The Economics of the Tariff Ruling, Why the Supreme Court Stood Up for the Rule of Law Against Executive Overreach
The US Supreme Court did the right thing by ruling that the International Emergency Economic Powers Act of 1977 “does not authorise the President to impose tariffs”. Half of the Court’s conservative majority has, at long last, stood up to US President Donald Trump’s brazen overreach of executive power.
The Court, claiming “no special competence in matters of economics or foreign affairs”, stayed in its lane, as dictated by Article III of the US Constitution, and focused solely on the legality of Trump’s signature tariff policies. Its 6-3 decision, with three conservatives joining the Court’s three liberal justices, effectively positioned the rule of law as the ultimate arbiter of terrible economic policy.
The Constitutional Principle
The Court’s argument is based on a simple principle that Americans learn early in their education: Under the separation of powers doctrine, the Constitution grants taxing power solely to Congress. The corollary is that, notwithstanding the Trump administration’s absurd protestations, tariffs are indeed taxes on US companies and households.
As Chief Justice John Roberts wrote in the majority opinion, the Court was not about to allow such a “transformative expansion of the President’s authority over tariff policy”. This is not a technical legal distinction; it is a fundamental constitutional principle. The power to tax is the power to destroy, and that power belongs to the people’s representatives in Congress, not to a single executive.
The Real Emergency: America’s Savings Crisis
Claiming no special competence in legal matters, I am compelled to weigh in on the ruling’s economic implications, which align with the Court’s underlying reasoning for three key reasons.
First, trade deficits are not the “emergency” that Trump claims—his justification for invoking the IEEPA and recklessly wielding the tariff cudgel. The United States has run annual trade deficits in manufactured goods since 1976. Last year, despite the sharp increase in Trump’s now-illegal tariffs, the US trade deficit in goods hit a new record of $1.2 trillion.
The real emergency is America’s extraordinary lack of savings. The net domestic saving rate fell to an estimated 0.2% of national income in 2025. Without domestic savings to fund economic growth, America must import surplus savings from abroad and run balance-of-payments and trade deficits to attract this foreign capital.
Owing to massive, persistent federal budget deficits, aided and abetted by Trump’s own policies, an anaemic savings trajectory promises huge trade deficits in the years to come. The tariffs were a solution to a problem that does not exist, or rather, they were a solution to a symptom while ignoring the cause.
Tariffs Hurt US Businesses and Consumers
Second, tariffs hurt US businesses and consumers. Despite Trump’s ridiculous claims to the contrary, tariffs are not paid by foreign countries; they are duties paid by importers for goods upon arrival in the US. The principal dissent to the majority opinion, written by Justice Brett Kavanaugh, claims that “Congress ordinarily seeks ‘to give the President substantial authority and flexibility to protect America and the American people'”. Trump’s tariffs have done the opposite.
Recent research by economists at the Federal Reserve Bank of New York found that nearly 90% of the tariffs’ economic burden falls on American consumers and firms. While these results have been largely dismissed by National Economic Council Director Kevin Hassett, it is more a reflection of Hassett’s sycophantic character—a common trait among Trump’s top economic officials.
In reality, the Fed’s conclusions are consistent with what most other serious studies assessing the impact of Trump’s tariffs have found. Tariffs raise prices for consumers, increase costs for businesses that rely on imported inputs, and invite retaliation from trading partners. They are a tax on Americans, not on foreigners.
The Global Implications
Lastly, there are important global implications to consider. Not only is Trump highly critical of globalization and those who support a rules-based world trading system, but his “America First” mantra has taken dead aim at the alliances that have long been so beneficial to the US.
Europe and the North Atlantic Treaty Organization are his primary targets (his tirade against them at this year’s Davos gathering was merely the most recent), but they are not the only ones. Trump is also threatening to unwind the US-Mexico-Canada Agreement that he celebrated as a major policy win in his first term.
Fully 54% of US trade flows in manufactured products are with Europe, Canada, and Mexico. The US trades with these countries out of necessity, not because, as Trump insists, the globalists have a secret plot to undermine America. The US must pay the price for foreign capital if it wants to keep growing, and that price shows up in terms of cross-border trade, including the powerful efficiencies of global supply chains.
Trump’s tariffs have been a shock to the world trading system. While they have shifted the mix of the US trade deficit away from highly tariffed countries like China, the overall deficit remains at a record level, weighing on US manufacturers and workers. But unwinding linkages with Europe, Canada, Mexico, and China is not the answer. It would only divert their trade flows elsewhere, thereby reducing the efficiency and security benefits that have accrued to America.
Trump’s Response
Predictably, in a fit of anger after the Supreme Court’s ruling, Trump imposed a new temporary global tariff of 10%, which he subsequently upped to 15%. The Court did not address these economic considerations when ruling on Trump’s sweeping tariff regime, nor did it attempt to assess the validity of the so-called emergency required to trigger an IEEPA action.
Still, the narrow finding that IEEPA-based tariffs are unconstitutional sends an important message to the American body politic and the rest of the world: US policies may not be personalised by the whims of a vindictive and uninformed wannabe autocrat.
Conclusion: When Will Markets Render Their Verdict?
In the end, Roberts put it best: “What common sense suggests, congressional practice confirms.” The Court drove that point home by standing up for the rule of law. When will the US economy and financial markets render a verdict of their own?
The Court has done its job. It has reaffirmed that the president is not above the law, that the Constitution means what it says, and that the power to tax belongs to Congress. Now it is up to voters, businesses, and markets to hold policymakers accountable for the substance of their policies, not just their legality.
The rule of law is the foundation of economic prosperity. By upholding it, the Supreme Court has done more for the US economy than any tariff ever could.
Q&A: Unpacking the Tariff Ruling
Q1: What was the constitutional basis for the Supreme Court’s ruling?
The Court held that under the separation of powers doctrine, the Constitution grants taxing power solely to Congress. Tariffs are taxes on US companies and households, not penalties on foreign countries. Therefore, the president cannot unilaterally impose tariffs using the International Emergency Economic Powers Act (IEEPA) without congressional approval.
Q2: What is the real economic emergency behind US trade deficits?
The real emergency is America’s extraordinary lack of savings, not trade deficits. The net domestic saving rate fell to an estimated 0.2% of national income in 2025. Without domestic savings to fund growth, America must import foreign capital, which requires running trade deficits. Massive federal budget deficits, aided by Trump’s policies, ensure huge trade deficits will continue regardless of tariffs.
Q3: Who actually pays for tariffs?
Tariffs are paid by US importers, and nearly 90% of the economic burden falls on American consumers and firms, according to Federal Reserve Bank of New York research. They are not paid by foreign countries. Tariffs raise prices for consumers, increase costs for businesses using imported inputs, and invite retaliation from trading partners.
Q4: What are the global implications of Trump’s tariff policies?
Trump’s tariffs have targeted key US allies—Europe, Canada, and Mexico—which together account for 54% of US manufactured trade. Unwinding these relationships would not reduce the trade deficit but would divert trade flows elsewhere, reducing efficiency and security benefits. The tariffs have shocked the world trading system without addressing the underlying savings crisis.
Q5: What did the Court accomplish with this ruling?
The Court reaffirmed that the president is not above the law and that the power to tax belongs to Congress. It sent a message that US policies may not be personalised by executive whim. By upholding the rule of law, the Court has done more for economic prosperity than any tariff could, creating predictability and stability essential for investment and growth.
