One of the most prominent and important market topics that investors have been focused on in recent days is the battle that Donald Trump’s administration is fighting in the Supreme Court to justify the legal measures the president used to implement his tariffs.
To provide context to the matter, Donald Trump, to introduce his flagship trade tariff policy, did not even attempt to go through the legislative path of Congress. He used the “International Emergency Economic Powers Act” (IEEPA), a document signed during Jimmy Carter’s administration, which granted the U.S. president a range of emergency powers in deciding U.S. economic policy. The problem is that “IEEPA” is legislation intended for occasions of armed conflict or actual threats to the USA.
However, from its very first days, Donald Trump’s administration has been using a range of emergency powers to implement often unpopular policies. Many analysts, commentators, and investors expect that a period of “payback” is approaching for Trump’s administration for the shortsighted use of legal mechanisms, contrary to their intended purpose.
In the event of an unfavourable verdict for the U.S. president, the tariffs would be annulled, and the U.S. government would have to return up to 200 billion dollars already collected from tariffs. This is particularly problematic considering the increasingly dire state of the American budget deficit and debt, which is growing at an extreme pace. But is this really the case?
In reality, even if the Supreme Court issues an unfavourable verdict for the administration, which is not certain, this is only the beginning of the road, not its end. The case will then go to the CIT (Court of International Trade), where each article and rate will be examined separately. This process will take, at best, months, and realistically speaking – years. Additionally, over the decades, U.S. presidents have amassed an entire arsenal of extra-congressional and extra-constitutional powers, including those related to trade.
Even if IEEPA were to cease functioning overnight, Trump’s administration still has:
- Section 301 of the Trade Act of 1974
- Section 122 of the Trade Act of 1974
- Section 201 of the Trade Act of 1974
- Section 338 of the Tariff Act of 1930
- … and many others.
The American system was not designed for open conflict between Congress, the courts, and the president, and is extremely unprepared for it. As long as Trump remains president and the Republicans hold even a minimal majority in Congress, any attempts to fight the tariffs introduced by D. Trump are doomed to failure. Markets should take this fact into account in valuations and not overreact to sensational reports from the press and commentators on this topic.
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