One is that the power to impose tariffs lies explicitly with Congress. The second is that, while substantial – the Committee for a Responsible Federal Budget estimates the tariffs would raise about $US3 trillion over a decade – the revenues at stake are modest in the context of a US federal government deficit that is $US1.8 trillion and rising.
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The relatively modest amounts of revenue generated from a tax on imports aren’t surprising. With total trade amounting to around 25 per cent of its GDP, America is one of the least trade-exposed economies. In a $US30 trillion-plus economy, a few hundred billion dollars a year is almost immaterial.
There was no economic catastrophe before the tariffs. Indeed, since Liberation Day, the US economy has slowed, unemployment has risen, inflation has been edging up, the manufacturing sector has shrunk and investment has been drying up.
The tariffs have caused uncertainty and economic harm. They have no material influence on whether the US is a rich or poor nation. However, it could be argued that, at the margin, they are making America poorer and that removing them will, far from creating an economic catastrophe, help boost economic growth, lower unemployment and reduce inflation.
Trump said a national security emergency due to America’s trade deficit was giving him authority to impose the tariffs, and he used fentanyl use in the US as the rationale for a separate set of tariffs on Canada, Mexico and China.
The US has run trade deficits for the past 50 years, generally a period of increasing prosperity for the country. There was no trade-deficit-driven economic emergency until Trump himself declared one. Similarly, it’s not as though the use of opioids in the US is more of a crisis today than it was a decade – or two – ago.
The deficits are driven by an imbalance between US savings and investment, not the unfair trade practices that Trump used to justify the tariffs. They also reflect the changing nature of the US economy, as it has shifted away from manufacturing low-value items to more advanced manufactures and as the service sector (where it has a trade surplus) has grown.
It’s also the case that the tariffs don’t directly punish those countries that Trump accuses of unfair trade practices (including some, like Australia, where the US actually has a trade surplus but still imposed a 10 per cent tariff).
The tariffs are a de facto tax on US companies and consumers, with the US-based importer paying the duties when the goods are landed in America, and then the importing company either absorbing some of the cost in its margins or passing some or all of it onto the end-customers.
The easiest way for Trump to fill the hole in revenues that would be caused if the Supreme Court decided his tariffs are illegal would be to raise US tax rates by undoing the trillions of dollars of tax cuts for the wealthy in his One Big Beautiful Bill Act. He’d be replacing what’s effectively a big consumption tax with a far bigger increase in income tax revenues.
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A court defeat would be embarrassing, bordering on humiliating, for Trump and his administration, given how they have treated – bullied and extorted – America’s friends and closest allies as the tariffs have been introduced and trade deals negotiated.
US Treasury Secretary Scott Bessent has said a rejection of the tariffs could create a “dangerous diplomatic embarrassment” for the US, but it would be Trump and the administration that would be embarrassed, not the US (although no doubt America’s friends and foes alike would experience some delight – schadenfreude – if Trump and his fellow protectionists were embarrassed).
The Supreme Court, with its majority of Republican-nominated judges, has generally been very kind to Trump, greatly increasing the scope of executive power and diminishing that of Congress, so it isn’t out of the question that it could overturn the lower court’s ruling and effectively find the president has the power to arbitrarily impose taxes – which is what tariffs are – even though the US Constitution gives that power to Congress.
To the extent that a president does have some limited authority to impose tariffs, that authority has been granted to him by Congress. This means the court would be widening not just Trump’s powers in relation to tariffs, but to anything broadly classified as related to foreign policy, and also those of his Republican or Democrat successors, should it decide the tariffs are lawful after all.
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