Month: November 2025

The OECD International Migration Outlook 2025, along with its usual overview of trends in migration, migration policy, and migrant integration policy, includes a topics chapter on “International migration of health professionals to OECD countries,” written by Ave Lauren, José Ramalho, Jean-Christophe Dumont, Gaetan Lafortune ,
Agya Mahat, and Tapas Nair. (For those not familiar with the OECD, it’s a research organization made up of 38 generally high-income member countries.) The authors point out that the number of doctors and nurses is on the rise in the world’s high-income countries–and the number of foreign-born

In all countries, doctors and nurses are critical to the functioning of health systems, and their numbers reflect this role. In 2023, OECD countries had over 4.5 million doctors and 12.3 million nurses, compared to 2.8 million and 8.1 million in 2000, respectively. Over the past two decades, the growth in the number of these professionals has outstripped population growth in virtually all OECD countries. The 38 OECD countries represent 17% of the world’s population but account for about 39% of the world’s medical doctors, nurses, midwifes, dentists and pharmacists. On average, the number of doctors per 1 000 population across OECD countries increased by 38%, reaching 3.9 doctors per 1 000 population …

Over the past two decades, the overall share of foreign-born health professionals in OECD countries has increased steadily. In countries with consistent data over the period, the total number of foreign-born doctors rose by 86% between 2000/01 and 2020/21, while the number of foreign-born nurses grew by nearly two and a half times … In both cases, this growth outpaced the general increase in the total number of doctors and nurses, which rose by 41% and 48%, respectively. … Among the main countries of residence, Germany and Australia saw the number of foreign-born
doctors nearly triple. The United Kingdom experienced a doubling, and more moderate increases were observed in the United States and France.

A similar pattern is evident among foreign-born nurses. Finland saw the steepest rise, with numbers increasing almost eightfold though starting from a very low level in 2000/01. In Norway, they increased more than fourfold. In Germany, Ireland and New Zealand, the numbers more than tripled, while in Australia and Spain, they nearly tripled. Switzerland also recorded a significant increase. Among the other major countries of residence, Canada, the United Kingdom and the United States all saw their numbers more than double …

The United States specifically had 196,000 foreign-born doctors in 2000/01, which was 24.4% of all doctors in the country. By 2020/21, this rose to 291,000 foreign-born doctors in the United States, or 29.7% of all doctors in the country. For nurses, the United States had 336,000 foreign-born nurses in 2000/01, or 11.9% of the total, and 736,000 by 2020/21, or 17% of the total nurses in the US. As the report notes: “In absolute terms, the United States remains the primary country of residence for both foreign-born doctors and nurses. … Among all foreign-born health professionals in OECD countries, 36% of all foreign-born doctors and 42% of nurses were practising in the United States in 2020/21.”

For some countries, the inflow of foreign-born doctors and nurses were trained in the sending country. In the US, in contrast, in 2023, about 25% of the inflow of doctors and 10% of the inflow of nurses were trained in the sending country; the rest arrived in the United States and did their training here. In this sense, coming to the UIS and then being educated and trained as a doctor or nurse can be viewed as a channel for being able to migrate to the United States.

Of course, some of the migration of foreign-born health professionals is from one high-income country to another: say, a nurse from Germany who ends up working in Austria or Switzerland. The authors of the OECD study write: “Movements of health professionals within the OECD are becoming increasingly complex. However, only a few countries within the OECD area are net gainers, meaning that they receive more doctors and nurses from other OECD countries than they lose. The United States stands out, with a net gain of more than 55 000 doctors and 144 000 nurses compared
to the rest of the OECD.”

What are the main countries of origin for the health care professionals who migrate to OECD countries? “In 2020/21, there were slightly less than 100 000 doctors born in India working in the OECD. Germany, China and Pakistan each had about 30 000 emigrant doctors in OECD countries. Romania and the United Kingdom followed with around 25 000. Among migrant nurses, the Philippines was by far the main country of origin, with nearly 280 000 nurses abroad. India ranked second, with 122 000 – less than half the number from the Philippines. Poland followed in third place, with about half the total of India. Nigeria and Germany completed the top five.”

Some of these sending countries–the Philippines with regard to nursing is a prominent example–have designed health care training programs that will have far more graduates than their domestic economy needs, with the expectation that many of them will migrate but plenty will remain (or return after migrating for a time) as well. However, some countries seem to have taken a role of being a home for training, but with an expectation that most of the graduates will leave.

