US-China Trade War: The Authority to Levy Tariffs

Trading Post” by Felix63 is licensed under CC BY-NC-ND 2.0.

Theron Anderson, Associate Member, University of Cincinnati Law Review

I. Introduction

In a reaction to the economic activity between the United States and China, President Trump has exercised the presidential power to levy tariffs against the foreign rival.[1] The tariffs exercised are “taxes or duties that are imposed on a specific class of imports or exports.”[2] The specific tariffs exercised by President Trump are a tax on exports originating from China. In exercising this authority, questions arise of the origins of this power to place tariffs on China’s products and whether this power is well-suited in the hands of the Executive Branch. Interpreting the text of the Constitution to determine the correct course of action, it is clear that the Legislative Branch is the correct wielder of the power to levy tariffs. 

II. Background

Far before President Trump took office as the Commander in Chief, he expressed distaste for China’s trade practices.[3] While campaigning for the office, retaliation to the China’s trade practices stood as a pillar of his platform.[4] These comments came to fruition when President Trump signed a memorandum, dated March 22, 2018, directing an imposition of tariffs on Chinese products.[5] On June 15, 2018, the United States finalized and implemented the first list of 818 products that would be susceptible to a 25% tariff.[6] True to his statements before taking office, President Trump alleged that the motivation of this act was the unfair trading practices of China, as well as the amount of intellectual property theft occurring within their jurisdiction on their watch.[7] China was quick to impose tariffs of their own against the United States in retaliation to the power exercised by President Trump.[8]

Since the memorandum signed by President Trump, the United States and China engaged in a tit-for-tat tariff competition that has affected billions of dollars of goods, influencing those involved to label the activity as a trade war.[9] From the outset of the trade war initiated by President Trump, China appeared to be skeptical of the advertised motivation of the initial United States’ tariffs.[10] Some within China have the belief that the trade practices of China are pretext for the United States attempt to affect the continuous growth of China’s economy and spur a comeback of their own.[11]

In wars over trade, “victory can only be achieved when the country has more bargaining leverage than its opponent.”[12] It becomes a game of who can punish the opposition the most.[13] While both sides are hurting, neither side is clearly winning or losing.[14] A formula of no leverage and no clear victor results in a trade war with no clear end.[15] As the United States travels down the path with no true end, one could inquire about the authority of President Trump that is taking the country down that path. 

III. Separation of Powers 

An understanding of the separation of powers is key to building a foundational understanding of the authority that President Trump has wielded in the trade war against China. The term separation of powers was created by Charles-Louis de Secondat, a social and political philosopher in 18thcentury France.[16] This term divides political authority of the state into legislative, executive, and judicial powers.[17] Designating the three powers as branches of government, each is assigned a different role. Focusing on the two branches at issue regarding the power to tariff, the legislative branch is tasked with enacting laws of the state and appropriating the money needed to operate the government.[18] The executive branch is tasked with implementing and administering the public policy enacted and funded by the legislative branch.[19]

The intention of the model is to prevent the concentration of power in one unit and provide checks and balances.[20] Each branch is granted a limited authority to check another branches authority to ensure balance among the branches. 

Throughout the life of the Constitution, a natural ebb and flow has existed between the branches.[21] At times, a certain branch might have wielded more power than expressly granted to it by the text of the Constitution. Due to the system of checks and balances set in place, the government is equipped with the tools to maintain the desired balance. 

IV. Presidential Tariff Power 

As written in the Supreme Law of the Land, the Constitution, Congress “shall have the Power to lay and collect Taxes, Duties, Imposes and Excises.”[22] They shall also “regulate Commerce with foreign Nations, and among the several States.”[23] And, perhaps most importantly, Congress has the authority “to make all Laws which shall be necessary and proper” to carry out the powers that are given to them within section 8 of Article I.[24] Interpreting this language, the clauses of the Constitution authorize Congress to raise taxes, including tariffs, and make laws necessary to regulate commerce with foreign nations. 

