Treasury official warns of widespread economic damage if Supreme Court rules against Trump’s tariffs
The Trump administration is warning that if the Supreme Court were to dismantle President Trump’s tariffs, it would cause “unnecessary economic pain and hardship,” damaging financial markets and confidence.
“To the extent that the policy would be reversed or watered down, that would damage financial markets,” Counselor to the Treasury Secretary Joe Lavorgna said this week in an interview with Yahoo Finance. “You’ve seen record high equity markets, record low credit spreads. You’ve seen commitments by all different countries and companies to invest in the US.”
“It would damage confidence. The economic system — capitalism — works on confidence,” he added.
While economists acknowledge it could lead to greater uncertainty, they and others say the impact of a ruling against Trump could have other impacts — including positive ones.
Trump has invoked authorities under the International Emergency Economic Powers Act (IEEPA) to levy blanket tariffs on goods from other countries to try to bolster national security and the economy, address what he views as trade imbalances, and reduce the US deficit.
Counselor to the Treasury Secretary Joe Lavorgna speaks onstage during the Semafor World Economy Summit Fall Edition at Gallup HQ on Oct. 16 in Washington, D.C. (Paul Morigi/Getty Images for Semafor ) ·Paul Morigi via Getty Images
The Supreme Court is now weighing whether the president has the legal authority to issue tariffs using these authorities, given that Congress is the branch of government tasked with taxation and spending —the so-called power of the purse — not the executive branch.
Gregory Daco, chief economist for EY-Parthenon, said a permanent and immediate reversal of the IEEPA-based tariffs would “significantly” reverse pressure from tariffs on the economy, cutting his estimated hit to GDP by nearly 60%, from 1% to around 0.4%.
“But the real catalyst for restoring confidence lies in the permanence and clarity of the policy shift,” Daco said. “Without that, businesses will remain cautious, trade flows will stay disrupted, and the potential economic gains will be considerably diminished.”
The US has collected $225 billion in tariffs over the past year, $145 billion more than the previous year. Daco estimates a full reversal of the IEEPA tariffs could imply over $85 billion in tax rebates or reimbursements. He cautioned that unless a reversal is seen as durable, the resulting uncertainty will continue to weigh on investment decisions and global supply chains, muting any positive impact from a reversal of tariffs.
Luke Tilley, chief economist for Wilmington Trust, said a reversal of the IEEPA tariffs would have “profound implications for the outlook,” notably that it would extend the already elevated uncertainty that is keeping many businesses from hiring or making new capital investments.
“There are other legal routes for the administration to implement tariffs, but none of them appear to us to be sufficient to fit the bill for how the president has used IEEPA, as a leverage point to negotiate with individual countries,” Tilley said. “Each of the others has some drawback, as they are either limited in the level of tariffs, can only be implemented on a temporary basis, or are intended to place tariffs on specific products or industries, not individual countries.”
The Treasury Department has a contingency plan should the Supreme Court strike down the president’s authority. Lavorgna mentioned the president’s ability to issue tariffs under different legal authorities. Those tariff authorities — such as the Section 232 tariffs Trump has imposed on sector-specific goods like automobiles and steel — are not being challenged in court. Other sections under consideration include 301 and 122.
A protester holds a sign as the US Supreme Court hears arguments on President Trump’s tariffs on Nov. 5. (Bill Clark/CQ-Roll Call, Inc via Getty Images) ·Bill Clark via Getty Images
“[Secretary Bessent] is well aware and very well prepared in the unlikely event that the case was not to go the way we wanted, that these tariffs would be put in through other avenues so as to accomplish the administration’s goal,” Lavorgna said.
Democratic Sen. Elizabeth Warren, the ranking member of the Senate Banking Committee, called Trump’s economic policies — including tariffs — “disastrous” and said they’ve “driven up costs of everything from groceries to farm equipment to car repairs.”
“The Supreme Court should strike down Trump’s reckless tariffs and force him to follow the law. If they do not, American families and small businesses will continue paying the price,” Warren said in a statement to Yahoo Finance.
Julie Su, former acting labor secretary in the Biden administration and a senior fellow with the Century Foundation, said in a statement, “Damage to financial markets, the job market, and the economy — not to mention our stature on the world stage — has been caused by [Trump], not by a court finally willing to rein in his reckless abuse of power.”
In oral arguments this week, three of the court’s conservative justices pushed hard on the government’s case, particularly its claims that tariffs are not taxes.
Chief Justice John Roberts offered the most pointed back-and-forth. He posited that regardless of why a president makes his moves, “the vehicle is an imposition of taxes on Americans, and that has always been the core power of Congress.”
Another risk to the economy is the government shutdown, now the longest-running ever at 38 days. Lavorgna said the shutdown is causing businesses to step back at the margin and refrain from committing capital, leading to less hiring, reduced output, and lower growth. He referenced one estimate that the economy could be losing up to $15 billion per week.
The Congressional Budget Office estimates growth could drop by as much as two percentage points this quarter if the impasse drags on, with roughly $14 billion potentially lost for good if it lasts through Thanksgiving.
Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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