Trump races to rebuild tariff wall after Supreme Court loss

President Trump is rushing to rebuild his tariff wall after the Supreme Court struck down a pillar of his trade agenda by ruling his use of the International Emergency Economic Powers Act (IEEPA) to justify them was unlawful.

Ahead of the first State of the Union address of his second term, Trump is racing ahead with his backup plan, laying the groundwork to replace tariffs he imposed on almost every U.S trading partner.

The court’s decision was a major blow to Trump and an important legal victory for thousands of businesses that may now be eligible for tariff refunds.

Even so, Trump still has plenty of power to impose new tariffs to replace the old, and he is warning trading partners against celebrating with his critics.

“Any Country that wants to ‘play games’ with the ridiculous supreme court decision, especially those that have ‘Ripped Off’ the U.S.A. for years, and even decades, will be met with a much higher Tariff, and worse, than that which they just recently agreed to,” Trump wrote Monday in a post on Truth Social.

“BUYER BEWARE!!!”

In a 6-3 ruling released Friday, the court held that Trump did not have the legal authority to issue tariffs under the IEEPA, a 1977 law that gives the president power to “regulate” trade in response to national security threats.

Trump had used the IEEPA to impose tariffs on Canada, Mexico and China soon after taking office last year, claiming those countries had not done enough to stop fentanyl trafficking into the U.S.

The president also used the IEEPA to impose tariffs on dozens of other countries during his “Liberation Day” announcement in April. Many of those tariffs were reduced in later weeks amid bond market turmoil and negotiations with trading partners.

The court held that while the IEEPA allows Trump to block or limit the composition of foreign trade, it does not allow him to set tariffs, which falls within Congress’s exclusive constitutional power over taxation and spending.

Congress, however, had already deferred some of its power over tariffs to the White House through other laws Trump used during his first term and is turning to again in his second.

“The White House has been bracing for a negative outcome. Tariffs ruled illegal can be rapidly reinstated via other levers,” wrote Diane Swonk, chief economist at KPMG US, in an analysis. “It has been preparing for this.”

Trump’s first move was to impose a 10 percent universal tariff through Section 122 of the Trade Act of 1974. That provision allows the president to set an import tax of up to 15 percent to address balance of payment issues with foreign nations, for up to 150 days.

The president later threatened to increase that tariff to 15 percent.

Experts have questioned whether the U.S. actually has such a balance of payment issue, or whether the president alone can make that determination. But the 150-day window and the likely length of litigation over Trump’s order likely render that question irrelevant, especially as the president tees up more tariffs.

“The president has shown that he doesn’t feel particularly constrained by the language of these statutes. He sees them as tools to use in whatever way he pleases. So I think that survives,” said Edward Alden, senior fellow at the Council on Foreign Relations.

Trump is also taking steps to issue new tariffs under two other provisions he used during his first term, which give the president much clearer unilateral power to set import taxes.

The White House announced Friday it will begin the process of issuing new tariffs under Section 301 of the Trade Act of 1974, which gives the president power to impose import taxes in response to unfair trading practices.

Trump used Section 301 to impose tariffs on Chinese goods during his first term, which were maintained by former President Biden and adjusted frequently by Trump again during his second term.

Alden said the “long history” of tariffs issued under Section 301 means Trump’s new tariffs are likely to stick, even if challenged in court.

“I don’t see the courts questioning judgment that the executive branch reaches under 301,” he said, noting it’s also “a slower process that allows for public comment.” 

Trump could also turn to Section 232 of the Trade Expansion Act of 1962, which gives the president expansive power to impose tariffs on products that could threaten national security.

The president used Section 232 during his first term to impose tariffs on steel, aluminum and other metals imported from both allies and adversaries, claiming those countries were risking U.S. national security by putting domestic producers out of business.

During his second term, Trump drastically expanded the countries and products subject to Section 232 tariffs, slapping import taxes on automobiles, auto parts, lumber and even some furniture from particular countries. The president also threatened to impose Section 232 tariffs on oil, gas, pharmaceuticals and a wide range of other goods.

While Alden said the national security basis for some of the Section 232 tariffs issued so far is “pretty shaky,” courts are far less likely to rule against Trump given their historic deference to presidential assessments of national security.

“Surely you look at furniture and a few of the others, and it’s very hard to come up with a national security justification,” Alden said. 

“But you put that against the fact that courts are historically extremely reluctant to second-guess the president on national security,” he continued, “so I don’t think any of these is as legally vulnerable as IEEPA was.”

While Trump will eventually be able rebuild his import tax regime, the ruling and his immediate response threw the global trading system into even more uncertainty.

Trump’s new universal tariff could exceed the 10 percent tariff that was imposed under the IEPPA on countries that struck deals with the White House in response to their threat. Other countries subjected to higher tariffs as a punishment for refusing to negotiate could, in turn, face lower barriers on their exports.

This dynamic “is likely to create new friction with trading partners and additional volatility in trade flows, with imports likely to rise from countries that temporarily face lower tariffs while volumes might fall from countries with temporarily higher tariffs,” wrote Alec Phillips, Elsie Peng and David Mericle of Goldman Sachs in a research note.