Within the section granting Presidential powers, the Constitution states that the President shall have the “Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur.”[25] While this clause does contain ingredients of international power, the Constitution omits an expressed power over international commerce and trade.[26]

This lack of expressed Presidential power is compensated by the ebb and flow of tariff authority to the executive branch over the years due to congressional delegation.[27] Over the past 100 years, numerous laws have been implemented that grant the President authority to manipulate tariffs.[28] In the most recent display of discretion, President Trump cited Section 232 of the Trade Expansion Act of 1962.[29] To trigger this authority, President Trump pointed the Secretary of Commerce to a potential threat of national security regarding trade.[30] A positive finding of a security threat unlocked the door to the President’s room of trade war tactics.[31]

V. Analysis

Due to the text of the Constitution, the need for balance within the government, and the United States non-engagement in a prototypical war, the correct possessor of the authority to levy tariffs belongs to the Legislative Branch. 

When the roles of the governmental branches become unclear, the Constitution should be the used as an answer key. Within that text, Congress is the true possessor of the authority to levy taxes, as written within Section 8 of Article 1. In addition, Congress is the possessor of the power to make any law necessary to effectuate that end.

Congress’s grasp on the tariffs power is also a necessary check on the foreign policy authority of the President to ensure balance within the government. The President is the first point of contact between foreign nations and the people of the United States. Allowing too much power to be wielded while abroad could have domestic consequences, as experienced currently with the US-China trade war. 

During a time of prototypical war where lives are at stake, the authority to levy tariffs could be an important tool to subdue the opposition. Under the current circumstances, no sense of urgency exists to warrant the quick action of tariff imposition. Therefore, the ability of the President to implement tariffs quickly is immaterial. Even if a time of crisis existed, allocation of power should not be decided based on who can move the quickest.[32] The allocation should be determined based on who is granted that authority under the Constitution.[33]

VI. Conclusion

In the second half of the Constitution’s life, the authority to levy taxes has moved from the rightful hands of the Legislature into the grasp of the Executive. The transfer goes against the foundation of the United States based on the text of the Constitution and the separation of powers principle that surrounds it. Therefore, the government should be led to curb the growing authority of the Executive and grant it back to the rightful owner, the Legislature.  

[1]Dorcas Wong, The US-China Trade War: A Timeline, China Briefing (September 23, 2019),

[2]Rea Regan, A Closer Look at How the Trade War Impacts Small Business, Connecteam (August 27, 2019),

[3]Wong, supra note 1. 




[7]A quick guide to the US-China trade war, BBC News (September 2, 2019),

[8]Wong, supra note 1. 


[10]A quick guide to the US-China trade war, BBC News, September 2, 2019, 


[12]Charles Hankla, Who has the upper hand in the U.S.-China trade war?, Market Watch (August 10, 2019),




[16]Separation of Powers – An Overview, NCSL (May 1, 2019),






[22]U.S. Const. art. I, §8, cl. 1.

[23]U.S. Const. art. I, §8, cl. 3.

[24]U.S. Const. art. I, §8, cl. 18.

[25]U.S. Const. art. II, §2, cl. 2.

[26]Caitlain Devereaux Lewis, Cong. Research Serv., R44707, Presidential Authority over Trade: Imposing Tariffs and Duties (2002).

[27]Tara Golshan, Why Trump can raise steel tariffs without Congress, Vox (April 8, 2018),

[28]Lewis, supra note 26.

[29]Golshan, supra note 27.



[32]Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952) (Frankfurter, J., concurring).


Recent IRS Action Against Cryptocurrency Users May Result in Less Tax Revenue

Currency” by Credit Score Guide is licensed under CC BY 2.0.