One of the hoary arguments about immigration is whether the immigrants are mostly doing jobs that Americans don’t “want” to do. Whatever the degree of truth in this claim for jobs like tough physical agricultural labor, it’s not clear how it applies to the migration to the US of people who end up being health care professionals. Instead, health care jobs appear to be a case where, even given the considerable expansion of the industry, the US could do more to prepare students for such jobs in earlier grades and expand the slots for training doctors and nurses.

I generally support central bank “independence,” but this independence comes at the price of constraints and accountability. Thus, when a central bank Federal Reserve doesn’t manage to achieve its goals, or makes particularly aggressive and innovative use of its powers that end up with high costs, then then Fed needs to be accountable for those choices. Andrew T. Levin and Christina Parajon Skinner consider some Fed decisions in recent years in “Central Bank Undersight: Assessing the Fed’s Accountability to Congress” (Vanderbilt Law Review, 2024, 77:6, pp. 1769-1830). The authors write:

Over the past 15 years, however, the scope and complexity of monetary policy has outpaced Congress’s ability to monitor these policies through existing mechanisms of oversight. For example, internal shifts in the Fed’s governance and power dynamics have led to the disappearance of dissents on monetary policy decisions, thereby hampering legislators’ abilities to discern the range of views that have informed those decisions. Moreover, in conducting its latest round of securities purchases (“QE4”) during 2020–22, the Fed did not provide legislators with cost-benefit analyses or risk assessments at any stage of the program. Indeed, QE4 is now likely to cost taxpayers more than $1 trillion, but its efficacy has still not been scrutinized by any external reviews.

During the pandemic, inflation as measured by the Consumer Price Index spiked up to 9.1% in June 2022. Readers will remember that there was a dispute over whether the underlying cause was supply chain disruptions during the pandemic, implying that the inflation would fade on its own, or driven by high levels of government spending during the pandemic, in which case the inflation might not fade. As usual, the like answer was “some of both,” but the fact remains that inflation started rising early in 2021 and the Fed did not raise interest rates to counteract that inflation until
spring 2022, at which time inflation started falling soon thereafter. It felt to me as if the Fed was reluctant to raise interest rates for a time because it might seem to be criticizing or blaming the spending bills from the incoming Biden administration for the rising inflation, instead of just reacting to the fact of higher inflation as it got started.

Levin and Skinner focus on a broader but related issue: the shift in how the Federal Reserve operates and conducts monetary policy. Pre-2008, the Fed generated income from providing services to banks (like check clearing) and by holding Treasury bonds that paid interest. Banks held minimal reserves at the Fed, and the Fed didn’t pay any interest on these reserves. The risks involved, along with the Fed’s expenses, were both low. In a given year, the Fed generated a surplus measured in tens of billions of dollars, which was then paid to the Treasury.

This model of how the Federal Reserve operates has been tranformed. The authors write:

[T]he size and composition of the Fed’s balance sheet has changed dramatically since 2007. At that time, paper currency accounted for 95% of the Fed’s liabilities, which stood at about $800 billion. Since then, the Fed’s balance sheet has expanded by a factor of ten to around $8 trillion as of 2023, and interest-bearing bank reserves and reverse repos now comprise nearly two-thirds of the Fed’s total liabilities. Moreover, since fall 2022, the Fed has been incurring net operating losses and funding that cost by expanding its interest-bearing liabilities, in effect borrowing those funds directly from the public without congressional authorization. Indeed, the Fed’s programs and operations are exempted from the appropriations process, the debt ceiling, and standard accounting rules.

I have tried over the years of writing these posts to explain changes like why bank reserves went way up, the Federal Reserve now paying interest on those reserves, quantitative easing policies, the Fed’s use of the reverse repurchase market, and other issues. Here, I won’t try to explain all these terms. My first point is just that the fundamental structure of the Federal Reserve balance sheet, as well as how it conducts monetary policy, have shifted dramatically.

