One of the two major cornerstones of President Trump’s economic agenda just got struck down by a Supreme Court that didn’t seem to buy any of the arguments the government made in support of imposing tariffs on nearly every country. The President is already boasting that he has a backup plan, which was expected, although it’s not clear how it’ll stand up to a strong statement from the courts.
The usage of tariffs by the President has caused chaos for carmakers and some buyers, although the actual direct impacts on consumers have been mostly muted up to this point. Even buying car parts has become more expensive and complicated. There are billions of dollars at stake here just for automakers, as well as dozens of planned manufacturing changes that could affect thousands of workers across the globe.
It’s possible that no one will have a clear idea of the impact of this decision for weeks or even months, owing to both this administration’s contingency plans and the complex calculus companies will have to make in order to balance saving money with placating an unpredictable executive.
All that being said, this Supreme Court has been marked by a lot of decisions that only address issues in a narrow manner, therefore leaving room for more cases and more interpretation. This isn’t one of those decisions. The ruling made it clear that, fundamentally, no President has the authority to do what’s being done.
While the way forward is murky, here are all the ways that I see this playing out for automotive producers and just normal consumers.
Why The President Thought This Was Legal
The general view of this administration seems to be that, if the President does it, it’s legal, and the justification for tariffs that was given in various official documents doesn’t seem to match with President Trump’s own rhetoric.
The Trump Administration has mostly invoked the International Emergency Economic Powers Act of 1977, or IEEPA. What is this law, and why does it exist? Here’s how Congress explains it:
IEEPA empowers the President to exercise an array of economic powers “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.” The statute provides that the authorities granted by IEEPA to the President “may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for purposes of this chapter [i.e., IEEPA] and may not be exercised for any other purpose.” Each “new threat” for which IEEPA is invoked requires a new declaration.
What was the threat? Primarily, President Trump cites the fentanyl drug crisis:
I, DONALD J. TRUMP, President of the United States of America, find that the sustained influx of illicit opioids and other drugs has profound consequences on our Nation, endangering lives and putting a severe strain on our healthcare system, public services, and communities.
This challenge threatens the fabric of our society. Gang members, smugglers, human traffickers, and illicit drugs of all kinds have poured across our borders and into our communities. Canada has played a central role in these challenges, including by failing to devote sufficient attention and resources or meaningfully coordinate with United States law enforcement partners to effectively stem the tide of illicit drugs.
The fact that many of the countries that were tariffed are highly unlikely to be involved at all in the very real fentanyl drug crisis doesn’t seem to matter. The President himself rarely mentioned it, instead focusing on the balance of trade between companies. The announcement of tariffs even came on what he called “Liberation Day” for the country.
As he said when he announced the tariffs:
And for many years and decades, even, you didn’t hear too much about. Our country and its taxpayers have been ripped off for more than 50 years, but it is not going to happen anymore. It’s not going to happen. In a few moments, I will sign a historic executive order instituting reciprocal tariffs on countries throughout the world, reciprocal.
That means they do it to us and we do it to them, very simple, can’t get any simpler than that. This is one of the most important days, in my opinion, in American history. It’s our declaration of economic independence. For years, hardworking American citizens were forced to sit on the sidelines as other nations got rich and powerful, much of it at our expense, but now it’s our turn to prosper.
None of that really has anything to do with drugs, and if the court merely stated that the reasoning was faulty, then it’s possible the Trump administration could have just changed its reasoning. That’s not what happened.
The Supreme Court Says This Is Broadly Unconstitutional
In a 6-3 ruling, the Supreme Court held that the White House’s tariffs were unconstitutional. Not only that, the ruling seems to be designed to counter a lot of future moves from the White House to get around it. You can read the full thing here. Chief Justice Roberts is quite clear here:
Article I, Section 8, of the Constitution specifies that “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises.” The Framers recognized the unique importance of this taxing power—a power which “very clear[ly]” includes the power to impose tariffs. Gibbons v. Ogden, 9 Wheat. 1, 201. And they gave Congress “alone . . . access to the pockets of the people.” The Federalist No. 48, p. 310 (J. Madison). The Framers did not vest any part of the taxing power in the Executive Branch. See Nicol v. Ames, 173 U. S. 509, 515. The Government thus concedes that the President enjoys no inherent authority to impose tariffs during peacetime. It instead relies exclusively on IEEPA to defend the challenged tariffs. It reads the words “regulate” and “importation” to effect a sweeping delegation of Congress’s power to set tariff policy—authorizing the President to impose tariffs of unlimited amount and duration, on any product from any country. 50 U. S. C. §1702(a)(1)(B). Pp. 5–7.
