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With US President Donald Trump ever more eager to push the limits of the powers of his office, the Supreme Court’s 6-3 decision to rule illegal the bulk of his totemic tariff agenda is a reassuring demonstration of enduring checks and balances in American democracy. Trump’s decision to invoke the 1977 International Emergency Economic Powers Act last year, citing a “large and persistent” trade deficit and a supposed fentanyl “crisis”, to justify sweeping import duties was dubious from the start. Besides, as the justices noted, although IEEPA enables the executive to “regulate” imports, this does not extend to tariffs.
The ruling brings temporary relief to US businesses and trading partners. It reduces the US average effective tariff rate by 7.8 percentage points, according to Yale’s Budget Lab. The S&P 500 rose following the Court’s announcement, as did European auto and luxury shares. But the decision will now give way to another period of global economic uncertainty.
The White House has been planning for this eventuality and has many other legal routes to rebuild the tariff wall. On Friday, at a hastily arranged press conference following the decision, an angry Trump said he would invoke Section 122 of the US Trade Act to impose global tariffs of 10 per cent on top of those already in place. The provision allows the president to implement import duties of up to 15 per cent, without congressional approval, for up to 150 days. The president also said his administration would initiate actions under Section 301, which allows him to impose unlimited tariff rates in response to discrimination against US businesses, pending an investigation. There are other legal levers he could pull beyond these options too.
The saving grace for the global economy is that these alternative routes come with more hurdles and limits than IEEPA. Nonetheless this means that a paralysing uncertainty may linger for many businesses, with industries and countries unclear on what rates they face and when.
Another unknown is whether and when importers might receive refunds, which could potentially total up to $175bn, for duties they have already paid. The Court did not rule on whether the administration must make such refunds, leaving lower courts to evaluate how to make any remedies. This has implications for the US Treasury market. Revenue from Trump’s tariffs had been forecast to help contain the country’s large fiscal deficit and debt burden, but the ruling — and the prospect of rebates — makes the income stream look shaky. Long-term government bond yields nudged only slightly higher on Friday, suggesting traders assume new tariffs will be implemented. Still, policy uncertainty will hang over markets as well as the calculations of the US Federal Reserve.
Indeed, though Trump vowed to fight back against what he called a “disgraceful” decision by potentially pushing tariffs even higher, the president is in an awkward political position. Cost of living pressures mean voters have increasingly soured on his tariff plans. With the US midterm elections looming in November, the Republicans are keen to support households. Withholding or delaying tariff refunds from businesses would not be a good look either.
Either way, now that the justices have done their job, it will increasingly be up to Congress to push back on the self-proclaimed “tariff man’s” stuttering and misguided plans to revive US manufacturing. The court’s ruling may not alter the overall tendency towards protectionism under Trump but, crucially, it has slowed its progress and made its path more uncertain.
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