As one result from these changes, Levin and Skinner offer a striking figure showing that from 1960 up to about 2020, the Fed has a surplus each year–sometimes higher or lower, but typically in the range of 0.2-0.5% of GDP, which it paid to the US Treasury. One result for this shift was that, both during the pandemic and before, the Federal Reserve policies of “quantitative easing” ended up with the Fed holding several trillion dollars in federal debt, which had been issued at low interest rates. When the Fed raised interest rates starting in 2022, the interest paid by the Fed on bank reserves necessarily went up, while the funds received from all that earlier low-interest Treasury debt did not. Instead of the Fed being a low-risk operation that paid a surplus to the US Treasury, the Fed actually lost money–which it plans to pay back out of surpluses to be generated in the future.

With all the changes to the financial structure of the Fed, it has been making losses rather than surpluses , and the surpluses aren’t expected to resume for a few more years. The authors estimate that there will be a $1.6 trillion total gap over the 15 years or so between what the Fed would have paid the Treasury under previous arrangements, and what it will end up paying now.

I’m aware of the reasons for the changes in how the Federal Reserve operates: indeed, many of the changes seem reasonable to me. Again, I’m a believer that the Fed should have considerable independence, but within constraints of rules and accountability. There was little public or Congressional debate on whether the Fed should expand its balance sheet ten-fold from 2007 to 2023. The power of the Fed to pay interest on bank reserves, for example, was passed by legislation back in 2006 and 2008–at a time when the bank reserves were still quite small. Many of the other changes mostly just happened in response to events like the Great Recession of 2007-09 and the pandemic recession.

I confess that I have little confidence in the ability of Congress to have a reasonable discussion/debate on this transformation of the Fed, and no confidence at all in the ability of the Trump administration to do so. But we have a situation where the Fed was slow to respond to a surge in inflation in 2021-2022, and a situation where the result of accumulated Fed decisions is that the US Treasury will be $1 trillion or more short of funds during the next 15 years that it might reasonably have expected. The Federal Reserve, like most institutions, spends more time explaining how all past choices were necessary, and how all existing problem can work themselves out, rather than examining whether some previous choices were misguided. If the Fed wants to keep its independence (and I want the Fed to have independence), it doesn’t need to be infallible, but it does need to show itself to be publicly accountable.

I have been the Managing Editor of the Journal of Economic Perspectives since the first issue in Summer 1987. The JEP is published by the American Economic Association, which decided back in 2011–to my delight–that the journal would be freely available online, from the current issue all the way back to the first issue. You can download individual articles or entire issues, and it is available in various e-reader formats, too. Here, I’ll start with the Table of Contents for the just-released Fall 2025 issue, which in the Taylor household is known as issue #154. Below that are abstracts and direct links for each of the papers. I plan to blog more specifically about some of the papers in the few weeks, as well.

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Symposium: Government Debt

“Japan’s Debt Puzzle: Sovereign Wealth Fund from Borrowed Money,” by Yili Chien, Wenxin Du, and Hanno Lustig

    We analyze the risks associated with Japan’s prolonged low-interest rate policies amid a global environment of rising rates. To finance its persistent deficits, the Japanese public sector depends on inexpensive domestic funding to invest in risky assets both domestically and internationally, effectively creating a sovereign wealth fund fueled by borrowed money. Ultimately, these risks fall on Japanese bondholders, depositors, and taxpayers. While the United States faces similar fiscal pressures, it is unlikely to adopt Japan’s approach.

“Putting US Fiscal Policy on a Sustainable Path,” by Karen Dynan and Douglas Elmendorf

    Even allowing for uncertainty about the future economy, current US fiscal policies are almost certainly unsustainable. Therefore, policymakers must decide when and in what ways to raise taxes and reduce spending to put debt on a lower trajectory. Acting sooner rather than later would increase national savings, broaden the policy options, reduce the chance of a fiscal crisis, and provide fiscal space for responding to adverse developments. The probability of a near-term fiscal crisis is difficult to assess: Yields on Treasury debt are within their ranges of the past few decades, which suggests that investors are not that worried about the budget outlook—but debt and deficits are at exceptionally high levels, and experience shows that investors’ confidence in a government’s fiscal management can deteriorate quickly.

“Sovereign Debt and Fiscal Integration in the European Union,” by Zsolt Darvas, Lennard Welslau, and Jeromin Zettelmeyer

    This paper examines sovereign debt risks in the European Union, which has centralized monetary policy within the euro area, while fiscal policies remain national. Institutional reforms, including common banking supervision, the European Stability Mechanism, the European Central Bank’s market-stabilisation instruments, and a new set of fiscal rules, have mitigated vulnerabilities arising from the interdependence between banks and sovereigns. Stochastic debt sustainability analysis suggests that debt remains sustainable in most EU countries, although substantial fiscal adjustments will be required in some cases. Fiscal reaction function estimates, however, reveal a weakening policy response to rising debt, signalling increased medium-term risks. The paper argues that further adaptation of fiscal rules is needed to encourage investment and provide greater flexibility for low-risk countries. Expanding the pool of common EU safe assets could also help break the bank-sovereign doom-loop, attract foreign investors, and strengthen fiscal sustainability.

