The US Supreme Court did the right thing. Admitting that it had, “… no special competence in matters of economics and foreign affairs,” the Court stayed in its lane, as dictated by Article III of the US Constitution, and ruled solely on the legality of President Trump’s signature tariff policies. Its February 20 verdict that IEEPA (the International Emergency Economic Powers Act of 1977), “… does not authorize the President to impose tariffs …” makes great sense.
The Court’s basic argument is that the separation of powers under the US Constitution grants taxing authority solely to the Congress. The corollary: Yes, notwithstanding the absurd protestations of the Trump Administration, tariffs are, indeed, taxes on American companies and people. SCOTUS finally stood up to Trump’s audacious overreach of executive power; as Chief Justice Robert wrote in the principal majority opinion, the Court was not going to allow such a “transformative expansion of the President’s authority over tariff policy.”
Turnabout is fair play. Having no special competence in legal matters — except having an office at Yale Law School — I will leave it to the lawyers to dissect the legalese of this ruling. I choose, instead, to weigh in on the economic implications of this important decision. As I see it, the legal basis underpinning the tariff decision is well aligned with the economics of the verdict for three key reasons:
First, trade deficits are not the emergency that Trump claimed in invoking IEEPA as the justification for his whimsical use of the tariff cudgel. We have had trade deficits in manufactured goods every year since 1976 (see chart below). Last year, despite the sharp increase in Trump’s now-illegal tariffs, the US trade deficit in goods hit a new record of $1.2 trillion, up 2% from the prior record in 2024.
The real emergency is America’s extraordinary lack saving. The net domestic saving rate — the sum of depreciation-adjusted saving of US businesses, households, and the government sector — fell to an estimated 0.2% of national income in 2025. Lacking in the domestic saving needed to fund economic growth, America must import foreign surplus saving from abroad and run massive balance-of-payments and trade deficits to attract the foreign capital. Thanks to reckless US fiscal policy, on track for massive federal budget deficits over the next decade, an anemic saving trajectory promises outsize trade deficits for years to come.
Second, tariffs hurt. Far from the “most beautiful word in the dictionary,” as Donald Trump has repeatedly claimed, tariffs are not paid by foreign countries — they are duties (i.e., taxes) paid by importers for goods upon arrival in the United States. The principal dissent to the majority SCOTUS opinion, written by Associate Justice Brett Kavanaugh, claims that “Congress ordinarily seeks to give the President substantial authority and flexibility to protect America and the American people.” If so, Trump’s tariffs have done the opposite. A recent Federal Reserve study found that more than 90% of the tariff tax has been passed on to American consumers in the form of higher prices.
While this research was unfairly trashed by Kevin Hasset, Chairman of the President’s Council of Economic Advisors, that is more of a sad commentary on Hasset’s sycophantic character, a trait that he unfortunately shares with other senior members of Trump’s economics team, Secretaries Bessent (Treasury) and Lutnick (Commerce). This latest Fed study, by the way, agrees with most of the other serious research that has been undertaken to assess the impacts of Trump’s tariffs.
Lastly, there are important global implications to consider. Not only is Donald Trump highly critical of globalization and those he mockingly calls the globalists who support a rules-based world trading system, but his America First mantra has taken dead aim on the alliances that have long proved so beneficial to the United States. It’s not just Europe and NATO that that have been subjected to his tirades — this year’s Davos speech only being the latest such rant — but he is also threatening to unwind the USMCA trade agreement with Canada and Mexico that he once claimed was the crown jewel of his first administration.
Like SCOTUS, I will stay in my lane and, in my case, stick with economics. Fully 54% of US trade flows (exports and imports, combined) in manufactured products are with Europe, Canada, and Mexico. We trade with these nations because we must, not because the globalists have a secret plot to undermine America. As noted above, we need foreign capital to grow and the price we pay for that shows up in terms of cross-border trade, including the powerful efficiencies of cross-border supply chains.
Trump’s tariffs have been a shock to the global trading system. While they have shifted the mix of our trade deficits away from highly tariffed nations line China, they have not reduced the overall trade deficit that weighs on US manufacturers and workers. Unwinding America’s linkages with Europe, Mexico and Canada would divert their trade flows elsewhere and reduce the efficiency and security dividends that have long benefited America. Predictably, in a fit of anger, the President has upped the ante on his counter to the ruling, citing “a thorough, detailed, and complete review” of the SCOTUS ruling as justification for raising a temporary global tariff from 10% to 15%. Any guess on when that review might be available?
The US Supreme Court spoke of none of the above in their 170 pages of opinions. Nor did the Court make any attempt to assess the validity of the so-called emergency required of an IEEPA action. Still, the narrow finding, that IEEPA-based tariffs are unconstitutional sends an important message to the American body politic, and for that matter, to the rest of the world: US policies must be value-based, not personalized by the irrational, vindictive, and uniformed whims of a wannabe autocrat. SCOTUS drove that point home by standing up for the rule of law.
In the end, Chief Justice John Roberts put it best: “What common sense suggests, congressional practice confirms.” No, we don’t have a supreme court in economics. But the time will come when the US economy and financial markets will render a verdict of their own.