Trump Warned Courts Not to Strike Down Tariffs. What Could Happen If They Do.

Tariffs imposed under various authorities brought in $28 billion in revenue last month. (Win McNamee/Getty Images)

The Trump administration is counting on a projected $50 billion from tariffs to fund its policies, but that windfall may be jeopardized by a case currently making its way through federal court.

If the administration loses, things could get messy. While refunds may need to be given, analysts also see officials lining up various Plan Bs to keep tariffs in the mix.

Henrietta Treyz, head of economic policy research at Veda Partners, says markets would get a jolt.

“This is the story for the second half of the year,” Treyz says.

At issue is President Donald Trump’s unprecedented use of the International Emergency Economic Powers Act to impose country-specific tariffs for reasons as varied as fentanyl flows, trade deficits, and Brazil’s trial of former President Jair Bolsonaro.

The Court of International Trade in late May ruled unanimously against the Trump administration and analysts see a possibility the U.S. Court of Appeals for the Federal Circuit could do so as well, with a decision expected in coming weeks.

While unusual for the Supreme Court to take on a case where two lower courts have ruled similarly, political consultants and trade lawyers expect the high court to entertain an appeal.

In a social media post on Friday, Trump warned the U.S. wouldn’t be able to recover from “such a judicial tragedy” if the court ruled against the administration.

“If a Radical Left Court ruled against us at this late date, in an attempt to bring down or disturb the largest amount of money, wealth creation and influence the U.S.A. has ever seen, it would be impossible to ever recover, or pay back, these massive sums of money and honor, ” Trump wrote. “It would be 1929 all over again, a GREAT DEPRESSION!”

Tariffs imposed under various authorities brought in $28 billion in revenue last month, bringing the annual total to about $150 billion. And that’s before tariffs on 90 countries went into effect this week. Those tariffs are largely paid by U.S. importers—and their customers when the companies are unable to eat the costs.

In a note to clients, Dan Clifton, head of policy research for Strategas, says tariffs are like a $2 trillion tax increase on the U.S. economy—but the impact has been effectively sterilized by the new tax cuts passed by Congress.

The revenue generated by tariffs is critical for the administration as it tries to mitigate the deficit hit from those tax cuts. For that reason, analysts see the administration prepping multiple avenues to pivot to if courts rule against it.

If courts decide the administration can’t use IEEPA, international trade lawyers expect a messy period of red tape as refunds are processed and the administration scrambles to impose tariffs through other avenues.

Strategas’ Clifton says the U.S. could have to refund $100 billion if the Trump’s IEEPA authority is struck down—and that could offer net fiscal stimulus for the economy even as it would increase the deficit. For now, he notes betting markets put odds of such a refund at just 13%.

One avenue the administration could pivot toward if IEEPA is struck down is Section 122 of trade law, which would allow it to impose up to 15% tariffs for 150 days.

Another is Section 301, which comes with investigations into unfair trade practices. It can take a bit longer but often leads to more durable tariffs. The Section 301 investigation Trump started in his first term against China resulted in tariffs still in place on a swath of Chinese imports.

The Section 232 tariffs already in place on aluminum, steel, copper, autos and now semiconductors wouldn’t be affected by an IEEPA ruling.

But trade veterans say that a loss in court on IEEPA could weaken the administration’s hand considerably in ongoing negotiations, especially as most of the agreements reached so far are still preliminary.

Even here, contingency planning is in the works: Treyz notes U.S. Trade Representative Jamieson Greer’s recent comments that the pacts reached with countries are binding trade deals and essentially “executive agreements.” That is paving the way to suggest Congress doesn’t have to weigh in on them, as they would a typical trade deal, Treyz says.

Such an argument will likely draw political blowback and lawsuits from importers, but Treyz stresses a level of uncertainty at play considering all of this is in uncharted waters.

Write to Reshma Kapadia at reshma.kapadia@barrons.com