“China’s Lending to Developing Countries: From Boom to Bust,” by Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch

    This paper provides a comprehensive overview of China’s lending to developing countries—a central feature of today’s international financial system. Building on our previous research and the work of others, we document the scale, destination, and terms of China’s overseas lending boom, as well as the lending bust and defaults that have followed. We compare China’s lending boom to past boom-bust cycles and discuss the implications of China’s rise as an international creditor on recipient countries and sovereign debt markets. The evidence indicates that Chinese state banks are assertive and commercially sophisticated lenders. For recipient countries, however, the jury is still out: it remains to be seen whether the gains from China’s lending—through growth and improved infrastructure—will outweigh the more immediate burdens of debt service or the multifaceted costs of default.

Symposium: The East Asian Tigers

“Industrial Policy, Asian Miracle Style,” by Reda Cherif and Fuad Hasanov

    We decipher the riddle of the meteoric rise of the Asian Miracles—Korea, Taiwan, Singapore and Hong Kong, and Japan before them—in the second half of the twentieth century. We argue that the secret of their success lies in the specific type of industrial policy focused on technology and innovation. This overarching policy focused on exports of sophisticated products by domestic firms while fostering fierce domestic competition and accountability for the support received. The successful implementation of this policy depended on a particular type of institutions—a leading agency with a distinct institutional design and a mandate to develop sophisticated industries. The experience of the Asian miracles provides a blueprint for developing economies to achieve rapid convergence with advanced economies. It also suggests a reassessment of the roles of the state and the market, the appropriate tools of industrial policy, and the meaning of “good” institutions.

“The World Bank’s East Asian Miracle: Too Much a Product of Its Time?” by Nancy Birdsall

    The 1993 publication of a World Bank book on the East Asian Miracle explained the extraordinarily rapid growth of Japan and seven other economies of East Asia (at 5 percent a year) between 1965 and 1990 as grounded in those economies’ adherence to market “fundamentals”—sound macro management, “shared” growth policies, investment in human capital—combined with an “export push” which fostered the technological learning that drove those countries’ high total factor productivity growth. The Bank authors dismissed “industrial policy” as central to their growth and cautioned against other developing countries adopting industrial policy in the absence of strong government institutions. Was the book too much a product of its post-Soviet, neoliberal era? Considering what we know now about the state of governance in developing countries, might industrial policy help boost growth in at least some developing countries?

Articles

“Credit, Debt-Deflation, and the Great Depression Revisited,” by Ben S. Bernanke

    This article revisits the thesis of Bernanke (1983) that the disruption of private credit markets induced by deflation and falling nominal incomes helps to explain the depth and persistence of the Great Depression. This new look is motivated by economists’ increased attention to the role of financial frictions in economic fluctuations as well as recent empirical research on the Depression and other episodes of disrupted credit. Overall, considerable evidence now exists that the financial distress of both borrowers (farmers, households, and businesses) and lenders (nonbanks as well as banks) significantly depressed credit flows, spending, and economic activity in the 1930s. Indeed, judging by their policy choices and the accompanying rationales, political leaders of the period evidently viewed the normalization of credit flows as a top priority in their fight against the Depression.

“Comparing Experimental and Nonexperimental Methods: What Lessons Have We Learned Four Decades after LaLonde (1986)?” by Guido W. Imbens and Yiqing Xu

    In 1986, Robert LaLonde published an article comparing nonexperimental estimates to experimental benchmarks (LaLonde 1986). He concluded that the nonexperimental methods at the time could not systematically replicate experimental benchmarks, casting doubt on their credibility. Following LaLonde’s critical assessment, there have been significant methodological advances and practical changes, including (1) an emphasis on the unconfoundedness assumption separated from functional form considerations, (2) a focus on the importance of overlap in covariate distributions, (3) the introduction of propensity score-based methods leading to doubly robust estimators, (4) methods for estimating and exploiting treatment effect heterogeneity, and (5) a greater emphasis on validation exercises to bolster research credibility. To demonstrate the practical lessons from these advances, we reexamine the LaLonde data. We show that modern methods, when applied in contexts with sufficient covariate overlap, yield robust estimates for the adjusted differences between the treatment and control groups. However, this does not imply that these estimates are causally interpretable. To assess their credibility, validation exercises (such as placebo tests) are essential, whereas goodness-of-fit tests alone are inadequate. Our findings highlight the importance of closely examining the assignment process, carefully inspecting overlap, and conducting validation exercises when analyzing causal effects with nonexperimental data.

