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

Bloomberg News, February 24 (Editor: Huang Junzhi) — The U.S. Supreme Court rejected President Trump’s tariffs policy last Friday, but the controversy is far from over, and a new round of more tense trade tensions has followed. 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 that took effect in April of last year under the International Emergency Economic Powers Act (IEEPA).

However, Trump did not “accept” this ruling 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 the U.S. policy shift 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 it may prompt foreign governments to reduce trade with the U.S., leading companies to cut back on expansion, investment, and hiring.

This outcome 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 we trade 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 trade war could cause 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 will happen next. They will reduce investments, cut back on hiring, and slow down expansion. This will limit U.S. economic growth.”

The economist further noted that, with increased uncertainty, foreign governments might react similarly, leading them to “continue to distance themselves from the U.S.”

They are certainly overwhelmed by this, “Zandi said: ‘People are increasingly perceiving poor management of the U.S. economy, and objectively, they are right. Things are a bit bad, and it feels like they’re getting worse.’”

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

The “fog” remains

It is clear that Trump does not seem to be “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 illegal 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 the basis 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 is 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 (Office of the 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 the tariff rate. Its disadvantage 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 high control over the process. Its downside is that it cannot be implemented immediately; the Department of Commerce must complete its investigation and submit a report to the president within 270 days. Moreover, it targets specific industries rather than the entire country, making it less comprehensive than the IEEPA.

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

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

In a client report, Citigroup economist Veronica Clark said 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, “The final Section 301/232 tariffs may impact the prices of certain goods in the future, but there is still a lot of uncertainty about the specifics. 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 (any change might be a decrease of about 1 percentage point).”

Zandi remains cautious, warning that while the overall impact of the new tariffs is still uncertain, a few things are clear.

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