As most of you probably know, the Winter Olympics wrapped up two weeks of exciting international competition this past weekend. While many of us thought the end of the Olympics might mean the end of our international focus for a little while, late last week, the Supreme Court and the Trump administration determined that would not be the case.
On Friday, February 20, the Supreme Court of the United States (SCOTUS) ruled in a 6-3 decision that the International Emergency Economic Powers Act (IEEPA) does not grant the President of the United States authority to grant tariffs. Therefore, the decision invalidated the Trump administration’s imposition of all of tariffs under IEEPA. This is significant, as many of the tariffs invalidated include those imposed at very high levels against individual countries. However, just as significantly, this ruling does not impact tariffs imposed under Section 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962 (more on these Acts below), such as those on steel, aluminum, copper, automobiles, automobile parts, lumber and timber, medium- and heavy-duty trucks, and semiconductors. It also does not impact other tariffs that are the result of ongoing investigations of other imports that might impact national security, such as pharmaceuticals, unmanned aircraft systems, and industrial machinery.
While not all of you might agree with me, I am pleased with the SCOTUS decision for multiple reasons. First, it demonstrated the Court’s consistency during recent years of adhering to the Constitution and limiting executive (i.e., Presidential) powers. This is particularly true of Chief Justice John Roberts, and Associate Justices Amy Coney Barrett and Neil Gorsuch. In such cases during the Biden administration, conservative jurists Samuel Alito, Brett Kavanaugh, and Clarence Thomas sided with the other three to limit executive powers. However, in the most recent case, it was liberal judges Ketanji Brown Jackson, Elena Kagan, and Sonia Sotomayor who sided with the consistent three. The bad news here is that there are six judges, three on each end of the political spectrum, who appear to vote along party lines. The good news is that the three consistent jurists have held the line on executive power, and in the most recent case, limited that power with respect to tariffs, which fall primarily under the purview of Congress.
As a proponent of free trade, I am also encouraged by limitations on tariffs. The downside impacts of tariffs have been enumerated often during the past 12 to 18 months. Tariffs typically result in higher prices to consumers, as we have seen in the past year. While some of the tariffs may be “eaten” by the importing company, some or often, most of the cost of the tariffs are clearly passed on to the consumer. Tariffs, as they have recently, usually result in “trade wars,” which ultimately reduce international trade and therefore, stifle economic growth. However, while this SCOTUS decision has eliminated the Trump administration’s initial means of imposing tariffs, it has also emboldened the administration to use other means. Let’s look at what this means for the future of tariffs and the economy in general.
Contrary to those who believe SCOTUS was going to do whatever President Trump wanted, the administration has been preparing for the loss of this case for a while. Therefore, President Trump immediately imposed first a 10% tariff on all international imports, and then the next day raised it to 15%, invoking Section 122 of the Trade Act of 1974. This Section authorizes temporary restrictions on imports to deal with “fundamental international payments problems.” There are two problems for the administration with this. First, these tariffs may not hold up under judicial scrutiny, similarly to IEEPA, and second, even if they do, they can only be in effect for 150 days (i.e., 5 months). If and when Section 122 fails or expires, the administration plans to invoke Section 301 of the Trade Act of 1974 (foreign trade practices) or Section 232 of the Trade Expansion Act of 1962 (national security) to carry on its tariff agenda.
The problem with this tariff maneuvering is the uncertainty it creates for businesses and our economy. As I noted in my column in this space back in April of last year ( https://augustabusinessdaily.com/while-tariffs-may-hurt-uncertainty-kills-2/?doing_wp_cron=1771970070.5552239418029785156250 ), uncertainty does significant economic damage. Given last Friday’s court case and the administration’s maneuvering, there is uncertainty concerning:
- The trillions of dollars in anticipated tariff revenue and its impact on the federal debt
- Potential refunds of tariffs collected in the last year and its impact on the government’s financial situation and that of businesses who paid them
- How these new 15% tariffs will impact trade flows and business operations of primarily U.S. companies, but also companies around the world.
All this uncertainty, particularly related to future tariffs, creates significant uncertainty for businesses, which will impact their willingness to spend on new hires and business investment. Also, it will create uncertainty when it comes to the costs of the goods being sold. Therefore, as participants in the economy, we are impacted by uncertainty in future unemployment levels, levels of inflation, and how lack of business investment, which will impact economic growth or Gross Domestic Product (GDP).
Unfortunately, while the SCOTUS provided the Trump administration an off-ramp from tariffs, they decided not to take it and continue to travel the road of increased uncertainty. Hopefully, our businesses and economy will be resilient under these less-than-optimal conditions.
