The Supreme Court is set to review President Donald Trump’s reciprocal tariffs, with a ruling expected in early 2026. This comes as the administration prepares for potential fallout if the court rules against the tariffs. In May, a federal appeals court allowed Trump’s tariffs to remain in place while the case continues through the legal system.
The tariffs, which were imposed in early April 2025 under the International Emergency Economic Powers Act (IEEPA), were justified by citing a record trade deficit of $1.2 trillion for the year. Following the appeals court’s decision, White House Press Secretary Karoline Leavitt asserted that Congress had established the National Emergency Act to provide a legislative framework for challenging improper uses of the IEEPA. She emphasized that any questions about the legitimacy of these tariffs had already been addressed in Congress.
In April, the Senate debated a resolution introduced by Democrats aimed at rescinding the tariffs. Treasury Secretary Scott Bessent stated in mid-December that the administration has “plenty of revenue alternatives” should the Supreme Court reject the tariffs, highlighting the issue’s national security implications. He elaborated, “We are rebalancing trade, and this year, we are going to shrink the deficit by several hundred billion dollars,” framing economic security as intertwined with national security.
Tariff revenue has been robust thus far in the calendar year, trending higher than during the previous fiscal year under President Joe Biden. Bessent argued that the administration is leveraging IEEPA tariffs to strengthen supply chains and bring the manufacturing of essential goods, such as pharmaceuticals, back to the United States.
If the Supreme Court rules against the administration, reports indicate that Trump is prepared to impose tariffs under alternative legal frameworks. Ted Murphy, a trade lawyer at Sidley Austin, noted, “Nobody thinks the tariffs are going away. They will be reissued under a different umbrella.” The Financial Times reported that the administration might utilize provisions from the Trade Expansion Act of 1962, specifically Section 232, which has previously been activated for tariffs on cars, steel, aluminum, copper, and lumber.
The Financial Times also mentioned ongoing investigations into various sectors, including semiconductors and pharmaceuticals, under Section 232, although results from these inquiries have yet to be made public. Another potential avenue for the administration is Section 122 of the Trade Act of 1974, allowing for tariffs of up to 15 percent to be imposed temporarily while developing more permanent measures.
Additionally, Section 338 of the Tariff Act of 1930 could be triggered, allowing for immediate tariffs of up to 50 percent on countries that discriminate against U.S. commerce. This provision is seldom used but remains an option for the administration.
A ruling unfavorable to the Trump administration could have significant repercussions for the U.S. Treasury bond market, potentially leading to lower bond prices as the market anticipates increased government borrowing to offset lost revenue. Furthermore, the Supreme Court could mandate the refund of tariffs collected to date under the IEEPA.
White House representative Kush Desai stated that the “economic and national security consequences” of a Supreme Court ruling against the tariffs would be enormous. He expressed hope for a swift and appropriate resolution from the Supreme Court regarding this critical matter. As the legal landscape surrounding these tariffs evolves, the implications for both domestic and international trade continue to unfold.
