Trump’s Economic Agenda Hinges on the Supreme Court’s Tariff Ruling

When President Trump unveiled his initial slate of punishing tariffs in April, he fashioned the announcement as a critical moment in a dawning global trade war, describing it as “the day America’s destiny was reclaimed.”

Five months later, his gambit could be in peril, after the Supreme Court agreed on Tuesday to hear a case challenging the legality of Mr. Trump’s actions. Now his administration is confronting the potential loss of a powerful tool at the heart of his second-term strategy, one that has allowed the president to force concessions from companies, allies and adversaries.

The case itself concerns Mr. Trump’s novel use of a decades-old economic emergency law to impose duties around the world, despite the fact that the statute does not explicitly allow for the president to tax imports. Multiple courts have ruled against the administration, prompting it to appeal to the nation’s justices in the hopes they will agree with Mr. Trump’s expansive interpretation of his own authorities.

For Mr. Trump, who has deployed tariffs to try to raise revenue, increase manufacturing and pressure countries into striking favorable deals, any ruling on his trade powers could prove highly consequential. The ability to issue unbridled duties is central to his presidency, serving as both the carrot and stick for a variety of political, economic and diplomatic objectives.

Mr. Trump has described tariffs as an inducement for ending foreign conflicts, including the war between Russia and Ukraine, and for halting the flow of illegal drugs into the United States. He has pitched the revenue collected from duties as a way to reduce the roughly $37 trillion federal debt and as an offset to the budget-busting tax cuts he enacted earlier this year.

The president has also targeted foreign goods in a bid to change other countries’ laws, and threatened tariffs this month to protect Google and other U.S. tech giants facing fines abroad. Mr. Trump has even sought to harness tariffs to aid political allies like Jair Bolsonaro, Brazil’s former president, who is being prosecuted for inciting a coup.

The U.S. government described tariffs as its “most significant economic and foreign policy initiative” when it asked the Supreme Court this month to consider the matter on an expedited timeline. If the administration ultimately prevails, Mr. Trump stands to significantly expand his power, cementing his ability to tax many imports without the approval of Congress. That could give Mr. Trump wide latitude to impose tariffs on trading partners.

With a loss, the president would still have other ways to impose his duties, but on a far more limited basis. Mr. Trump has warned that the result would be devastating for the country’s finances and credibility while undermining his agenda, even saying the consequences could be akin to the Great Depression.

Some of the lawyers challenging the administration said the court was likely to look past the president’s political assertions when it evaluates the question at the heart of the fight: Does the International Emergency Economic Powers Act, known as IEEPA, allow for the tariffs Mr. Trump has imposed, when no president before him has interpreted the law this way?

“It’s not really a legal argument, so I’m not sure the court will be that interested in it,” said Jeffrey Schwab, the interim litigation director for the Liberty Justice Center, when asked about the government’s claims. The center is representing a group of small businesses suing to stop the tariffs.

Mr. Trump and his top aides have long been aware of the risks to their aggressive trade strategy. The first Trump administration considered using IEEPA but elected to use other authorities in part because of the substantial legal risks of invoking the emergency law.

But the administration eagerly embraced the emergency powers act once Mr. Trump returned to the White House. Within weeks of his inauguration, the president slapped new tariffs on goods from China, Canada and Mexico. He then expanded them in the following months to much of the rest of the world, saying the nation’s trade deficit justified the use of the law.

For Mr. Trump, the novel strategy offered more flexibility. Unlike other tariff powers — which limit the scope of duties he may apply, or require him to first prepare reports or meet certain criteria — the emergency law has been wielded by the president to tax imports swiftly and with the stroke of a pen.

Mr. Trump’s lawyers have also told federal judges that the president should have vast discretion to determine what qualifies as an emergency, and the courts should have a limited role, if any, in reviewing that.

“Part of the appeal of IEEPA for the administration is its flexibility and the speed with which they could impose tariffs,” said Patrick Childress, a partner at the law firm Holland & Knight who previously served as assistant general counsel in the Office of the U.S. Trade Representative.

But judges have repeatedly ruled against Mr. Trump, with one panel of judges finding in May that the president did not possess “unbounded authority” to impose tariffs, especially without the approval of Congress. While the courts have not always choked off the emergency powers law as a way of imposing any tariffs, the judges in each of the cases have still found the president’s duties to be a step too far.

Jennifer Hillman, a professor at the Georgetown University Law Center, said a major factor in the cases was the role of Congress, which possesses tariff authority but can delegate that to the president through the laws it writes. She said that lawmakers have historically done so in clear, specific ways.

“IEEPA doesn’t do any of that,” she said. “It doesn’t include the word tariff or duty anywhere in it.”

Speaking to reporters this month, Mr. Trump acknowledged that he lacks the support for congressional approval of his tariffs, while attacking the judges as partisan. In a statement, Kush Desai, a spokesman for the White House, said the president had “acted lawfully by using the tariff powers granted to him by Congress in IEEPA to deal with national emergencies and to safeguard our national security and economy.”

“We look forward to ultimate victory on the issue,” he said.

Without IEEPA, the president has warned of an economic doomsday that would jeopardize the trade deals he has struck and compromise the commitments that businesses have made to manufacture more of their goods domestically. Top aides to Mr. Trump have told the court that the government would face diplomatic embarrassment and a financial crisis, especially if it is forced to pay back billions of dollars in revenue.

Small businesses have told the court that they face the greatest harm from continuing to pay steep taxes on their imports, saying that Mr. Trump has revised the rates repeatedly in ways that have complicated their bottom lines.

“From a supply chain standpoint, making our products, sourcing our products, importing our products, has been extraordinarily disruptive and remains so,” said Rick Woldenberg, the chief executive of Learning Resources, an educational toy company in Vernon Hills, Ill. His company filed one of the successful lawsuits now combined and awaiting arguments at the Supreme Court.

The president has other tariff powers, which could allow him to “recreate the same or similar tariff regime,” according to Mr. Childress. But none are as flexible as those he has claimed under the emergency powers law.

One of the powers, Section 301, requires a finding that a country is engaged in unfair trade practices. The president used this authority to target China during his first term. An additional option, Section 232, requires an investigation before the president can impose duties on national security grounds.

The Trump administration has invoked the Section 232 provision to target a variety of critical imports, including semiconductors and steel, and it has 10 other active investigations underway, according to the Commerce Department. The inquiries, which could result in tariffs, cover semiconductors, pharmaceuticals, trucks, jet engines, drones, polysilicon and other products.

Ed Gresser, the director for trade at the Progressive Policy Institute, said that the administration had already collected about $30 billion from Section 232 tariffs this year, as well as about $70 billion from the IEEPA tariffs and $32 billion from Section 301 tariffs on China. With the existing Section 232 tariffs plus those in the works, the administration could put tariffs on about a third of U.S. imports using that statute alone, he said.

“Tariffs aren’t free and, contrary to the administration’s persistent claims, Americans pay them,” he said.