If you’re the Executive Branch, the invocation of Fed 48 is pretty much a door slamming in your face. Justices Barrett and Gorsuch join the Chief Justice and go even further:
There is no exception to the major questions doctrine for emergency statutes. Nor does the fact that tariffs implicate foreign affairs render the doctrine inapplicable. The Framers gave “Congress alone” the power to impose tariffs during peacetime. Merritt v. Welsh, (104 U. S. 694, 700). And the foreign affairs implications of tariffs do not make it any more likely that Congress would relinquish its tariff power through vague language, or without careful limits. Accordingly, the President must “point to clear congressional authorization” to justify his extraordinary assertion of that power. Nebraska, 600 U. S., at 506 (internal quotation marks omitted). He cannot.
There is no war. There is no emergency. If the President wants to invoke tariffs, he needs to ask Congress, and there’s basically no way this Congress is going to give him that power. I will say, with the President threatening war against Iran, the chance of it no longer being peacetime is a possibility.
Both the liberal and conservative justices on the court issued their own opinions on the matter, with a predictably wide variance in interpretation.
Can The White House Try Other Ways To Prop Up Tariffs?
There are a lot of potential ways for any President to invoke tariffs, although most of these are limited in various ways and don’t, from my view, clear the basic hurdle as laid out by the Supreme Court in its decision. Bloomberg lays them all out in this article, but the one I’m most curious about is Section 338 of the Smoot-Hawley Tariff Act of 1930:
The Depression-era provision empowers the president to introduce tariffs on imports from nations “whenever he shall find as a fact” that these countries impose unreasonable charges or limitations, or engage in discriminatory behavior against US commerce.
There’s no prerequisite for a federal agency to conduct an investigation before the president can apply tariffs.
No President has ever used Section 338, and it would be immediately challenged in the courts.
The challenge for the Trump administration is that almost every next step was designed by Congress to be limited in time and scope. Rather than just place limits on various countries, most alternative provisions are industry-by-industry, country-by-country, or even commodity-by-commodity.
Will Automakers Get Their Money Back? Consumers?
Here’s where it gets super unclear and crazy. The government has collected billions and billions of dollars in tariffs, both from automakers and from anyone who has purchased almost anything from abroad. When Mercedes imported her car from Japan, she paid a tariff. When you bought a part from Europe, potentially, you paid a tariff.
Do you get that money back? Do businesses? Senator Elizabeth Warren is calling for some form of refund, stating that “The American people paid for these tariffs and the American people should get their money back.”
For individuals, it’s not clear yet how this will work. For carmakers, it’s much easier, given that many of them have already sued the Trump administration in the hopes that a Supreme Court reversal would allow them to get cash back.
In the interim, at least, I don’t see automakers passing on more tariff costs to consumers beyond what they already have until this gets further resolved.
Will Companies Stop Investing In The United States?
This one is the trickiest question of all. On one level, the various bilateral trade agreements made between the Trump administration and certain countries are beneficial to both. The President is also unpredictable, and big trade partners like Mexico, Canada, South Korea, and Japan seem willing to play ball.
On another level, most of these agreements aren’t truly final, and the President just lost a ton of leverage. As Senator Bernie Moreno said on X:
SCOTUS’s outrageous ruling handcuffs our fight against unfair trade that has devastated American workers for decades. These tariffs protected jobs, revived manufacturing, and forced cheaters like China to pay up. Now globalists win, factories investments may reverse, and American workers lose again. This betrayal must be reversed and Republicans must get to work immediately on a reconciliation bill to codify the tariffs that had made our country the hottest country on earth!
This seems alarmist to me, and after deciding to shift more production to the United States, I don’t see most companies changing those plans immediately. Will it slow some of them down? Probably. I’d also argue that many of these plans announced by automakers were already planned, and merely highlighted to appease the President.
Either way, the President’s choices seem to be either to be more limited in his approach to tariffs or try a Hail Mary pass using an almost 100-year-old law that previously contributed to the Great Depression. It’s also possible that the President just gives up his tariff plans. Or declare war on everyone, although, come to think of it, that’s something that Congress is also supposed to do.
Top photo: The White House
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