“Why Regulate Junk Fees?” by Neale Mahoney

    This essay examines the growing prevalence of junk fees, including mandatory back-end fees and hidden add-on charges, which obscure the true cost of goods and services. Drawing on examples from event tickets, hotels, cable bills, restaurants, and financial services, I show how these pricing practices increase search costs and equilibrium prices, distort consumer choices, and divert innovation toward exploitative rather than value-enhancing strategies. Economic theory and evidence suggest that competition and disclosure alone are often insufficient to discipline junk fees. I review recent regulatory responses, including federal and state rules that require all-in-one upfront pricing, and discuss their implications for consumer welfare and market efficiency. The rapid evolution of junk fee policies provides economists with rich opportunities to study their intended and unintended consequences. At its core, the case for regulating junk fees rests not on paternalism but on enhancing market functioning.

“Retrospectives: W. E. B. Du Bois, Harvard Economics, and Marginalist Wage Theory,” by Daniel Kuehn

      W. E. B. Du Bois (1868–1963) is best known as a sociologist, historian, and civil rights leader, but he is also increasingly appreciated as an economist. Du Bois’s work in economics was primarily empirical, drawing heavily on the German Historical School of Economics and later on Karl Marx. However, during his early economic studies at Harvard University, Du Bois was interested in marginalism as a theoretical solution to the problem of wage determination. In this paper, I explore the marginalist wage theory developed by Du Bois in his unpublished 158-page 1891 manuscript, A Constructive Critique of Wage Theory. I show that Du Bois developed a wage theory that was at the frontier of marginalist analysis in 1891 and that anticipated important developments in marginal productivity theory and the theory of labor supply. While he did not reengage marginalism after his time in Berlin, Du Bois’s work on wage theory reinforces recent recognition of his contributions to economics.

“Recommendations for Further Reading,” by Timothy Taylor

Lee Kwan Yew, who was the first Prime Minister of Singapore from 1959 to 1990, and laid the groundwork for Singapore’s remarkable rise to becoming a high-income country, was once asked by political scientist Joseph Nye about the future of competition between the United States and China. As Nye wrote in a 2011 article:

Some observers worry that America will become sclerotic like Britain, at the peak of its power a century ago. But American culture is far more entrepreneurial and decentralized than was that of Britain, where the sons of industrial entrepreneurs sought aristocratic titles and honors in London. And despite recurrent historical bouts of concern, immigration helps keep America flexible. In 2005, foreign-born immigrants had participated in one of every four technology start-ups in the previous decade. As Singapore’s former Prime Minister Lee Kuan Yew once told me, China can draw on a talent pool of 1.3 billion people, but the United States can draw on a talent pool of 7 billion and recombine them in a diverse culture that enhances creativity in a way that ethnic Han nationalism cannot.

Lee Kwan Yew’s comment emphasizes that the economic future belongs to talent, and thus that historical US ability to be a home for developing talent from all over the world, as well as giving that talent space to be productive and rewarded, has historically been one of the greatest US economic advantages. Jeremy Neufeld explores the policy implications of that insight in “Aligning High-Skilled Immigration Policy with National Strategy,” written as a chapter for a forthcoming book by the Aspen Strategy Group on Advancing America’s Prosperity, edited by Melissa S. Kearney and Luke Pardue. Neufeld offers a vivid example:

Consider: mRNA vaccine technology was developed in the United States because biochemistry pioneer Katalin Karikó was allowed to come to the country in 1985, before the institution of rules in 1990 and 1998 that would have made it much less likely for her to have been able to successfully immigrate. In the years since, 5G was developed in China because Huawei was able to commercialize the research of Erdal Arikan, the Turkish scientist whose breakthroughs on polar codes provided the basis for the technology. Arikan was an international student who studied in the United States, graduating from the California Institute of Technology and the Massachusetts Institute of Technology. He wanted to stay in the United States and only returned to Turkey when he could not secure a green card. Had he faced the immigration system that Karikó faced, he would be a proud American citizen today. Immigration policy thereby seeded a vaccine revolution. Today’s immigration policy exported 5G to Shenzhen.

