Supreme Court to Weigh Trump Tariffs: A Look at Risks and Challenges

As the US Supreme Court prepares to hear arguments regarding the legality of former President Donald Trump's global tariffs, businesses, foreign trade departments, trade lawyers, and economists are increasingly recognizing the gravity of the situation. Regardless of the legal authority used, Trump's tariff policies are expected to persist for the foreseeable future.

Background: Executive Overreach?

The Supreme Court, currently composed of a 6-3 conservative majority, is considering an appeal from the Trump administration after lower courts ruled that the Republican president overstepped his authority by imposing sweeping tariffs based on a federal law intended for emergencies. If the Supreme Court rules that Trump could not use the 1977 International Emergency Economic Powers Act (IEEPA) to quickly impose broad global tariffs, it would undermine a key tool he used to penalize countries that displeased him on non-trade political issues.

Trump's Rationale: Protecting American Interests

In April, when announcing large-scale reciprocal tariffs, Trump stated, "For decades, our country has been plundered, looted, abused, and violated by countries near and far, friend and foe alike." He added, "Reciprocity means they do to us what we do to them." Trump was the first president to invoke this law, typically used for imposing punitive economic sanctions on adversaries, to levy tariffs. The law grants the president broad authority to regulate economic transactions when declaring a national emergency. In this case, Trump cited the $1.2 trillion US goods trade deficit in 2024 as a national emergency – despite the US having an annual trade deficit since 1975 – and also mentioned the opioid fentanyl overdose problem.

Potential Alternatives: Other Tools in Trump's Arsenal

US Treasury Secretary Steven Mnuchin has stated that he expects the Supreme Court to uphold the IEEPA-based tariffs. However, he mentioned in an interview that if the Supreme Court overturns these tariffs, the administration would directly turn to other tariff authorizations, including Section 122 of the Trade Act of 1974, which allows for broad tariffs of 15% for 150 days to alleviate trade imbalances. Mnuchin also indicated that Trump could invoke Section 338 of the Tariff Act of 1930, which allows for tariffs of up to 50% on countries that discriminate against US commerce.

Long-Term Implications: Businesses Prepare for Scenarios

"You should believe these tariffs are here for the long term," Mnuchin asserted, adding that for countries that have negotiated trade agreements with Trump for tariff reductions, "You should abide by the agreements. Those who got favorable agreements should stick to their promises." Trump is already using other authorizations to impose specific tariffs. He is leveraging Section 232 of the Trade Expansion Act of 1962 (related to national security issues) to impose tariffs on strategic industries such as automobiles, copper, semiconductors, pharmaceuticals, robotics, and aviation. He is also imposing tariffs under Section 301 of the Trade Act of 1974 (related to unfair trade practices investigations).

Expert Perspective: Adapting to the New Reality

Tim Brightbill, co-chair of the trade law practice at Wiley Rein in Washington, stated, "This administration views tariffs as a cornerstone of economic policy, and businesses and industries should plan accordingly." Trump administration officials argue that the tariff policy has prompted major trading partners such as Japan and the EU to negotiate significant concessions, which will help reduce the US trade deficit. They assert that these concessions will not be affected by any Supreme Court ruling.

Trade Partner Response: Hedging Bets

US trade partners have not waited for the Supreme Court ruling to take action. The US Trade Representative Office announced final framework trade agreements with Vietnam, Malaysia, Thailand, and Cambodia, locking tariff rates between 19% and 20%. South Korea agreed to terms of a $350 billion investment plan, securing a 15% tariff advantage for its automobiles and other goods.

Financial Repercussions: Revenue and Investments

Some investors suggest that financial markets have become accustomed to the current state of Trump's tariffs, and overturning the IEEPA-based tariffs could introduce market disruption. A key concern for markets (especially the government bond market) is that the Trump administration might have to refund over $100 billion in tariff revenue and lose billions of dollars in fiscal revenue annually. In the fiscal year 2025 ending September 30, net customs revenue increased by $118 billion, with IEEPA-based tariffs accounting for a significant portion. This revenue helped offset rising healthcare, social security, interest, and military spending, slightly reducing the US deficit to $1.715 trillion.

Reliance on Tariff Revenue: Economic and Political Risks

Ernie Tedeschi, senior fellow at the Yale Budget Lab, stated that "reliance on tariff revenue is a significant political-economic risk," adding that it would make it more difficult for any future administration to lower tariffs. Angela Lewis, global customs director at Flexport, a freight forwarder and customs brokerage, mentioned that refunding the money would also be challenging, as a tariff reversal of this magnitude is "unprecedented" for US Customs and Border Protection. Lewis indicated that the responsibility may fall on individual importers, who would need to apply to the agency for "post-entry corrections," a cumbersome process that could take years, making it not worthwhile for some small companies. For those businesses receiving refunds, US taxpayers would also bear the cost of a 6% annual interest rate calculated daily.

Inflationary Pressures: Cost Management Challenges

The biggest challenge lies in cost management. Academic studies and executive comments indicate that importers have largely absorbed the tariff costs, reducing profit margins but limiting consumer price increases and protecting market share. Oxford Economics indicates that while this has suppressed inflationary impacts so far, cost pass-through is increasingly occurring through clothing and other goods prices. The firm estimates that tariffs raised the September consumer price index (CPI) annual growth rate of 3.0% by 0.4 percentage points, putting inflation well above the Federal Reserve's target.

Impact on Corporate Earnings: Billions in Losses

The impact on corporate earnings has been the most significant, with global firms disclosing over $35 billion in tariff-related costs as the Q3 earnings season approaches. Bill Canady, CEO of Ohio-based OTC Industrial Technologies, a US factory equipment manufacturer that designs and builds factory production lines and automation systems, stated that companies like his will soon have to "place bets" and decide where to relocate production to establish a more sustainable cost base. This could mean moving high-end products back to the US mainland and shifting low-value components to Mexico. "I think the new normal is going to be a 15% tariff," Canady concluded, referring to Trump's tariff policy regardless of the legal authority invoked, "They'll name it whatever they have to name it to make sure it is unchallenged."