Supreme Court ruling brings no calm to international trade

A question that is as simple as it is explosive has been under consideration by the United States Supreme Court since 5 November: can a president impose import tariffs on the basis of a self-declared national emergency? The ruling, which is expected at the end of the year, will determine whether the future of the global trading system resembles anything other than a spaghetti western.

What is the issue at stake? The tariffs that President Trump imposed under the International Emergency Economic Powers Act (IEEPA), a 1977 law designed to restrict trade with adversaries or during times of war. Over the past 50 years, the law has been used several times to impose economic sanctions, such as those against Russia. However, it has never before been used to impose import tariffs.

According to experts, there are several reasons why the Supreme Court should rule the tariffs illegal.

The Constitution is clear that only Congress has the authority to impose tariffs. While the legislature may grant the president permission to impose tariffs, this did not happen in this case.
IEEPA is not a tariff law; it refers to the power to 'regulate imports or exports'. While the word 'regulate' can be interpreted in various ways, the Constitution explicitly prohibits the imposition of export tariffs. Therefore, replacing 'regulate' with 'impose tariffs on imports and exports' would conflict with the Constitution, argues Georgetown University law professor Jennifer Hillman in the Financial Times.
National emergency? While the president has the sole right to declare an emergency, the courts can interpret whether such an emergency falls within the parameters of the law. Two lower courts concluded that it did not, leaving the final decision to the Supreme Court.

Trump “Unchained”

What if the court rules in Trump’s favour? Then we will enter the era of 'Trump Unchained'. The president would feel emboldened to flout one rule after another. Trust in the United States as a trading partner will hit a new low. Other countries may sooner or later also set aside the rules of the World Trade Organization, and we will drift into a Wild West environment. 'The films may be more exciting, but living through it would be far worse,' Ngozi Okonjo-Iweala of the WTO warned a few years ago.

Tariffs would become even less predictable. Today 15 percent, tomorrow 39 percent, the day after zero, depending on the shifting mood of one man. Businesses would be left in the dark and postpone any investment decisions linked to the United States indefinitely.

Huge budget problem

What if the tariffs are found to be illegal? In that case, the United States would be required to repay all the tariffs that were wrongly collected. Every American importer would be considered an 'injured party', and the administration would be inundated with claims.

Such a ruling would be a huge relief. It would curb the White House's arbitrariness. Rules are rules, even for presidents. However, that relief would not last long.

Washington would then be facing a huge budget problem. The new tariffs have so far brought almost one hundred billion dollars into the Treasury, money needed to finance Trump’s “Big Beautiful Bill”. Without that additional income, the already high budget deficit of 7.4 percent would continue to grow. Bond markets do not like surprises, especially of this scale.

New revenue

The United States administration would then need to look elsewhere for revenue. One possible scenario would be for President Trump to declare that the country is facing a balance-of-payments problem. Under Section 122 of the United States Trade Act, he could impose a tariff of up to 15 per cent for 150 days.

This would give the administration time to seek alternative sources of revenue under Sections 232 and 301 of the Trade Act. The latter allows the United States to impose tariffs in cases of unfair trade. This law has already been used against China in both Trump's and Biden's administrations. It could now be used against the Digital Services Taxes of the EU and the UK, for example.

Section 232 permits the imposition of tariffs on the grounds of national security. The 50 per cent tariff on steel and aluminium falls under this provision. Other sectors could also be examined. A 50 per cent tariff would be disastrous for the German automotive industry and the European pharmaceutical sector. If kitchen cabinets and bathroom furniture are seen as a threat to national security today, the bar for selection is clearly not high. At that point, the affected countries would have no choice but to retaliate, which would lead to a full-scale trade war. Regardless of what the Supreme Court decides, uncertainty in global trade will persist.