William Malson, Associate Member, University of Cincinnati Law Review

I. Background

Bitcoin, the most widely known cryptocurrency, is a digitally secure store of value that exists as a shared public ledger, allowing fast and cheap transactions worldwide that never pass through a bank. During its early years, it was unclear how government regulatory agencies would deal with this new technology. To the casual observer, it’s currency. If you ask the U.S. Commodity Futures Trading Commission what it is, Bitcoin is a commodity.[1] If you ask the Internal Revenue Service (“IRS”), it’s property.[2] Ask Jeffrey Dorfman, professor of economics at the University of Georgia, and it’s an asset.[3] For tax purposes, the answer is clear: it’s property. But taxing bitcoin is difficult. In 2018, the IRS ramped up its efforts to tax cryptocurrency with the Virtual Currency Compliance campaign designed to address taxpayer noncompliance with IRS guidance.[4] Earlier this year, it began sending letters to thousands of taxpayers that may have failed to report income from cryptocurrency.[5] But the recent enforcement is based on faulty information. This article explains how bitcoin is taxed, the problems with IRS data, and how recent IRS action will push cryptocurrency further underground, making taxation even more difficult.

II. How Bitcoin is Taxed

Bitcoins (“BTC”)[6] are stored on digital “wallets” that can be sent to and from someone else’s “address” within that wallet.[7] This is called a transaction.[8] However, the nature of the transaction—and the tax implications—depend on the purpose behind it. For purposes of this article, transactions are broken apart into three categories: transfers, payments, and swaps.

A transfer is when bitcoin is sent from one address to another without changing ownership. For example, if I send bitcoin from my personal wallet to an exchange, I’ve transferred those coins—but they still belong to me. A payment is when bitcoin is used to pay for something, like wages, your AT&T phone bill,[9] or college tuition.[10] A swap is when bitcoin is exchanged for U.S. dollars or another cryptocurrency, similar to exchanging U.S. dollars for a foreign currency. For example, an owner of bitcoin might want to swap one of their BTC for an equivalent amount of U.S. dollars or another cryptocurrency like ether (“ETH”), created in 2014.[11] That swap would result in one less BTC for the original owner and about $10,170 or 47 ETH.[12] This swap has resulted in no capital gain or loss for either party until the value of BTC or ETH changes and another swap is made.

As of 2014, the IRS considers cryptocurrency, including bitcoin, to be property, rather than currency, for federal tax purposes.[13] Transfers are not taxed. Taxpayers who receive cryptocurrency as payments must determine the fair market value of that currency on the date of payment and pay tax on any gain in value between the payment date and the date that cryptocurrency is sold for cash.[14]

III. The “Swap” Problem

The problem for users arises when swaps occur on an exchange, a platform for merchants and consumers to buy and sell cryptocurrency. Cryptocurrency exchanges operate in the U.S. as payment settlement entities that require them to send users and the IRS Form 1099-K[15] if, for the calendar year, the gross amount of that user’s total reportable payment transactions exceeds $20,000, and the total number of such transactions exceeds 200.[16] But the “gross amount” of swaps does not correspond to the capital gain or loss for the user. For example, if a user bought one bitcoin for $10,170, and then sold it back at the same price, the exchange would record on Form 1099-K that the “gross amount” of those swaps was $20,340 (assuming the other reporting criteria are met).[17] Until recently, users who swapped currencies on exchanges could ignore this altogether and continue to report capital gains and losses using Form 8949 and Schedule D (Form 1040).[18] In this case, the capital gain would be zero. But the IRS thinks otherwise.

The IRS announced on July 26, 2019 that it had begun sending letters to more than 10,000 taxpayers with cryptocurrency transactions, acquired through various compliance efforts, that “potentially failed to report income and pay the resulting tax from [cryptocurrency] transactions or did not report their transactions properly.”[19] Letters 6173, 6174, and 6174-A explain that the receiving taxpayer either may not know the reporting requirements for transactions, may not have met their tax filing, or may not have properly reported their transactions.[20] But the IRS is relying on inaccurate data to generate these letters: cryptocurrency exchanges simply can’t provide tax reports like traditional stock exchanges.

