Supreme Court Confronts Trump’s Power to Disrupt World Trade (1)

President Donald Trump has worked fast in his second term, wielding unilateral power to reassert American dominance in the global economy. For a few hours Wednesday, the world will get clues as to whether any US institution is willing to rein him in.

In a high-stakes legal showdown, the Supreme Court will consider arguments that Trump exceeded his constitutional authority with many of the sweeping tariffs he has imposed on goods from around the world.

Hanging in the balance are tens of billions of dollars in duties now paid monthly by American importers, and Trump’s ability to reshape global flows of goods and capital. Legal scholars say the implications extend far beyond the economic consequences to the very reach of the US presidency.

If Trump wins he would have virtually unlimited power to invoke emergencies to impose import taxes and intervene in the economy, both the president and his critics say. A loss will undermine his favorite economic tool, one that’s been a source of financial market volatility this year. A ruling isn’t expected for weeks or even months, raising the prospect of uncertainty extending through year-end holidays.

Follow TOPLive blog coverage of the Supreme Court hearing here.

Trump himself, in a social media post Tuesday, called the case “LIFE OR DEATH for our Country” and said a ruling against him would leave the US “virtually defenseless.” The president argues that limiting his tariff power would undermine deals he has struck with trading partners aimed at rebalancing relationships and boosting US manufacturing.

“Our economy will go to hell,” he said in a CBS interview broadcast Sunday when asked what would happen if he lost.

Betting markets this week assigned about a 60% chance of Trump losing the case. Wall Street firms have also been buying up the rights to potential refunds, betting a loss for Trump would see billions in tariffs returned to companies.

Read More: Trump’s Tariffs Face Supreme Court Test. What to Know

The central issue before the high court is whether to agree with lower courts that found the International Emergency Economic Powers Act does not give presidents the power to impose tariffs. That would mean most of Trump’s import taxes are illegal.

In multiple executive orders and during his April 2 announcement in the Rose Garden, Trump invoked the 1977 law to tax goods from most of the world. In the case of China — as well as Canada and Mexico — he cited a fentanyl crisis, and for other countries a persistent US trade deficit that many economists argue is far from an emergency.

He’s also used the IEEPA to impose punitive tariffs on Brazilian imports over the prosecution of former President Jair Bolsonaro for plotting a coup, and on Indian goods because of the country’s purchases of Russian oil. Most recently he threatened Canada with additional duties under the statute over a television ad featuring a 1987 Ronald Reagan address decrying the use of tariffs.

Unbridled Powers

The small businesses and states that brought the three cases being jointly heard by the Supreme Court argue that while IEEPA has been correctly used to impose other financial sanctions, it does not allow presidents to levy tariffs. No other president has done so, they point out.

The law itself was part of a Watergate-era wave of congressional action to put boundaries on presidential powers. The absence of the word “tariffs” from its text is a deliberate omission that shows Congress didn’t delegate its constitutional powers to collect duties and regulate international commerce, lawyers opposing Trump’s tariffs say.

While the final verdict may be some way off, clues to which way justices are leaning often emerge during exchanges in oral arguments.

Read More: Trump Tariffs’ Fate Rides on Supreme Court Justices He Picked

Any ruling against Trump may only bring a temporary halt to his trade wars, experts say. There are other, more legally solid authorities he can use, as he did during his first term and has again this year with duties on specific products such as cars or steel.

But Trump’s enthusiasm for the IEEPA as a pillar of his second-term agenda arose from his belief it gave him unbridled powers. Other tariff-granting statutes require investigations and can take as long as nine months to come together.

Read More: Trump’s Options If Supreme Court Says His Tariffs Are Illegal

‘Mind-Blowing’

Invalidating most of Trump’s import taxes could be disruptive.

The US is collecting $556 million daily in IEEPA tariffs, accounting for 75% of additional customs revenue this year, according to a Bloomberg Economics analysis.

The total take from IEEPA duties alone is set to exceed $140 billion in 2025, even after Trump announced a deal last week to halve the 20% fentanyl tariffs on Chinese imports.

Were the Supreme Court to throw out all of Trump’s IEEPA taxes, it would reduce the effective tariff rate to 6.5% from 15.9% currently, Bloomberg Economics calculates. That would halve the drag on US growth, though rates would remain significantly higher than the 2.3% level when Trump returned to office in January.

One key question is whether, if Trump loses his Supreme Court case, his government would be ordered to refund the tariffs, which would deprive the Treasury of revenue and push the budget deficit higher.

Kent Smetters, a Treasury official under former President George W. Bush now at the Penn Wharton Budget Model, said refunds could actually provide an economic tailwind in the short run. Returning the cash to companies would cushion profits and free up funds for new investment, he said.

That’ll depend on the federal bureaucracy’s ability to handle such a request. Jess Nepstad, who runs Planetary Design, a coffee accessory business based in Montana, said he was wrongly overcharged by $200,000 on a recent shipment of imports. The company was able to prove to Customs and Border Protection that the bill was an error, but the agency said it would take 300 days to pay him back.

“If all this gets repealed, how long is it going to take for all of us businesses to get our money back?” Nepstad said during a conference call last week organized by a coalition of small businesses opposed to the tariffs. “It’s going to be mind-blowing.”

‘Who Holds Power’

Beyond the Main Street and Wall Street consequences are the Constitution’s “bright lines” between legislative and executive power and the erosion of democratic accountability, according to an amicus brief filed earlier this year by a bipartisan group of constitutional law experts including former federal judges and three former US senators.

“This dispute is not about the wisdom of tariffs or the politics of trade,” they wrote. “It is about who holds the power to tax the American people.”

Michael McConnell, the conservative Stanford University constitutional law professor who wrote that brief and who’s since joined the legal team of one of the plaintiffs, calls the case before the Supreme Court this week the most significant since 1952 related to presidential economic powers. That year, justices blocked the attempted nationalization of a steel company by the Truman administration, which invoked national security and the Korean War.

Trump administration officials say any ruling against him would impinge on the president’s ability to conduct foreign affairs. Nothing, they argue, should interfere with presidential authority to declare an emergency if he chooses, whether over the fentanyl crisis or trade deficits.

That the case is being debated publicly on the same day a US government shutdown reached the longest on record provided a measure of support for one of Trump’s more populist arguments: that Congress is too plodding and partisan to compete with his style of deal-making diplomacy.

“They can’t approve anything,” he said in the CBS interview. “They would be sitting around for years debating whether or not we should use tariffs.”

In a brief filed last week on Trump’s behalf, US Solicitor General D. John Sauer wrote that the IEEPA gave the president the authority to respond to any threats he saw as long as he first declared an emergency. It didn’t put limits on what the president could deem an emergency, Sauer argued. Moreover, courts couldn’t review any such decision because “judges lack institutional competence to determine when foreign threats are unusual or extraordinary.”

If the court endorsed such a view, the plaintiffs argue, it would give Trump and his successors virtually unlimited power to govern by emergency rule.

(Adds Trump’s Congress criticism in final four paragraphs)

--With assistance from Catherine Lucey and Greg Stohr.

To contact the reporters on this story:
Shawn Donnan in Washington at sdonnan@bloomberg.net;
Laura Curtis in Washington at lcurtis7@bloomberg.net;
Enda Curran in Washington at ecurran8@bloomberg.net

To contact the editors responsible for this story:
Margaret Collins at mcollins45@bloomberg.net

Brendan Murray, Ben Holland

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