Five Thoughts on Supreme Court's Tariff Decision

This morning, the Supreme Court issued a 6-3 decision invalidating most of President Trump’s tariffs. Writing for the majority, Chief Justice Roberts held that the International Emergency Economic Powers Act, or IEEPA, “does not authorize the President to impose tariffs.” Because President Trump invoked IEEPA to impose most of his tariffs—including tariffs on Canada, Mexico, and China purportedly relating to the flow of illegal drugs from those countries into the US, and the “Liberation Day” tariffs on dozens of other countries purportedly relating to our ongoing trade imbalances with them—the Court’s ruling will compel the Trump Administration to remove those tariffs. But there is still enormous uncertainty about what comes next.

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Here are a few thoughts on what the Court’s ruling means (and doesn’t mean):

1. The short-term impact on American businesses and consumers is unclear because the Court did not explain whether and how the money the Trump Administration has already collected under the illegal tariffs should be refunded: To date, the Trump Administration has collected approximately $175 billion in tariff revenue under its IEEPA tariffs. A recent paper found that roughly 90% of those costs were borne by American firms and consumers. In theory, if the tariffs were quickly refunded to the companies that paid them, there could be substantial relief for American companies that could flow down into lower prices for American consumers (and better outcomes for American workers too). In practice, it will be much more complicated. The Court did not explain what the process was for companies to claim and receive tariff refunds. As Justice Kavanaugh points out in his dissenting opinion, the refund process is likely to be a “mess.” It could take many more months of litigation for companies to get a roadmap for getting refunds. And even if the companies get refunds, it’s not clear how much of that money, if any, will ultimately flow through into lower prices for consumers. That’s in part because some companies have been eating the additional tariff costs in the short term rather than raising prices, and in part because of my next point…
   

2. The Trump Administration could reimpose most of these tariffs using legal authorities other than IEEPA: The Trump Administration has several pathways for reimposing some or all of the newly invalidated tariffs. The President loves tariffs and I doubt he will just give up trying to fulfill his primal urge to impose lots of tariffs. In fact, in the immediate aftermath of the Court’s decision, the President reportedly said that he has “backup plans” for the illegal tariffs. Those plans could include pursuing tariffs under Section 301 of the Trade Act, which requires an investigation but then permits the use of tariffs to counteract “unfair practices” by other countries. Trump used that authority to impose tariffs on China in his first term. He could also reimpose some tariffs under Section 232 of the Trade Expansion Act, which permits the imposition of tariffs to protect US national security after an investigation by the Department of Commerce. Trump also invoked that authority in his first term to impose certain steel and aluminum tariffs. And there are other, more exotic pathways too. The point is that any rational US business is going to anticipate the possibility of new tariffs, which is going to: (a) deter them from passing along any short-term cost savings to consumers; and (b) continue to fuel the uncertainty that is putting a damper on certain forms of business investment in the US.
   

3. While the Court’s opinion could result in lower tariffs and some relief for American companies and consumers, it will exacerbate the ballooning federal budget deficit under Trump: Trump’s one legislative accomplishment, the One Big Beautiful Bill Act, included about $4 trillion in tax cuts (largely for the wealthy and corporations), offset by roughly $1 trillion in spending cuts to Medicaid and SNAP. Some Republicans comforted themselves by saying that Trump’s tariffs would bring in trillions of dollars in revenue to help close that $3 trillion gap. With tariff revenue now in jeopardy, the budget outlook appears even worse. This comes after tax cuts and spending increases in Trump’s first term added more than $8 trillion in debt. One consolation for Democrats is that they may no longer have to grapple with the budgetary impact of reversing Trump’s tariffs if they win the presidency in 2028, an issue I discussed in an earlier post.
   

4. The dissents from Justices Kavanaugh, Thomas, and Alito highlight their hypocrisy given their earlier ruling striking down Biden’s student debt relief plan: In the 2023 case striking down President Biden’s student debt relief plan, Justices Kavanaugh, Thomas, and Alito joined a majority opinion holding that statutory language permitting the Secretary of Education to “waive or modify any statutory or regulatory provision…[they] deem necessary in connection with a…national emergency” was not clear or broad enough to justify targeted debt relief stemming from the financial harms of the COVID emergency. In today’s case, these Justices held that statutory language authorizing a President to “regulate” trade in connection with a national emergency was clear and broad enough to justify the imposition of potentially trillions of dollars in tariffs—including against countries we don’t have a trade deficit with—based on a supposed national emergency of “large and persistent trade deficits.” By now, it should be obvious to any reasonable person that these Justices are not neutrally applying any legal principle but rather deciding what policy outcomes they like and reasoning backwards from there.
   

5. The Roberts Court deserves little credit for “standing up for the rule of law”; its ruling today is consistent with the view that it will largely defer to Trump unless it comes into conflict with corporate interests: I’ve already seen some commentary that today’s ruling is a win for the rule of law and a sign that the Roberts Court is entering a new era where it will stand up to Trump. That conclusion is not justified by the evidence. My rubric for predicting Roberts Court opinions is simple: it will side with the policy interests of the Republican Party EXCEPT in those rare occasions where the policy interests of the Republican Party conflict with the interests of Corporate America, in which case the interests of Corporate America take precedence. Overall, the Roberts Court has been extraordinarily favorable to Trump. But it has been as or more favorable to the interests of corporations. The two major instances this term where the Court seems likely to break from Trump—the tariff case today and the Fed independence case involving the firing of Lisa Cook—are examples of the Court breaking from Trump in alignment with the view of corporate interests. No other purported throughline in the Roberts Court’s rulings—originalism, a desire to cabin executive power, etc.—comes nearly as close to accurately predicting the outcomes of high-profile cases.