Neufeld’s concern is that the US immigration system makes very little effort to attract talent. For example:

High-skilled immigration is not a central priority of America’s immigration system. The United States issues about a million green cards—the term for lawful permanent resident status—per year, affording immigrants the right to stay permanently in the United States and work if they choose to. Of those, only about 7 percent are awarded to people on the basis of their skills or job offers. The rest of the green cards go to other categories. The largest “major class” of immigrants are immediate relatives of US citizens, defined as the citizens’ spouses and minor children, for whom there is no limit on the number of green cards that may be issued each year. …

In addition to the numerical limit on each category, a per-country cap further limits the number of green cards that may be issued to nationals of any given country in a year. Thus, immigrants face different wait times depending on what country they are from. Indians face the longest expected wait times, stretching to over 100 years for EB-2s, meaning that approved petitions are unlikely to ever result in a green card. Chinese face the next longest waits. … The overwhelming majority of employment based green cards [that is, 7% of total green cards] go to people already lawfully present in the United States on another status, usually a temporary work visa like an H-1B. … In other words, employment-based green cards are the primary mechanism by which high-skilled immigrants can stay in the United States, but they are not a major recruitment tool for new talent.

Newfeld discusses in some detail the existing ways for skilled talent to come to the United States, and how those ways fall short.

I’ll sum up his argument by quoting from his abstract:

The United States’ innovation edge rests on its ability to draw on the best talent from around the world. Yet, the laws that govern high-skilled immigration have barely moved since 1990 for permanent residency and since 2000 for temporary work visas, leaving them misaligned with the size and needs of today’s economy. Employers register for more than three times as many H-1Bs as are available each year, which are then awarded at random rather than on the basis of merit. For permanent residency, just 140,000 employment-based green cards are issued annually, most of which go to spouses and children rather than to workers themselves. The resulting backlogs now exceed one million, leaving many workers stuck in less productive jobs and discouraging future talent from coming to the US altogether. This paper charts the alphabet soup of high-skilled immigration pathways—F-1/OPT, J-1, H-1B, O-1A, EB-1, EB-2, and EB-3—demonstrating how inflexible and outdated rules have undermined the scale, selectivity, and retention of global talent. It proposes reforms to make immigration a renewed national strength: expanding green cards, piloting a points based system for permanent residency, and launching a government talent-scouting arm.

When it comes to global talent, primary US competitors around the world from Canada to nations of Europe and east Asia are not standing still. However one feels about the flow of low-skilled and undocumented immigrants coming over the US border (I’m not a fan), attracting high-skilled immigrants who have a good chance to starting and running the companies of the future is a wise investment.

To reverse Lee Kwan Yew’s comment, if China can draw on a population of 1.3 billion for future technology and innovation, and the US effectively limits its own talent search to its existing population of 340 million, the US would be surrendering one of its primary economic advantages.

It seems as if a few times every week, I see a headline about President Trump announcing a new tariff or repealing a tariff, sometimes involve many countries and sometime just a few. However, it is not at all clear that any president has a right to alter tariffs. This question was raised before Trump took office, and unsurprisingly, it became a lawsuit soon after the Trump tariffs took effect. On Wednesday, the US Supreme Court is scheduled to hear oral arguments in the case of Learning Resources, Inc. v. Trump. Learning Resources is an educational toy company, selling “learning toys such as Pretend & Play Calculator Cash Register, Spike the Fine Motor Hedgehog, and Botley, the Coding Robot.” Many of these products are manufactured overseas, and thus Learning Resources is adversely affected by Trump’s tariffs.

The broad legal question is that Article 1 of the US Constitution–the part which lays out the structure and powers of the legislative branch–states in Section 8: “The Congress shall have Power To lay and collect taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States …” On its face, this certainly seems to suggest that new tariffs need to start in Congress and be signed into law, just like tax laws.

