The judgment day for most of Donald Trump’s tariffs looms this week, with the US Supreme Court set to hear an appeal against a lower court’s ruling that they are illegal.
Should the Supreme Court rule against his administration’s reciprocal and baseline tariffs, the “Liberation Day” import levies of between 10 per cent and 50 per cent against all the countries the US trades with – and perhaps the trade and investment deals that have been struck using them as leverage – would have to be withdrawn, and the $US90 billion ($137 billion) or so in revenue the tariffs have generated so far might have to get refunded.
Donald Trump said the Supreme Court hearing is “one of the most important cases in the history of our country”.Credit: Getty
Trump could still have his tariffs, but he’d have to use different legislation that would involve either extensive and time-consuming investigations and couldn’t be imposed at the presidential whim. Or he’d have to resort to another law that puts a 15 per cent ceiling on tariffs, can only be used against countries with substantial trade surpluses with the US and sets a 150-day limit on the tariffs’ duration.
Trump used Section 232 of the Trade Expansion Act of 1962 – which required Commerce Department investigations – for his sectoral tariffs on steel, aluminium and cars, among other products. Those tariffs haven’t been challenged.
He said last weekend that the Supreme Court hearing is “one of the most important cases in the history of our country” and gave a dire warning of the repercussions if the tariffs were struck down by the court.
‘If a president was not able to quickly and nimbly use the power of Tariffs, we would be defenseless, leading even to the ruination of our Nation.’
Trump in a Truth Social post
“If a president was not able to quickly and nimbly use the power of Tariffs, we would be defenseless, leading even to the ruination of our Nation,” he wrote on Truth Social.
The administration’s lawyers claimed that denying the president the authority to impose the tariffs would “thrust America back to the brink of economic catastrophe.” They also say that “with tariffs, we are a rich nation; without tariffs we are a poor nation.”
There are a number of problems with those statements.
One is that the power to impose tariffs lies explicitly with Congress. The second is that, while substantial – the Committee for a Responsible Federal Budget estimates the tariffs would raise about $US3 trillion over a decade — the revenues at stake are modest in the context of a US federal government deficit that is $US1.8 trillion and rising.
The relatively modest amounts of revenue generated from a tax on imports isn’t surprising because, with total trade amounting to around 25 per cent of its GDP, America is one of the least trade-exposed world economies. In a $US30 trillion-plus economy, a few hundred billion dollars a year is almost immaterial.
There was no economic catastrophe before the tariffs were imposed. Indeed, since Liberation Day, the US economy has slowed, unemployment has risen, inflation has been edging up, the manufacturing sector has shrunk and investment has been drying up.
The tariffs have caused uncertainty and economic harm. They have no material influence on whether the US is a rich or poor nation, although it could be argued that, at the margin, they are making America poorer and that removing them will – far from creating an economic catastrophe – help boost economic growth, lower unemployment and reduce inflation.
Trump said a national security emergency due to America’s trade deficit was giving him authority for imposing the tariffs, and used fentanyl use in the US as the rationale for a separate set of tariffs on Canada, Mexico and China.
The US has run trade deficits for the past 50 years, generally a period of increasing prosperity for the country. There was no trade-deficit-driven economic emergency until Trump himself declared one/ Similarly, it’s not as though the use of opioids in the US is more of a crisis today that it was a decade, or two, ago.
The deficits are driven by an imbalance between US savings and investment, not the unfair trade practices that Trump used to justify the tariffs. They also reflect the changing nature of the US economy, as it has shifted away from manufacturing low-value items to more advanced manufactures and as the service sector (where it has a trade surplus) has grown.
It’s also the case that the tariffs don’t directly punish those countries that Trump accuses of unfair trade practices (including some, like Australia, where the US actually has a trade surplus but still imposed a 10 per cent tariff).
The tariffs are a de-facto tax on US companies and consumers, with the US-based importer paying the duties when the goods are landed in America and then the importing company either absorbing some of the cost in its margins or passing some or all of it onto the end-customers.
The easiest way for Trump to fill the hole in revenues that would be caused if the Supreme Court decided his tariffs are illegal would be to raise US tax rates by undoing the trillions of dollars of tax cuts for the wealthy in his One Big Beautiful Bill Act. He’d be replacing what’s effectively a big consumption tax with a far bigger increase in income tax revenues.
A court defeat would be embarrassing, bordering on humiliating, for Trump and his administration, given how they have treated – bullied and extorted – America’s friends and closest allies as the tariffs have been introduced and trade deals negotiated.
US Treasury Secretary Scott Bessent has said a rejection of the tariffs could create a “dangerous diplomatic embarrassment” for the US, but it would be Trump and the administration that would be embarrassed, not the US (although no doubt America’s friends and foes alike would experience some delight – schadenfreude – if Trump and his fellow protectionists were embarrassed).
The Supreme Court, with its majority of Republican-nominated judges, has generally been very kind to Trump, greatly increasing the scope of executive power and diminishing that of Congress, so it isn’t out of the question that it could overturn the lower court’s ruling and effectively find the president has the power to arbitrarily impose taxes — which is what tariffs are – even though the US Constitution gives that power to Congress.
To the extent that a president does have some limited authority to impose tariffs, that authority has been granted to him by Congress. Which means the court would be widening not just Trump’s powers – and not just in relation to tariffs, but to anything that could be broadly classified as related to foreign policy – but also those of his Republican or Democrat successors, should it decide the tariffs are lawful after all.
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