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The Supreme Court Tariff Decision Might Be Coming Soon. 3 Possible Outcomes.

Dec 14, 2025 02:00:00 -0500 by Reshma Kapadia | #Trade #Feature

The U.S. Supreme Court building. (Graeme Sloan/Bloomberg)

Key Points

The Supreme Court could soon rule whether President Donald Trump’s tariffs are legal—a decision that will have far-reaching implications on the extent of the president’s powers.

The stakes are high for U.S. importers hoping for refunds—and for consumers with increasingly pinched wallets. The impact on markets, however, is expected to be more limited. Either way, the decision likely won’t change the White House’s use of tariffs as a policy tool.

Back in April, Trump said the U.S. trade deficit was a threat to national security and the economy, and cited the International Emergency Economic Powers Act, or IEEPA, to enact tariffs on nearly every U.S. trading partner. Those so-called reciprocal levies—whose rates now range from 10% to 40%—are at the center of the Supreme Court case.

Earlier this year, lower courts found the IEEPA tariffs illegal in two separate cases; the plaintiffs—both groups of small businesses—had challenged Trump’s authority to impose levies under the act. The administration appealed to the Supreme Court, which combined the two cases for review.

Since the case deals with separation of powers between Congress and the executive branch and what constitutes emergency powers, the ruling will have broad-based ramifications that go beyond trade. The ruling could also inject a new type of policy volatility into the mix if the White House has to seek other ways to continue its tariff regime.

Lawyers see a small chance that the ruling could come out this week, but most are looking for an early 2026 decision. The prediction market Polymarket puts 76% odds on the court ruling against the administration and striking down at least some of the tariffs imposed under the IEEPA. But analysts and lawyers are preparing by gaming out a handful of scenarios.

Below are three possible outcomes, based on Barron’s conversations with trade lawyers, policy consultants, and strategists.

Scenario 1: A Hybrid Ruling

One path the Supreme Court could take would be ruling that the country-based “reciprocal” tariffs that used IEEPA are illegal, while still preserving the tariffs related to fentanyl flows on China and Canada.

The court might want to steer clear of national security issues like fentanyl, but could be more comfortable ruling against economically driven tariffs since there are other legal avenues for such levies, says Monica Gorman, a managing director at Crowell Global Advisors and a former Commerce Department official.

The court could also take a narrower approach and avoid thornier constitutional issues.

“The court could take a middle position, creating some sort of standard that requires justification for using the emergency statute and making it less open-ended,” says Ryan Majerus, a partner at King & Spalding and a former U.S. trade official. “They may not set duration limits on how long tariffs can remain in place, but instead find other metrics or parameters for how to get the tariffs lifted.”

Importers would be the biggest beneficiaries if a hybrid ruling mandates refunds from the government—an aspect of the case that the justices could also weigh in on. But that could heighten bond investors’ consternation about the fiscal deficit, because the IEEPA accounts for about half of the tariff revenue collected so far this year.

Scenario 2: The Court Rules IEEPA Tariffs Are Illegal

If the court rules all or some of the IEEPA tariffs illegal, the focus for importers will also be on refunds on the tariffs already paid.

Some analysts say the court could suggest an administrative process to handle refunds—what would likely be a logistically heavy lift for U.S. Customs and Border Protection. But Everett Eissenstat, a partner at Squire Patton Boggs and former deputy director of the National Economic Council in the first Trump term, predicts the Supreme Court will remand the issue to the Court of International Trade to determine an administrative process, or defer to other U.S. agencies.

Refunds could raise questions about the fate of tariff revenue, an estimated $350 billion annualized. If the tariffs are deemed illegal and refunds are triggered, the reduced tariff revenue could add to concerns about the country’s long-term fiscal health and push up yields on long-term Treasuries. Short-term rates, however, could fall as tariff-related inflation concerns ease.

Still, the overall economic impact of any reversal of IEEPA tariffs might be small. That’s partly because the levies’ impact has been less painful than anticipated so far, with limited retaliation abroad. Oxford Economics estimates a full removal of the tariffs would lower the effective tariff rate by almost five percentage points, providing a modest 0.2-percentage-point boost to global economic growth next year.

And the administration could still find another route to impose tariffs. U.S. Trade Representative Jamieson Greer last week indicated the administration had avenues to r ebuild much of the IEEPA tariff revenue.

Scenario 3: The Court Upholds Tariffs

The Supreme Court could also uphold the administration’s use of IEEPA and reverse the lower court’s ruling that found Trump overstepped his authority. Since 2007, when the court takes a case, it has reversed a lower court’s decision about 70% of the time. That would likely mean status quo for the markets, but would have much broader implications politically—and for investors and companies in the long run.

“It would be a complete shift of power from Congress to the administration, which would make things much more volatile—not just under this president but future administrations,” says Eissenstat. “Tariffs would become the Swiss Army knife of presidential tools when there is a foreign policy issue.”

Other Tariff Options

Strategists say there a several paths for the White House to make up for lost tariff revenue if it loses the Supreme Court case.

That could include a combination of probes already under way for sectoral tariffs on robotics and industrial machinery, pharmaceuticals, and semiconductors; Section 301 investigations for unfair trade practices; and other avenues like Section 122, which allows tariffs for a period, Crowley says.

While the White House might find other ways to impose tariffs on Southeast Asian countries for transshipped goods—or keep alive the threat of Section 301 or 232 investigations on Europe or Canada—it may be willing to let go of tariffs on more proactive close allies, like the U.K. and Mexico, says Henrietta Treyz, head of economic policy research at Veda Partners.

In any case, analysts expect many of the preliminary trade deals the administration introduced to stick—even if the court decides the global tariffs are illegal. One reason is the deals weren’t just about trade, but also national security and other matters that make them harder to disaggregate.

In addition, the administration has prepared a spate of sectoral and other tariffs, providing leverage to keep the preliminary deals in place and limit retaliation.

“In the post-IEEPA world where the tools the administration has to tariff are more limited, they will still have leverage and that is important for keeping the trade war at bay,” says Kurt Reiman, head of fixed income Americas at UBS Global Wealth Management.

However, Americans’ dissatisfaction with the current economic backdrop could prevent Trump from raising tariffs further during the 2026 midterm election year. That could keep a lid on the effective tariff rate in the midteens, analysts say.

That is the good news for consumers. But the decision, whichever way it goes, won’t close the book on trade volatility.

“It isn’t going to create certainty: There could be litigation and new tariff authorities used,” Eissenstat says. “It isn’t going to be a cut-and-dried outcome.”

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