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Here we go again. American markets have already faced endless shocks this year: the April 2 “liberation day” tariffs; US President Donald Trump’s attacks on the Federal Reserve; and this week’s government shutdown.
Now another drama looms: on November 5, the Supreme Court will consider whether Trump’s tariffs, introduced under the 1977 International Emergency Economic Powers Act (IEEPA), are legal — or not.
If they are deemed to be illegal, there is a chance the White House may have to repay billions of dollars of tariff revenue to businesses, creating trade and fiscal chaos. It could also undermine Trump’s approach to geoeconomics, the use of economic policy for statecraft, since he currently assumes he can act without asking Congress.
But if the April 2 tariffs are judged lawful, some legal scholars think that Trump’s powers will then dramatically expand, enabling him to impose taxes or capital controls in a unilateral, almost monarchical, manner without asking Congress.
So November 5 could be momentous. And this creates an unintended irony. That date is also “bonfire night” in Britain, when kids burn effigies of Guy Fawkes, the 17th-century Catholic seditionary who tried to blow up the Houses of Parliament. You could not make it up.
How did this legal mess happen? The answer lies in how Trump exercises power. During his first term, he imposed multiple tariffs on sectors such as steel, using Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. However, the April 2 tariffs, which pushed the effective consumer tariff rate to 17.9 per cent, the highest since 1934, involved IEEPA instead, which gives a president “broad authority” to respond to “a declaration of national emergency”.
The administration thus defines trade deficits as a national emergency. And many investors have priced tariffs in accordingly. One factor keeping US 10-year bond yields near 4 per cent, for instance, is that Treasury secretary Scott Bessent forecasts over $500bn of annual tariff revenues in the coming years, which will help cut the deficit.
However, America’s International Court of Trade has since argued that Trump needed congressional approval for his April 2 tariffs. Last month an appeals court strongly ruled them illegal, but left them in place pending the Supreme Court judgment.
Jamieson Greer, the US trade representative, insists that “we feel very confident that the president’s trade policy . . . will win at the court”. And Peter Navarro, Trump’s adviser on trade, cites three reasons why: the deficits constitute an “unusual and extraordinary” foreign threat; IEEPA does not explicitly exclude tariffs from the potential range of “emergency” tools; and the tariffs will be periodically reviewed by Congress.
“Far from being permanent, these tariffs end when the emergency ends,” Navarro says. (How this squares with Bessent’s forecast of long-term tariff revenue is a mystery.)
However, a clear majority of the legal scholars I have spoken to — including those of a conservative bent — think the administration could lose (unless a partisan court is cowed by Trump’s power). One key reason is that conservatives such as John Roberts, chief justice of the Supreme Court, have hitherto supported a “major-questions” doctrine, which posits that executive actions with “vast economic and political significance” must be authorised by Congress or the constitution.
Indeed, the case is so wobbly that some conservatives question why the White House team ever invoked IEEPA at all, instead of section 232. The answer probably lies in political anthropology rather than jurisprudence: Trump’s team has a power structure more akin to a royal court than anything that adheres to 21st-century norms; and his closest courtiers, such as Stephen Miller, have patchy legal training, while junior staffers fear admitting mistakes.
So what happen if Trump loses? He might simply ignore the law. But one striking feature of the administration is that while the president constantly challenges legal norms, he has hitherto seemed reluctant to violate specific court judgments. The court battle over his attempts to fire Federal Reserve governor Lisa Cook is a case in point.
Instead, it seems that the administration is racing to substitute IEEPA with other rules, including section 232, which Greer says will “have the same effect” in imposing tariffs. Maybe so. However, section 232 is sector-specific and can only be imposed after a delay. So if IEEPA is struck down, there will be logistical upheaval at best, and policy chaos at worst.
The markets may brush that off, like most of the other shocks. Or they may not, since there is a risk that any IEEPA reversal could coincide with rising inflation, sinking employment and bad deficit news.
Either way, the refrain “Remember, remember the fifth of November!”, traditionally chanted on bonfire night, now has a fresh modern meaning — not least because if Trump does win, it could give him new — and quasi-kingly — powers.
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