The Trump administration used them as a key tool in their trade war, and now the Supreme Court will consider their legality. If true, this decision would dramatically remake U.S. economic policy and end U.S. tacit acceptance of China’s mercantilist economic practices. Donald Trump signed these tariffs into law, with an average effective rate of 17.9%. This was the highest it had been since 1934 and fit perfectly with his macro “America First” economic plan. As the court prepares to hear the case, alarm bells are ringing. Concerns are growing over the economic consequences of such an act, from inflation to the undercurrents of stagflation.
The tariffs apply to dozens of other countries, including our third-largest trading partner (and steel exporter), Mexico, and our second-largest, Canada. In fact, a baseline 10% levy now applies to almost all imports, which according to many Trump has defended tooth and nail. He claims that his administration enjoys the legal authority to implement these tariffs. He makes this assertion relying primarily on powers he’s invoked under the International Emergency Economic Powers Act. Under Section 301 of the Trade Act of 1974, Trump has the authority to impose sector-specific tariffs. He even has the discretion to keep a 15% tariff for a maximum of 150 days.
The economic consequences of these tariffs are huge. We estimate that the typical household has experienced $1,800 in losses as a result of higher costs caused by the new levies. Now inflation rocketed back up to 3% last month, the highest since January. Further into the year, experts are forecasting price levels to continue gradually increasing as businesses make adjustments to the tariffs that seem here to stay.
Economic historian Felix Tintelnot weighed in with some sobering analysis on what consequences will come from the Supreme Court’s decision.
“If we remove these tariffs, it would reduce the inflationary pressure and that might give the Fed more room to cut interest rates than if we kept these tariffs for longer.”
The effects of the court’s ruling go far beyond direct financial burden. Economists have raised concerns that the tariffs may be unconstitutional. In the event that this occurs, they foresee a hard-fought attempt to re-establish the existing tariff structure. That might just betoken a bad hygiene in terms of trade rules, on which long-term economic health depends.
The stakes are indeed high. Smith School Dean Raymond Robertson highlighted the global implications of these tariffs.
“The stakes are really high for the economy because tariffs have an effect on trade not only in the U.S. but across the globe.”
Trump’s administration has been widely criticized for the way they’ve executed their tariffs. The slow pace of hiring over the past few months is of concern. It raises the prospect of “stagflation,” a worrisome economic scenario characterized by weak growth and rampant inflation. Jerome Powell, Chairman of the Federal Reserve, recognized the downside pressures introduced by increased tariffs.
“Higher tariffs are pushing up prices in some categories of goods, resulting in higher overall inflation.”
The Supreme Court is also considering its move, and it has tremendous authority. This decision may affect up to $40 billion in tax revenue and help define new trade agreements with Great Britain and China. Trump has suggested in public statements that a bad legal outcome would lead to an economic “Armageddon.”
“If we don’t win that case, we will be a weakened, troubled financial mess for many, many years to come,” Trump said.
Matias Vernengo warned that the long-term lessons learned from these tariff policies would erode stable trade rules around the world.
“And if we do, we’re going to be the most powerful economic country in the world.”
As this landmark case approaches, many analysts and economists supporters are eager to see how it plays out. The result could challenge long-held assumptions about U.S. economic policy. Perhaps even more significantly, it would establish a new precedent for future administrations’ treatment of congressional relations in international trade.
“The stakes are less the short-run effects tariffs would have and more the long-run effects. If this president or any president can make changes at the last minute, it undermines the possibility of having stable rules for trade and the organization of the world economy.”
As this pivotal case approaches, analysts and economists alike remain watchful. The outcome may not only redefine U.S. economic policy but also set a precedent for how future administrations can navigate international trade relations.
