Trump clashes with the Supreme Court over "tariff confusion" — what does it mean for global trade and the U.S. economy?

The U.S. Supreme Court rejected President Trump’s tariff policy last Friday, but the controversy is far from over, as a new round of more tense trade tensions has emerged. Economists generally believe that the subsequent impact of this ruling will not only threaten global trade relations but may also cause losses to the U.S. economy.

On February 20 local time, the U.S. Supreme Court ruled 6-3 that President Trump lacked the legal authority to implement the comprehensive tariffs enacted last April under the International Emergency Economic Powers Act (IEEPA).

However, Trump did not “accept” this decision and subsequently imposed new tariffs of up to 15% on a series of U.S. trade partners, further escalating global trade tensions. EU leaders expressed disappointment over the new tariffs, believing that U.S. policy shifts would overturn trade agreements reached last year with the EU and the UK.

Economists see the resistance to the latest U.S. tariff threats as highlighting deep dissatisfaction with the president’s unpredictable trade policies and may prompt foreign governments to reduce trade with the U.S., leading to decreased corporate expansion, investment, and hiring.

This could even weaken the U.S. economy.

Mike Reid, head of U.S. economics at Royal Bank of Canada, said in a recent interview, “This will change the way trade is conducted with the world’s largest economy and will have economic consequences.” He was referring to the Supreme Court’s ruling and the new tariff measures.

Moody’s Analytics Chief Economist Mark Zandi stated that the turbulence of the trade war could lead both businesses and foreign governments to adopt a cautious stance, resulting in “only negative impacts” on the U.S. economy.

In an interview, he said, “Businesses don’t know what’s coming next. They will cut back on investments, reduce hiring, and slow down expansion. This will limit U.S. economic growth.”

The economist further noted that, amid increasing uncertainty, foreign governments might react similarly, continuing to distance themselves from the U.S.

“They are definitely overwhelmed by this,” Zandi said. “People are increasingly convinced that U.S. economic management is poor, and objectively, they are right. The situation is a bit bad and feels like it’s getting worse.”

Economists add that this outlook could lead some countries to try shifting trade away from the U.S. toward other partners, including China. Chinese customs data show that in December last year, China’s exports increased by 6.6% year-over-year in USD terms, surpassing analyst expectations and driving China’s annual trade surplus to a record high.

“The fog” remains

It’s clear that Trump does not seem defeated by the Supreme Court’s ruling—in fact, he appears to have become more aggressive. He previously announced that, under Section 122 of the Trade Act of 1974, he would impose a “global import tariff” at a rate of 10% for 150 days to replace the tariffs deemed unlawful by the Supreme Court. This provision had never been used before. Soon after, he announced raising this import tariff rate to 15%.

Trump also stated that all tariffs imposed on grounds of “national security” and those under Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974 would remain in effect.

However, it’s worth noting that both the Trade Act of 1974 and the Trade Expansion Act of 1962 have their shortcomings, and are less direct than the IEEPA.

Section 301 of the Trade Act of 1974 authorizes the USTR (United States Trade Representative), under presidential instructions, to impose tariffs on trade measures by other countries that are viewed as discriminating against U.S. companies or violating international trade agreements, with no upper limit on rates. Its downside is procedural complexity: the USTR must conduct investigations, often consult with foreign governments, and seek public comments.

The advantage of Section 232 of the Trade Expansion Act of 1962 is that the scope of tariffs is not limited by law, and investigations are led by the U.S. Department of Commerce, giving the government significant control over the process. Its disadvantages include the inability to implement tariffs immediately, as the Department must complete investigations and submit a report to the president within 270 days. Additionally, it targets specific industries rather than the entire country, making it less comprehensive than the IEEPA.

In any case, this means that for at least the next few years, the U.S. may continue to impose tariffs on its foreign trade partners.

Some optimists believe that investors and economists should not be overly worried about the current situation.

Citi economist Veronica Clark told clients that the implementation of new trade tariffs “means that, in the short term, actual tariff rates or our inflation forecasts are unlikely to change significantly.”

Clark pointed out that “the final Section 301/232 tariffs may impact the prices of certain goods in the future, but there is still a lot of uncertainty. The 10% tariff under Section 122 could reduce the effective tariff rate by 3-4 percentage points, while the 15% tariff should keep the effective rate roughly unchanged (possibly decreasing by about 1 percentage point).”

Zandi continues to warn that, although the overall impact of the new tariffs remains uncertain, a few things are clear.

“America is disengaging from the world, and other countries are now disengaging from America. De-globalization is a heavy burden on the economy and will ultimately lead to economic weakness,” he added.