However, Congress over time has passed laws that give the President power to regulate trade in certain situations. In particular, Trump has pointed to the International Emergency Economic Powers Act of 1977 as his authority for imposing tariffs on companies like Learning Resources This law gives the president power to address “unusual and extraordinary” peacetime threats. Before use, it requires that the President declare a “national emergency” and both consult with Congress and report to Congress. However, the law does not require that the President conduct any investigation or publish any report before taking action. In the past, IEEPA has been invoked in situation like blocking economic transactions with Iran during the hostage crisis that started in 1979, or sometimes blocking transaction by individuals who are drug dealers or human rights abusers. However, my understanding is that the IEEPA does not actually mention the word “tariffs.”

Here, I will sidestep the details of the legalities, both because I’m not a lawyer and because those topics will be well-aerated before the Court on Wednesday. Here, I focus instead on a “friend of the court” brief filed by a group of 44 academic and policy economists–many of them quite prominent–making the case that President Trump has overstepped in using the IEEPA as his authority to conduct tariff policy from the White House. Here’s the summary of their arguments from the start of the brief:

Even assuming that IEEPA permits the issuance of tariffs—which is not clear from IEEPA’s plain language—IEEPA has certain requirements that must be met before the President can invoke IEEPA’s remedies. First, IEEPA requires the President to declare a national emergency based on an “unusual and extraordinary threat[] . . . to the national security, foreign policy, or economy of the United States.” … Trade deficits, however, have existed consistently over the past fifty years in the United States, for extended periods in the United States in the nineteenth century, and in most countries in most years in recent decades. They are thus not “unusual and extraordinary,” but rather ordinary and commonplace. … Second, the existence of these ordinary and recurring trade deficits is not a “threat . . . to the national security, foreign policy or the economy” of the United States, neither generically nor with the particulars stressed by the Government … Third, even if the current trade deficit constituted an unusual and extraordinary threat to national security or the economy as required by IEEPA, the tariffs imposed under IEEPA by the President do not meaningfully reduce trade deficits and hence do not “deal with” the deficits as IEEPA requires. In fact, as explained below, the additional foreign investment that the Government claims to have procured by means of the tariffs increases the U.S. trade deficit.

I will skip over the first point that US trade deficits have been common in the last half-century and indeed across US history. The fact is obviously true, and it will be up to the Court to decide if they nonetheless quality as “unusual and extraordinary.” But the other two points are perhaps less well-known, and worth a few more words.

Why aren’t trade deficits, and and of themselves, a threat to the US economy? The economists walk through the standard arguments.

Yes, a legitimate national security concern arises if, for example, the US defense industry is overly dependent on imported products. The economists write: “[T]rade deficits in particular industries could pose a threat to the United States. For example, the United States may not want to offshore weapons production. But such a threat would be industry- and perhaps country-specific and cannot be measured simply in dollars or percentages of the aggregate trade deficit, nor could it be countered by generic measures aiming at aggregate trade and the aggregate trade deficit.”

But more broadly, “trade deficits are the flipside of foreign investment surpluses. The first (trade deficits) may sound bad, the second (foreign investment surpluses) good, but viewed as a whole, in and of themselves, they are neither.” To put it another way, when foreign companies make direct investments in the US economy–that is, buying land anbd equipment, and hiring US workers–they need to do so with US dollars. The source of those US dollars is products that the foreign company exported to the United States. If the foreign company used all US dollars received from exporting to the United States to buy US goods and services, then (by definition) there would be no trade deficit. The reason for the existence of a trade deficit is that foriegn companies (and government) do not use their US dollars to buy US goods and services, but instead to invest in US financial markets–for example, by purchasing US Treasury debt or US stocks. The economists write:

Turning to the underlying reasons why some countries run trade surpluses while others run trade deficits, the leading explanations of the U.S. trade deficit view it as a sign of U.S. strength, not weakness. The reasons why the United States has been the preferred destination of capital for many decades are the same reasons it has persistently run trade deficits: its innovative and dynamic economy, deep and liquid markets, and status as a safe haven. As this brief emphasizes repeatedly, a trade deficit is the flipside of a foreign investment surplus. Thus, one explanation for persistent U.S. trade deficits is simply that the United States is a superior investment. This is what generates Americans’ ability to buy more from the rest of the world than we sell to it (i.e., running a trade deficit) …

Other complementary theories stress the role of the U.S. budget deficit. Empirically, the United States started running a trade deficit at about the same time that it started running a budget deficit. This is not a coincidence. A budget deficit means that the government spends more than it earns. This is offset by U.S. citizens earning more than they spend, but only partly. On net, the United States—government and citizens combined—spends more than it earns. At the national level, spending more than one earns means importing more than one exports, i.e., running a trade deficit.

