Adjudication Day: The Supreme Court Tackles Trump’s Tariffs

Adjudication Day

President Trump dubbed April 2nd of this year “Liberation Day” when announcing sweeping and dramatic tariff increases.  A baseline tariff of 10% was imposed across the board with far higher tariffs implemented for the perceived worst offenders: countries with significant trading surpluses with the U.S.  After several legal setbacks, on September 3rd the administration petitioned the Supreme Court to decide the legality of these actions.  As of last night (September 9th), it agreed to hear the case.

If the Supreme Court declined to review the lawsuit, the previous decision by the U.S. Court of Appeals for the Federal Circuit (“Court of Appeals”) would have largely invalidated Trump’s tariffs effective October 14th.   Now, the Supreme Court may very well also rule against Trump in agreeing with the lower courts’ decisions.[i]  Liberation Day may soon be overturned by Adjudication Day.

Previous decisions and a future Supreme Court opinion primarily involve two primary legal issues.  First, does the International Emergency Economic Powers Act (IEEPA) grant a President extensive powers and authority to implement tariffs?  Both the Court of Appeals and the U.S. Court of International Trade answered this question with “no”:

We conclude Congress . . . did not give the president wide-ranging authority to impose tariffs of the kind Trump imposed in his sweeping executive orders.[ii]

The IEEPA may grant such power in an emergency; specifically, when the U.S. is presented with an “unusual and extraordinary threat with respect to . . . a national emergency.”  This is the legal basis cited by the administration with the emergency consisting of “chronic trade deficits.”[iii]

Since the U.S. has continuously incurred an aggregate trade deficit since 1976, with arguably the fastest growing and most pronounced deficits occurring earlier this century, the situation can hardly be described as “unusual” or “extraordinary.”  Nor can one definitively describe the situation as adverse (and hence an “emergency”) since most economists find no theoretical issue with trade deficits.[iv]

In addition, other reasons for declaring a national emergency, such as a widespread fentanyl abuse and overdoses or illegal immigration, prove difficult in legitimizing this imposition of tariffs.  Trump clearly referenced chronic deficits as the rationale (“for decades, our country has been looted, pillaged, and plundered by nations near and far, both friend and foe alike”) and, perhaps more importantly, the imposition of tariffs directly and formulaically corresponded with each respective country’s overall trade value and surplus with the U.S.[v]

The second, and far more fundamentally important, major legal issue involves Constitutional power: can Congress assign its legislative taxing power to a President under the IEEPA or similar law?  This important and essential question involves the Constitutional concept of the separation of powers.  It is likely this issue which compelled the Supreme Court to review the matter.

Article I, Section 8 of the Constitution explicitly states that “Congress shall have Power To lay and collect Taxes.”[vi]  To underscore and protect Congress’ unique taxing power, the Constitution further requires that “All Bills for raising Revenue shall originate in the House of Representatives.”  Such authority cannot be diminished, usurped, or circumvented by Presidential foreign policy.

Nor can this core power of Congress be assigned or otherwise transferred.  If it were, the separation of powers upholding legal limits on the power of each government branch would be jeopardized.  While the courts have historically provided broad discretion to Congress in applying or enforcing its laws, the degree of its delegation has been repeatedly delineated by the Supreme Court.  Known as the Nondelegation Principle, it was effectively cited by the Court of Appeals when it noted “tariffs are a core Congressional power.”

When the Supreme Court hears the case, how will it rule?  The odds do not favor Trump.  While court pundits frequently note a “conservative” six-to-three majority, in reality the court reflects three distinct camps: activist conservatives (Roberts, Kavanaugh, and Barrett), strict constructionists (Thomas, Alito, and Gorsuch), and activist liberals (Sotomayor, Kagan, and Jackson).  The latter two groups will likely vote against Trump.  It may even be a unanimous decision.

What are the implications of tariff repeal?  They range from geopolitical to fiscal to financial: Trump will lose key foreign policy tools, the U.S. debt situation will worsen with less tariff revenue, and importing U.S. companies will win to the detriment of domestic producers.

But with tariff repeal, perception may be more important than impact.  Since few know about or understand this looming issue, most investors may be unprepared for any ensuing volatility (positive or negative).  When reality and perception materially divide and a catalyst eliminates the inconsistency, the opportunity exists for sizeable gains or losses.

Endnotes

  1. United States Court of Appeals for the Federal Circuit. V.O.S. Selections, Inc. v. Trump. No. 25-1812, Opinion of 29 Aug. 2025. PDF file, U.S. Court of Appeals for the Federal Circuit, www.cafc.uscourts.gov/opinions-orders/25-1812.OPINION.8-29-2025_2566151.pdf
  2. United States Court of Appeals for the Federal Circuit, V.O.S. Selections, Inc. v. Trump.
  3. Roll Call Factbase. “Speech: Donald Trump Announces New Tariffs at a Rose Garden Event – April 2, 2025.” Roll Call, 2 Apr. 2025, https://rollcall.com/factbase/trump/transcript/donald-trump-speech-economic-tariffs-rose-garden-april-2-2025/
  4. Federal Reserve Bank of St. Louis. Trade Balance. FRED, Federal Reserve Bank of St. Louis, 2025. www.fred.stlouisfed.org/categories/125
  5. Roll Call Factbase, “Speech: Donald Trump Announces New Tariffs.”
  6. United States Senate. “The Senate & the Constitution.” Senate.gov, U.S. Senate, www.senate.gov/about/origins-foundations/senate-and-constitution/constitution.htm#a1