The Supreme Court has ruled against President Donald Trump’s decision to employ emergency powers to impose sweeping import tariffs, denying the White House one of the pillars of its economic agenda.
Trump had used a 1977 law called the International Emergency Economic Powers Act, or IEEPA, as justification for placing levies on a host of countries. IEEPA gives the president broad powers over international economic transactions in the event of a national emergency.
An influx of drugs into the U.S., as well as a “large and persistent” trade deficit, were both referenced by Trump to justify the use of such emergency measures.
But, in a 6-3 decision, the high court found that IEEPA does not authorize Trump to put the tariffs in place.
Writing in an opinion for the majority, Chief Justice John Roberts argued that while the U.S. constitution “very clearly” gives Congress taxing power, that does not extend to the executive branch.
Roberts added that the Trump administration conceded that Trump “enjoys no inherent authority to impose tariffs during peacetime,” and was instead relying on language in IEEPA — specifically the words “regulate” and “importation” — to “effect a sweeping delegation of Congress’s power to set tariff policy.”
He noted that the Supreme Court has long expressed “reluctance to read into ambiguous statutory text extraordinary delegations of Congress’s powers,” referring partially to a ruling in 2023 which struck down the Biden administration’s use of specific legal language to cancel hundreds of billions of dollars in student loan debt.
Justices previously expressed enough skepticism over the White House’s arguments at hearings late last year that markets were anticipating that the high court would rule against Trump.
Uncertainty around Trump’s next move
The outcome of the case could influence how Trump proceeds with tariffs, a policy tool he has employed throughout his second term as a cudgel in international negotiations.
The president called the Supreme Court’s decision a “disgrace” while inside a White House breakfast with U.S. state governors this morning, CNN reported, citing sources. He reportedly said he had a backup plan in the event the ruling went against him.
U.S. Trade Representative Jamieson Greer told the New York Times in an interview published last month that, even if the Supreme Court strikes down the tariffs, administration officials are preparing new duties that would “start the next day.”
“The Supreme Court’s ruling […] removes one arrow from the administration’s quiver, but it doesn’t disarm it,” Emarketer Principal Analyst Zak Stambor say.
U.S. stock markets shot higher in the wake of the Supreme Court’s decision, with a number of individual companies viewed as exposed to tariff pressures surging. Apparel groups Nike and Lululemon, which source items from overseas, rose slightly in morning trading, as did retailers Target and Williams-Sonoma.
The ruling may “reduce trade uncertainty and cool inflation concerns — paving the path for lower U.S. interest rates,” Lukman Otunuga, Senior Market Analysts at FXTM, say.
“However, the White House has said that it will seek methods to restore tariffs through other means. So, this short-term optimism may be swallowed by renewed trade uncertainty at a period where sentiment remains gripped by geopolitical risk.”
Refund questions
While the ruling also clarifies legal boundaries on trade policy, which “helps long-term investment planning,” lingering questions especially remain about potential refunds the White House may need to pay back to tariff-hit entities, Stuart Kousoulou, Quantitative Trader at CMC Markets, say.
More than $175 billion in U.S. tariff collections may now be at risk of having to be refunded, according to figures from Penn-Wharton Budget Model economists produced at the request of Reuters. Such refunds would exceed both the combined fiscal 2025 outlays of the Department of Transportation and Department of Justice, Reuters reported.
Trump has long argued for the benefits of the tariff revenue collected into government coffers, which the Congressional Budget Office estimated to amount to roughly $300 billion per year over the next decade.