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Today marks the start of the US Supreme Court hearings regarding the legality of some of the US administration’s tariffs. A ruling is expected before the end of the year.

Back in May, a US federal court, the Court of International Trade, delivered a landmark ruling that US President Donald Trump overstepped his authority by imposing tariffs under the International Emergency Economic Powers Act (IEEPA). The Supreme Court’s ruling will ultimately decide the case.

Historical precedent: The limits of emergency tariff powers

Trump has justified the bulk of his tariff announcements by pointing to the IEEPA, which gives the president power to “regulate” imports in response to certain emergencies. No president has ever invoked it before – although a precedent often mentioned in this context is a decision made by former president Richard Nixon in August 1971. Back then, Nixon imposed a temporary 10% tariff by pointing to a near-identical provision in IEEPA’s predecessor, the Trading with the Enemy Act. An appeals court ultimately upheld Nixon’s action in United States v. Yoshida International Inc.

We're no legal experts, but it is clear what is at stake here: an important part of the US administration’s economic policy agenda. Some 40 legal briefs have been filed by a wide range of interest groups, from businesses to US officials. Businesses in particular are complaining about the uncertainty related to the tariffs, which is prompting delays in capital expenditure and consumer spending.

In recent years, the court has been reluctant to overrule presidential decisions of this magnitude, especially when Congress has delegated authority to the president under sweeping laws like the IEEPA. Currently, the court has a ratio of six conservatives to three liberals, with three justices appointed by President Trump himself. At the same time, upholding Trump's tariffs would shift the balance of power from Congress to the President, further enhancing his executive power. Predicting how the Supreme Court will rule therefore remains difficult. Betting markets have recently seen a shift in probabilities, assigning a 36% chance of the court ruling in favour of Trump's tariffs.

What if

If the Supreme Court ruled (partially) against the tariffs, the administration would no longer be able to collect IEEPA-based tariffs and would also face demands to refund those already paid. The unravelling of a large proportion of Trump’s tariffs could exacerbate concerns about the state of America’s public finances. Investors in the bond market have already been questioning the trajectory of the country’s mounting debt. In order to avoid increasing public debt further, the President might have to reduce his “Big Beautiful Bill” tax deductions or find other ways to offset the budget deficit.

Since the introduction of the new tariffs, revenue from customs has improved significantly and is estimated to have brought an additional $110bn in government revenues this year. However, a ruling would not affect all of these additional revenues.

At the same time, the loss of IEEPA-based tariffs might not be a permanent setback for Trump’s push to reshape global trade, as sectoral tariffs would remain basically unaffected. It is therefore likely that if the Court were to rule against the tariffs, the US government would impose more and new sectoral tariffs, probably on pharmaceuticals, chemicals and automotives – a shift that could particularly affect the European economy. No matter how the Supreme Court’s ruling eventually looks, tariffs are here to stay.

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