IV. The Reporting Problem

Bitcoin is decentralized. There is no central bank, no administrator, no governing organization—no controlling body whatsoever. Users can swap currencies and incur great capital gains or losses independently of exchanges. Information obtained by the IRS will only reflect what occurs on a particular exchange. And if the IRS relies on exchange-reported Form 1099-Ks, users might incorrectly be on the hook for millions of dollars. But that hasn’t stopped the IRS.

By August 2019, users reported receiving IRS Notice CP 2000,[21] notifying the taxpayer that their tax return information doesn’t match data reported to the IRS.[22] While the notification isn’t an audit, it works the same way: taxpayers must respond by the deadline given on the form and either agree to pay the proposed tax, penalties and interest, or compile and mail a response with documents proving your position.[23] If the IRS is not able to accept a taxpayer’s explanation, it will issue Notice CP 3219A,[24] which must be challenged in court.[25]

V. Unless the IRS Wants Bitcoin to Go Underground, it Should Focus on Guidance

Cryptocurrency exchanges are centralized. They have corporate offices, hold users’ cryptocurrencies, and are regulated by various government entities. With the recent wave of enforcement, the IRS will incentivize further development of decentralized exchanges, making enforcement almost impossible.

A decentralized exchange is a market that does not rely on third parties to hold users’ funds. Swaps are peer-to-peer, enabling the exchange of one cryptocurrency for another directly between users. In essence, the exchange does not exist: it is a hub of information, not currency. As the number of companies accepting bitcoin continues to grow—and the number of users along with it—the IRS will be less able to harvest data of taxable transactions.[26] Cryptocurrency itself continues to advance in privacy protocols, making the tracing of coins along the public ledger increasingly difficult.[27]

The last official guidance from the IRS occurred in 2014. On May 16, 2019, IRS Commissioner Charles Rettig sent a letter to U.S. Representative Tom Emmer stating its intention to publish new guidance “soon.”[28] If the IRS fails to provide reasonable guidance for users and maintains its current course of enforcement, it may drive affected users to decentralized exchanges and currencies with greater privacy protocols, resulting in fewer traceable transactions and less tax revenue.

[1]Bitcoin Basics, U.S. CFTC, 1, [] (last visited Sept. 20, 2019).

[2]Notice 2014-21, IRS, 2(Apr. 14, 2014), [].

[3]Jeffrey Dorfman, Bitcoin Is An Asset, Not A Currency, Forbes (May 17, 2017, 9:05 AM), [].

[4]The IRS uses the term “virtual currencies,” including non-crypto virtual currencies.

[5]IRS has begun sending letters to virtual currency owners advising them to pay back taxes, file amended returns; part of agency’s larger efforts, IRS (Jul. 26, 2019), [].

[6]While “bitcoin,” “BTC,” or “coins” refer to the individual bitcoins being transferred, “Bitcoin” means the underlying network on which transfers take place.

[7]Kenny Li, Crypto Wallet Vs. Address,Hacker Noon (Mar. 21, 2018), [].

[8]Transaction, Bitcoin Wiki (last updated Feb. 22, 2019), [].

[9]AT&T Now Accepts BitPay, AT&T (May 23, 2019), [].

[10]Jack Linshi, King’s College Becomes First U.S. School to Accept Bitcoin, Time (Jun. 13, 2014), [].

[11]Who Created Ethereum?, Bitcoin Mag., [].

[12]As of Sept. 20, 2019. The actual exchange rate can vary wildly.

[13]See IRS, supra note 2, at 2.

[14]Id. at 2-3.

[15]Form 1099 K Reporting Requirements for Payment Settlement Entities, IRS (last reviewed or updated Jul. 29, 2019), [].

[16]2019 Instructions for Form 1099-K, IRS (2019), [].

[17]David Kemmerer, The IRS Is Blindly Coming After Cryptocurrency Traders – Here’s Why, Cointelegraph (Sept. 14, 2019), [].

