A federal appeals court has ruled Trump’s tariffs illegal, saying the president overreached by using emergency powers to impose sweeping duties.
Yet the duties remain in force while the case moves toward the Supreme Court.
This standoff is more than a courtroom drama. It cuts to the core of who controls trade policy in the United States and whether investors should brace for a lasting shift in global commerce.
At stake are not only Trump’s signature tariffs but also the balance of power between Congress, the presidency and America’s trading partners.
What the court actually said
On August 29, the US Court of Appeals for the Federal Circuit ruled by a 7–4 vote that Trump overstepped his authority under the International Emergency Economic Powers Act (IEEPA).
The statute, created in 1977, allows presidents to act quickly against “unusual and extraordinary” threats by restricting trade, freezing assets or blocking transactions.
The judges said it does not authorize a president to set tariffs, which remain a constitutional function of Congress.
The court examined two sets of tariffs. The first, issued in February, targeted Canada, Mexico and China under the justification of fentanyl trafficking.
The second, in April, introduced “reciprocal” tariffs on dozens of partners with baseline duties of 10% and surcharges up to 50% on countries such as China.
Together, these orders reached deep into global trade flows. The court struck them down as illegal, but delayed enforcement until October 14 to give the administration time to appeal.
The ruling does not affect tariffs imposed under other statutes, such as Trump’s earlier steel and aluminum duties under Section 232.
But the decision undermines the legal foundation of his broader trade program and raises questions over the reach of presidential power in economic policy.
Will the Supreme Court back Trump?
The administration is preparing its defense. Treasury Secretary Scott Bessent has said he is confident the Supreme Court will uphold the tariffs, arguing that trade deficits and the flow of fentanyl across borders justify emergency measures.
He has instructed lawyers to stress these points in a forthcoming brief.
Trump himself responded to the appeals ruling by declaring on Truth Social: “ALL TARIFFS ARE STILL IN EFFECT!” and promising victory at the high court.
The Supreme Court has a conservative majority, but its track record on executive authority is not predictable.
Chief Justice John Roberts and Justice Amy Coney Barrett have occasionally sided with liberal colleagues when presidential powers stretched beyond clear statutory limits.
The central issue is whether the court accepts that Congress delegated tariff-setting power through IEEPA, even though the text does not mention duties or taxes.
If the justices agree with the lower courts, they could set boundaries that prevent presidents from using emergency law as a back door to rewrite trade policy.
Markets are watching closely. A decision in Trump’s favor would entrench emergency powers as a tool for tariff policy.
A loss could return authority squarely to Congress, forcing the White House to rely on narrower statutes.
Either outcome will set a precedent that shapes how future presidents use economic emergencies to justify trade restrictions.
The administration’s plan B
Officials are not betting everything on the Supreme Court. Bessent has hinted at a “backup plan” that would reissue tariffs under other laws.
Section 301 of the 1974 Trade Act allows the president to respond to unfair trade practices, a tool that previous administrations have used extensively against China.
Section 232 of the Trade Expansion Act permits tariffs tied to national security. The Tariff Act of 1930 includes Section 338, which authorizes retaliation when foreign governments discriminate against US commerce.
If IEEPA falls, Trump could pivot to one or more of these statutes. That would preserve some leverage but change the scope.
Section 301 actions usually focus on a single country, while Section 232 requires a security finding.
These mechanisms are slower and more specific than the blanket tariffs imposed under IEEPA.
Investors should expect legal reshuffling rather than immediate tariff relief. The administration appears determined to maintain duties in some form, even if the legal clothes change.
How partners are responding
Trading partners are already adjusting. Brazil’s president Luiz Inácio Lula da Silva authorized retaliation against Trump’s 50% tariffs while leaving the door open to negotiation.
Mexico plans to impose new tariffs on Chinese goods in its 2026 budget to shield domestic industry and respond to US pressure over transshipped products.
India has become a target of Trump’s rhetoric, accused of exploiting a “one-sided” trade relationship while it pursues closer ties with China and Russia.
These moves show that even temporary tariffs can reshape international strategies. Allies are hedging against prolonged US protectionism by diversifying ties and preparing countermeasures.
If the Supreme Court removes Trump’s IEEPA tariffs, negotiations may reopen on more traditional terms. But as long as duties remain, foreign governments will keep retaliating, adding uncertainty for exporters and global supply chains.
What investors should expect
So far, markets have reacted calmly. The S&P 500 index is down by almost 1 percentage point following the appeals ruling, suggesting traders are waiting for clarity from the Supreme Court.
The immediate stay keeps tariffs in place, so no company has seen relief yet. Import-heavy retailers, consumer goods makers and manufacturers continue to bear extra costs.
If the high court strikes down the tariffs without an immediate pivot, those sectors could see margins improve.
But price relief for consumers is unlikely in the short run. Corporations often keep higher prices even when costs fall, as seen after COVID-era supply chain disruptions.
The most realistic path is continued volatility. Tariffs will remain at least through October, likely longer if the Supreme Court takes the case.
Even if IEEPA authority is rejected, Trump has other statutes he can use. For investors, this means trade-sensitive sectors will stay exposed.
Companies tied to China, automotive supply chains, electronics and chemicals are most at risk of renewed duties under Section 301 or Section 232.
Import-heavy retailers and industrials may benefit if tariffs lapse briefly, but they should not build strategy on that assumption.
The legal battle is also affecting US credibility abroad. Trading partners are testing how far Washington will push emergency law to alter trade. The outcome could influence future negotiations, including those involving Brazil, Mexico and India.
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