples of the ratchet effect. Before World War I, the federal government consumed about 3% of GDP. Government spending rose dramatically during the war and remained high after the armistice, leveling off at nearly double the pre-war baseline. World War II produced an even more dramatic ratchet effect, with postwar spending settling at 15-20% of GDP — five times the prewar level — while birthing a permanent national security apparatus unimaginable before 1940.
These were genuine emergencies with clear endpoints—signed armistices marking definitive conclusions. Yet even with those boundaries, government never fully returned to its previous size.
The Supreme Court as Backstop
When Congress is unwilling or unable to challenge presidents on the constitutional limits of their authority, the Supreme Court has shown a willingness to do so. When President Biden claimed that the Heroes Act of 2002 granted him emergency powers to forgive student debt, the Supreme Court ultimately rejected his argument. Passed in the immediate aftermath of 9/11, the Heroes Act of 2002 authorized the president to modify or waive the loan agreements of those most affected by the emergency, primarily those called up to active duty in the “War on Terror”). When Biden sought to use the COVID-19 pandemic to forgive at least a portion of the student debt for nearly all students, the Court blocked it. Justice Roberts, speaking for the majority, stated, “We hold today that the Act allows the Secretary to “waive or modify” existing statutory or regulatory provisions … not to rewrite that statute from the ground up… (The debt forgiveness) plan has “modified” the cited provisions only in the same sense that “the French Revolution ‘modified’ the status of the French nobility” — it has abolished them and supplanted them with a new regime entirely.”
As we write this, the Court is hearing arguments about the Trump tariffs, and their interaction with the government’s lawyers indicates their willingness again to interpret the statute relatively narrowly. Justice Gorsuch in his questioning has even made explicit reference to the ratchet effect, when he stated, “Congress, as a practical matter, can’t get this power back once it’s handed it over to the president,” Gorsuch said of tariff authority. “It’s a one-way ratchet toward the gradual-but-continual accretion of power in the executive branch and away from the people’s elected representatives.” In another exchange, Justice Jackson noted that the law in question (the IEEPA) had been specifically designed to replace the Trading with the Enemy Act in order to curtail the power of the president. “So it seems a little inconsistent,” she said, “to say that we have to interpret a statute that was designed to constrain presidential authority consistent with an understanding that Congress wanted the president to have essentially unlimited authority.”
But even in cases where the Supreme Court interprets an act narrowly, even if the presidential actions are eventually overturned, these decisions do not prevent presidential actions from having a significant impact. Ultimately the Supreme Court cases are a rear-guard action. What is needed is reform of the law granting emergency powers, and that requires Congressional action.
The Solution
Congress must do what it failed to do back in 1976, and what many other countries are already doing. It must define “emergency” as an acute, immediate threat requiring speed normal legislation cannot provide. Chronic issues — trade imbalances, public-health trends, immigration patterns — can be effectively dealt with using the legislative process provided in the Constitution.
Second, emergency orders should automatically sunset after a brief period, perhaps, 60–90 days, unless Congress explicitly extends them. This places the ultimate burden of legislating for the people back in the hands of their local representatives, where the Founders intended it to be.
About this Piece
This piece is featured in the December 2025 edition of When Free to Choose. It was co-authored by Northwood University faculty members, Dr. Dale Matcheck and Benjamin Fortin. A graduate of Cornell University, Dr. Matcheck has taught economics at Northwood University since 1996, serving as Department Chair since 2010. The recipient of the Sam Marotta Faculty Ethics Award in 2019 and 2020, Dr. Matcheck is the co-editor of When We Are Free, an anthology of essays on limited government and the free enterprise system, and served as the academic director of the Northwood University Freedom Seminar from 1999-2023. Readers can email him at matcheck@northwood.edu. Benjamin Fortin is an Instructional Designer for the Center for Excellence at Northwood University, where he also serves as an Adjunct Political Science Professor. He can be reached at fortinb@northwood.edu. Click here to receive When Free to Choose — Northwood’s signature publication dedicated to exploring the importance of free enterprise — in your inbox!