[18]2018 Instructions for Schedule D, IRS (2018), [].

[19]See IRS, supra note 5.

[20]IRS Letters to Virtual Currency taxpayers, IRS (Jul. 16, 2019), [], [], [].

[21]See Nikhilesh De, New IRS Warning Letters Target Crypto Investors Who Misreported Trades, CoinDesk (Aug. 14, 2019, 8:55 PM), []; Or Lokay Cohen, IRS Sends New Round of Letters to Bitcoin and Crypto Holders, Cointelegraph (Aug. 25, 2019), []; IRS Notice CP2000 For Cryptocurrency – What Do I Do?, CryptoTrader.Tax, [] (last visited Sept. 20, 2019).

[22]IRS explains CP 2000 letters sent to taxpayers when tax return information doesn’t match information from 3rd parties, IRS (May 2018), [].

[23]How to Handle IRS CP2000 Notices (Underreporter Inquiry), H&R Block, [] (last visited Sept. 25, 2019).

[24]IRS Letter CP2000: Proposed Changes to Your Tax Return, IRS (Feb. 9, 2018),

[25]IRS Notice CP3219A – Notice of Deficiency & Increase in Tax, H&R Block, [] (last visited Sept. 20, 2019).

[26]See AT&T, supra note 9; Time, supra note 10; How to use Bitcoin to add money to your Microsoft account, Microsoft (last updated Oct. 5, 2018), []; Who Accepts Bitcoin as Payment?, 99Bitcoins (last updated Jun. 10, 2019), [].

[27]Arijit Dutta & Saravanan Vijayakumaran, MProve: A Proof of Reserves Protocol for Monero Exchanges, 2019 Inst. of Electrical and Electronic Eng’r Eur. Symposium on Security and Privacy Workshops (EuroS&PW), 330, [].

[28]Letter from IRS Commission Charles P. Rettig to U.S. Representative Tom Emmer, U.S. House of Representatives: Tom Emmer (May 16, 2019), [].

A Real Life Monty Brewster: Can You Spend $30 Million To Escape From the IRS?

Author: Dan Stroh, Associate Member, University of Cincinnati Law Review

A current circuit split poses an imperative question: Can a hypothetical multi-millionaire, like Monty Brewster, spend his millions frivolously without fear of a tax penalty following him through bankruptcy?[1] The United States Bankruptcy Code generally allows debtors to discharge all debts arising prior to filing of bankruptcy.[2] One exception to this general rule prohibits a debtor from discharging any tax debt “with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.”[3] However, the Ninth and Tenth Circuits disagree on the debtor’s degree of culpability required to deny a discharge of indebtedness under this exception.[4] Continue reading “A Real Life Monty Brewster: Can You Spend $30 Million To Escape From the IRS?”

College Athletes Demand Pay, But May Have Sacked Themselves

Author: Matt Huffman, Associate Member, University of Cincinnati Law Review

The National Collegiate Athletic Association (NCAA) and its member schools collect hundreds of millions of dollars each year from the Football Bowl Subdivision (FBS) and Division I Basketball broadcasts and video games. The schools make a substantial amount of money from licensing players’ names, likenesses, and images to television and video game companies. However, players do not receive any of this money. They agree to give up the use of their names, likenesses, and images when they accept an athletic scholarship, and in return, their schools may provide tuition, room and board, and book expenses. But players may soon receive a part of television and video game revenue if the recent decision in O’Bannon v. National Collegiate Association is upheld.[1] While student-athletes have long sought to receive a portion of the huge sums of broadcasting and video game revenue they help generate, the proposed payments in O’Bannon could not be treated as athletic scholarships under § 117 of the Internal Revenue Code (§ 117) and would not comply with Title IX. In fact, paid student-athletes under the O’Bannon settlement framework would likely be considered employees of the school and would be required to include the payments in their gross income, resulting in significant tax liabilities for both players and universities.

Continue reading “College Athletes Demand Pay, But May Have Sacked Themselves”