This insight leads to the third point in the economists’ brief: the argument that higher tariffs are unlikely to have much effect on trade imbalances. Remember, “a trade deficit is the flipside of a foreign investment surplus.” Conversely, the height of tariffs or other trade barriers is not correlated with the size of trade imbalances. Moreover, one cannot reasonably look at rises or falls in the US trade deficit over time and ascribe the changes to trade barriers going up or down, or trade becoming more or less “fair.” The balance of trade is a macroeconomic outcome.

The economists’ brief offers several nice illustrations of this point. One is focused on the US oil and gas industry:

An illustration of the importance of macroeconomic factors in determining the aggregate trade deficit comes from the dramatic growth in U.S. domestic oil and gas production in the 2010s. In 2011 the U.S. trade deficit in petroleum products peaked at $330 billion, well over half of the entire trade deficit of $558 billion. Then, domestic oil and gas production dramatically increased. The trade deficit in that industry disappeared by 2019. Nevertheless, the overall U.S. trade deficit grew to $617 billion, consistent with the wider saving gap that developed over this period.

Just to be clear, literally no one believes that the lower trade deficit for US oil and gas happened as a result of shifts in tariffs. The point is that “a trade deficit is the flipside of a foreign investment surplus.” As long as the US economy remains so attractive to foreign capital, for buying US Treasury debt, investing in the US stock market, and other purpose, the US economy will have a trade deficit. As another example, Trump’s tariffs in 2025 are happening at the same time as a growing US trade deficit:

Empirically, there is no correlation between tariffs and trade imbalances even at the highest rates observed in the last 60 or so years. … The fact that the trade deficit in goods from the beginning of 2025 through the end of July—the most recent available numbers—exceeds last year’s trade deficit over the same period illustrates this. The increase has happened despite a very large increase in tariffs from both the reciprocal tariffs discussed here and a range of others. The full set of tariffs imposed this year to date corresponds to a 15.6 percentage point increase in the U.S. average effective tariff rate … Despite those increases, the goods trade deficit equaled $840 billion for January through July of 2025, about a 23% increase from last year’s $682 billion.

How can it be that Trump’s tariffs are coexisting with a higher trade deficit, not a lower one? One more time, “a trade deficit is the flipside of a foreign investment surplus.” Or as yet another example:

During the first Trump administration, the United States increased tariffs on imports from China significantly, from about 3% to about 19%. At least partially as a result, between 2016 and 2020 imports from China decreased—as did the bilateral trade deficit with China. At the same time, the U.S. trade deficit with a number of other major trading partners increased, more than offsetting the decrease in the bilateral deficit with China.

So yes, tariffs can reshape the face of trade, making trade with certain countries or certain products more or less attractive. But the overall trade deficits is not caused by tariffs, or the lack of tariffs. One more time, with feeling, “a trade deficit is the flipside of a foreign investment surplus.”

(Finally, I will add that it is darkly comic that President Trump claims that US national security is threatened “by large and persistent annual U.S. goods trade deficits,” but does not say a word about the large, persistent and growing US trade surpluses in services industries.)

One can certainly make a strong case that the US economy should have a stronger focus on technology, innovation, and manufacturing. The broad outlines of public policy for these goals are clear: improved worker training, support for research and development, expanded power generation and transmission, rethinking the regulations that often hinder both public and private investments, and so on. Tariffs are a hindrance and a distraction from this agenda.

The current Supreme Court case is unlikely to give a final answer to the question of the President’s tariff authority. Over the years, Congress has passed other laws, with other conditions, that give the President the power to impose tariffs in specific conditions. For example, Section 232 of the Trade Expansion Act of 1962 gives the President power to restrict imports when “national security” is threatened, and Section 301 of the Trade Act of 1974 grants the President (through the office of the US Trade Representative) the power to investigate and seek to remedy “unfair” foreign trading practices. Thus, my guess is that if the US Supreme Court rules that Trump’s tariffs are not Constitutional under the IEEPA, the next step will be for Trump to offer other laws like these as his authority for imposing tariffs.  The underlying issue–how much tariff authority has Congress ceded to the President–may thus come up again.