Q&A of the Day – Potential Fallout If SCOTUS Overturns Tariffs
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Today’s Entry: Hey Brian: The betting markets are favoring the Supreme Court shooting down Trump's tariffs. I think the fallout of this would be bad for Trump because his opponents will hammer how he's a loser and how he continues to break the law, moreover how all the countries can back out of their trade deals. I know you were opposed to tariffs but how do you see the fallout and how negative it'll effect Trump and the economy?
Bottom Line: The news cycle has been anything but slow to start 2026. It’s only going to become more active as the year progresses. That’s in part due to major Supreme Court decisions that will permanently shape U.S. policy on big issues like birthright citizenship, racial gerrymandering of congressional maps, and whether men who pretend to be women have equal protection rights as women under the 14th Amendment. Those are all hearings that will be taking place in the upcoming session. Of course, there’s also the massive issue of tariffs, which was the last major hearing of last year’s session.
Many have been surprised that the Supreme Court hasn’t ruled sooner on this issue as tariffs impact duty collections daily. It’s likely to be the first matter the Court decides this year as a decision could come at any time.
Today’s question raises good points. If the Supreme Court strikes down the tariffs, as many suspect will be the case, what are the implications for President Trump’s trade agenda? What are the implications politically?
As you noted, tariffs aren’t my favorite thing. It was on March 17th last year, in advance of Trump’s Liberation Day tariffs, I said this: As a free trader by nature, I’ve never been a tariff person. But what I also said subsequently throughout the year was that President Trump is right that the U.S. has historically been taken advantage of on trade, with U.S. companies and at times consumers getting the short end of the stick and that the tariff fears in Trump’s first term proved to be dead wrong as inflation was never an issue, and the limited tariffs he put in place proved to be effective. Btw, that’s also been the case this time around. Consider this...
- The rate of inflation since the onset of President Trump’s 2nd term tariff policies has fallen from 2.9% to 2.7% defying expectations
- U.S. economic growth has been surging and the inflation rate has been falling w/4.3% third quarter growth rate following 3.8% economic growth in the second quarter.
- 59% of manufacturing companies that do business in the United States increased manufacturing activity which led to an increase in U.S. manufacturing employment of 244,000 jobs, with an additional 174,000 jobs have been protected.
That’s aside from approximately $217 billion in tariffs having been collected by the Trump administration which President Trump has said will go towards a “Warrior Dividend”, or one-time payout for active-duty military service professionals among other potential benefits for Americans. But still, despite those facts there have been some tangible potentially negative impacts, even if smaller than expected, on consumers. In my most recent economic analysis, I brought you this: During the first three quarters of the year of the Trump administration wage growth has outpaced inflation by 1.8%. There are several factors weighing into this phenomenon, however one of the largest is a dynamic I’ve highlighted with each of the monthly job reports in recent months. There are 1.1+ million fewer “foreign-born” workers amid a total of 2 million deportations that have taken place through the first nine months of the Trump administration. Effectively, illegal immigrants in the workforce were suppressing wages and taking job opportunities from legal citizens. And it’s been the deflationary impact of Trump’s immigration policy that resulted in economists overestimating the net inflation impact of tariffs.
However, my analysis has also showed that somewhere between 1.3% to 1.7% of the current inflation rate is directly attributable to the Trump tariff policy. While the overall rate of inflation is lower than it was before, and while it’s true that the average American, average family has been slightly able to get ahead, it’s still producing a higher rate of inflation than would otherwise be. That segways into some of the conjecture about political implications and such. I’ll start with the potential economic impact.
The most recent inflation rate was 2.7%. Effectively without the Trump tariff policy the inflation rate would be cut to only about 1%, or actually where it was for most of his first term when the economy took off and quality of life steadily improved for the average American preceding the pandemic. What that would also allow for is the Federal Reserve to cut interest rates by at least another 2% from current levels which would also aid affordability. The economic calculation right along is whether the foreign policy effects of the Trump tariff policy were worth a slightly higher cost of living but also with more U.S. manufacturing and jobs.
Looking around the economy today, and with affordability concerns that are still the top concerns for most Americans, if they had a vote, they’d almost certainly vote for whatever would net a lower cost of living regardless of the ancillary effects. For this reason, I believe it would likely be a net positive for Republicans heading into the midterms. Two related points. First, Trump himself isn’t on the ballot this this year (or ever again) - which generally isn’t a good thing for Republicans so there’s not as linear of a tariff connection to members of congress on this issue... That is unless Congress took up ratifying President Trump’s tariffs into law – which is something Trump would no doubt call for if the Supreme Court were to rule against him. Mostly, the midterms will come down to which party wins on turnout, the candidates themselves and how happy most people are with the direction of the country. The people who’re likely to be animated by the “Trump is a loser with unlawful tariffs” narrative are already dyed in the wool Democrat voters.
As for the economy – due to President Trump’s many pro-growth policies including regulation cutting saving the average household $600 this year, massive tax cuts that will only begin to be realized when taxes are filed, etc... I think the U.S. economy is positioned for success regardless of the outcome of the tariffs case. And one final note on the outcome itself. Having taken in and having reported on the hearing when it happened in November, my inference was that President Trump is likely to see an outcome he doesn’t like...however, many have assumed a black and white decision on this case. As in either Trump’s unilaterally imposed tariffs are legal, or they’re illegal. I think the outcome is likely to be more nuanced than that.
Any specific outcomes would be speculative but for example I could see various possibles including the Supreme Court allowing for the President’s use of reciprocal tariffs. This has been done by presidents throughout history including Trump in his first term without issue. You might recall that Trump’s “Liberation Day” tariffs were said to be reciprocal, however in reality were across the board for all countries – regardless of if we had a trade surplus or deficit and even for countries that didn’t or now don’t impose tariffs on U.S. goods. If I were a betting person, I’m not, but if I were something along those lines is what I would bet on. Something that would likely strike down most of the tariffs as currently constructed, but leave open the door for adjustments. We shall soon see.