Trump's Trade War: A Supreme Court Showdown

The Supreme Court is currently reviewing a case that could significantly alter President Trump's trade policies. Several states and small businesses are contesting the legality of Trump's tariffs, and many of the justices seem sympathetic to their arguments.

The Legal Battle

Trump has been using the International Emergency Economic Powers Act (IEEPA) to justify most of his tariffs. His administration argues that this law allows them to impose tariffs on nearly any country, as the trade deficit is seen as a significant threat to the U.S. However, many economists and legal experts disagree with this interpretation.

Economic Impact

Since taking office, Trump has dramatically increased taxes on imports. The average U.S. tariff has risen from 2.5% in January to 17.9%, the highest level since 1934. This has had a noticeable impact on the U.S. economy, making it more expensive for American companies to produce goods and driving up retail prices.

Projected Economic Effects

• Economic Growth: Trump's tariffs are expected to slow economic growth by 0.5 percentage points in 2025 and 2026.
• Permanent Impact: If these tariffs remain in place indefinitely, the U.S. economy could be permanently smaller by 0.35%, costing the country $105 billion each year.
• Price Level: The tariffs are likely to increase the price level in America by about 1.3% in the short run, effectively reducing the average household's annual income by $1,800.
• Unemployment: The tariffs have contributed to a slight increase in unemployment. By the end of this year, joblessness is projected to rise by 0.3 percentage points, and by the end of next year, it could increase by 0.7 points.

Potential Outcomes

If the Supreme Court rules against Trump and invalidates the tariffs imposed under IEEPA, many of these negative economic effects could be reversed.

Benefits of Repealing Tariffs

• Household Income: The repeal of the tariffs could increase the average household's real annual income by more than $1,000.
• Economic Growth: It could accelerate growth and reduce unemployment.
• Refunds: If the tariffs are found to be illegal, the government would be required to refund the money collected, which could amount to more than $100 billion.

Inflation Impact

While stimulating the economy can have costs, such as increased inflation, lifting Trump's tariffs could actually help to dampen inflation. This is because the tariffs directly increase the cost of both consumer goods and industrial inputs. Therefore, ending the trade war could be a win-win situation for the U.S. economy.

Political Implications

Despite this, the overall economic stimulus from the repeal of the tariffs would be significant. It could increase the average household's real annual income by more than $1,000, accelerate growth, and reduce unemployment. Additionally, if the tariffs are found to be illegal, the government would be required to refund the money collected, which could amount to more than $100 billion.

Trump's Response

It is unlikely that Trump will readily accept an adverse ruling from the Supreme Court. If the court rules against him, he could use other laws to reimpose the tariffs, although this process could be lengthy and cumbersome.

Political Incentives

Politically, Trump has strong incentives to scale back his trade war. Americans are primarily concerned with the cost of living, and they disapprove of Trump's handling of both trade and inflation. After the GOP's poor performance in the 2025 elections, Trump has expressed a desire to focus on affordability. In this context, an adverse Supreme Court ruling could provide an opportunity for Trump to reset his trade policy without losing face.

Conclusion

In the end, the Supreme Court may not be able to stop Trump from pursuing his trade agenda if he is determined to do so. However, it could force him to pursue it in a more bureaucratic and laborious manner.