Court Ruling Against Tariffs Adds Fresh Dose Of Uncertainty To Economic Outlook

Just when you thought President Donald Trump’s trade policy was becoming more predictable, a court ruling has created new uncertainty about the future of U.S. trade policy.

The latest twist came Friday when an appeals court ruled that Trump could not impose import taxes using emergency presidential powers under the International Economic Emergency Powers Act. Since taking office for the second time, Trump has used that law to authorize most of the sweeping tariffs he has declared this year.

The ruling allowed the tariffs already in place to continue at least through Oct. 14, giving the White House time to appeal the decision to the Supreme Court, as widely expected.

What Does the Tariff Ruling Mean For The Economy?

The court battle affects 75% of the wide-ranging tariffs Trump has imposed over the last few months, according to an analysis by economists at UBS.

Should the Supreme Court overturn the tariffs, it could deal a setback to Trump’s controversial ratcheting of import taxes to their highest since the 1930s. And with such a large portion of the nation’s trade policy at stake, uncertainty is once again in the air for businesses and individuals making decisions about how to invest or spend money.

The decision “adds yet another layer of tariff uncertainty to kick off September,” Shelly Kaushik, a senior economist at BMO Capital Markets, wrote in a commentary.

Uncertainty about tariffs has been a major force in the economy over the last few months. Tariffs affect a multitude of business decisions with potential long-term consequences, including where manufacturers buy materials and parts; how many people employers hire; and where companies may choose to build factories. Economists have said uncertainty about Trump’s often-unpredictable trade policy has led to a hiring slowdown that risks dragging the economy into a recession.

The uncertainty has also affected interest rates. Officials at the Federal Reserve have held the central bank’s key fed funds rate steady this year while waiting to see how the tariff campaign will play out. The Fed’s reluctance to cut rates has kept borrowing costs on all kinds of loans higher than they otherwise might be.

Mark Zandi, chief economist at Moody’s Analytics, said he believes uncertainty about tariffs and Trump’s immigration policies has pushed the economy to the brink of a recession.

“Most of the damage so far is just the uncertainty that they’ve created and which has caused businesses, [and] the Federal Reserve, to kind of sit on their hands,” he told Newsweek in an interview published Tuesday. “And one reason why we have this hiring freeze is just businesses don’t know how these policies are going to play out and what it means for them.”

Stocks fell Tuesday amid the fresh uncertainty about tariffs.

What’s At Stake

The court ruling affects the wide-ranging “reciprocal” tariffs Trump has imposed on numerous trading partners, as well as some of the tariffs he levied on Chinese products to pressure the country to crack down on fentanyl smuggling.

If those tariffs fell by the wayside, however, many others would remain, including tariffs on foreign cars, steel, and copper, which were imposed under a different legal justification. Trade experts said Trump could use other mechanisms to implement his “reciprocal” and “fentanyl” tariffs, but it was unclear how long that would take and what tariffs people would have to pay in the meantime.

Trump denounced the court ruling in a social media post this weekend, saying “our Country would be completely destroyed, and our military power would be instantly obliterated” if the tariffs are struck down.

The legal dispute leaves many questions unanswered.

“Even if there are alternative legal routes available to Trump, it would take time to replicate the full set of tariffs that he has introduced under IEEPA, and it will be difficult to replicate the broad sweep of the current tariffs,” Whitney Shepardson, a senior fellow at the Council on Foreign Relations think tank, wrote in a commentary. “If the Supreme Court upholds the appellate court ruling, the net result will likely be somewhat lower tariffs.”

With those questions still up in the air, many businesses may choose to wait for the outcome before committing to making important investments.

“Until there is clarity about which tariffs will stick, most firms will be reluctant to make the large, multiyear investments needed to reconfigure supply chains,” Shephardson wrote.