What Is the Commerce Clause? Meaning and Applications

The Commerce Clause is a provision of the U.S. Constitution (Article 1, Section 8) that grants Congress the power “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." This law gives the federal government the power to regulate interstate commerce, which it defines as the sale, purchase, or exchange of commodities or the transportation of people, money, or goods between different states. 

Congress has historically cited the Commerce Clause as justification for laws and regulations controlling the activities of the states and their citizens. In some instances, these laws lead to controversy over the constitutional division between the powers of the federal government and rights of the states.

Dormant Commerce Clause

The courts have interpreted the Commerce Clause as not only an explicit grant of power to Congress, but also an implied ban against state laws that conflict with federal law—sometimes called the "Dormant Commerce Clause."

The Dormant Commerce Clause refers to the Commerce Clause’s implied prohibition against state laws that conflict with federal law by discriminating against or excessively burdening interstate commerce. This prohibition is primarily intended to prevent the states from enacting “protectionist” trade laws.

The Dormant Commerce Clause is a complicated but important legal doctrine that U.S. Supreme Court has inferred from the Commerce Clause in Article I of the US Constitution. This doctrine prohibits a state from discriminating against or “unduly burdening” interstate commerce.  According to the Supreme Court, this prohibition on interfering with interstate commerce was rooted in the Framers’ concern that economic Balkanization had the potential to doom the new union between the states. The primary focus of the Dormant Commerce Clause doctrine is to bar state protectionism—government policies that unfairly restrict interstate trade to help domestic industries.

In applying the Dormant Commerce Clause, the courts first determine whether a state law discriminates against interstate commerce or whether it has the purpose or effect of discriminating against interstate commerce. To prevent a state’s law from being overturned under Dormant Commerce Clause, the state must show the law has a valid non-protectionist purpose and that there are no less discriminatory means for achieving that purpose.

Applying strict scrutiny, the Supreme Court has in the past struck down an Oklahoma law that required 10% of electric utilities’ coal purchases to be from in-state suppliers, an Ohio law that offered a tax credit to fuel sellers for selling ethanol produced in Ohio, and a New Hampshire law that prohibited a utility from exporting hydropower generated in New Hampshire to another state.

For example, while it is legal for a Michigan law to require food labels that specifically identify certain animal parts if they are present in the product because the state law applies to food produced in Michigan as well as food imported from other states, the law would violate the Dormant Commerce Clause if it applied only to imported food or if it was otherwise found to favor domestic over imported products. Similarly, a California law requiring milk sold to the public to contain a certain percentage of milk solids that federal law does not require is allowed under the Dormant Commerce Clause because California's stricter requirements apply equally to California-produced milk and imported milk and so does not discriminate against or inappropriately burden interstate commerce.

The use of the word "dormant” in connection with the Commerce Clause originated with Chief Justice John Marshall in the 1824 case of Gibbons v. Ogden, dealing with the State of New York’s power to control commercial shipping on waters within its jurisdiction. In the court's majority opinion, Marshall wrote that the power to regulate interstate commerce “can never be exercised by the people themselves, but must be placed in the hands of agents, or lie dormant.” 

What Is Commerce?

Since the Constitution does not explicitly define “commerce,” the exact meaning is a source of legal debate. Some constitutional scholars contend that “commerce” refers only to trade or exchange. Others argue that it has a broader meaning, referring to all commercial and social interaction between residents of different states. These divergent interpretations create a controversial line between federal and state power.

Interpretation of Commerce: 1824 to 1995

The first legal interpretation of the scope of the Commerce Clause came in 1824, when the Supreme Court decided the case of Gibbons v. Ogden. In one of the first major expansions of the powers of the federal government, the Court ruled that Congress could use the Commerce Clause to enact laws regulating both interstate and intrastate trade.

In the 1905 case of Swift and Company v. United States, the Supreme Court refined its 1824 interpretation by ruling that Congress could apply the Commerce Clause in regulating the practices of local businesses—intrastate commerce—only if those local business practices were in some way a part of a “current” or stream of commerce that also involved the movement of goods between states.

In the 1937 case of NLRB v. Jones & Laughlin Steel Corp, the Court significantly broadened the reach of the Commerce Clause. Specifically, the Court held that any local business activity could be defined as “commerce” as long as it had or was likely to have a “substantial economic effect” on interstate commerce. Under this interpretation, for example, Congress gained the power to enact laws regulating local firearms dealers if any of the guns they sell are manufactured outside of their states.

Over the next 58 years, not a single law based on the Commerce Clause was invalidated by the Supreme Court. Then, in 1995, the Court narrowed its interpretation of commerce with its ruling in the case of United States v. Lopez. In its decision, the Court struck down parts of the federal Gun-Free School Zones Act of 1990, finding that the act of possessing a firearm is not an economic activity.

Current Interpretation: The Three-Part Test

When deciding that a state law is a valid exercise of the state’s power to regulate interstate commerce under the implied prohibitions of the Commerce Clause, the Supreme Court now applies this three-part test:

1. The law must in no way discriminate against or excessively interfere with interstate commerce.
2. The commerce regulated by the state law must not be of a nature that requires regulation by the federal government.
3. The federal government’s interest in regulating the commerce in question must not outweigh the interest of the state.

To uphold a state law under the Commerce Clause, the Supreme Court must find that the law’s benefits outweigh its burdens on interstate commerce. In addition, the Court must find that in enacting the law, the state is not attempting to advance the economic interest of its own citizens over those of the citizens of other states.

Current Applications in Law

In its 2005 decision in the case of Gonzales v. Raich, the Court returned to a wider interpretation of the Commerce Clause when it upheld federal laws regulating the production of marijuana in states that had legalized marijuana possession.

The Supreme Court’s most recent interpretation of the Commerce Clause came from the 2012 case of NFIB v. Sebelius, in which the Court upheld Congress’ power to enact the individual mandate provision of the Affordable Care Act requiring all uninsured individuals to secure health insurance or pay a tax penalty. In reaching its 5-4 decision, the Court found that while the mandate was a constitutional exercise of Congress’ power to tax, it was not a proper use of Congress's Commerce Clause or Necessary and Proper Clause powers.

Sources

• ”Commerce Clause“ Legal Information Institute. Cornell Law School.
• “Commerce Clause Limitations on State Regulation.” University of Missouri-Kansas City
• Williams, Norman. Why Congress May Not Overrule the Dormant Commerce Clause. UCLA Law Review (2005).
• “Federal Courts Split on Constitutionality of Individual Mandate in Health Care Law.” Regulatory Review (2011).