The watershed US Supreme Court ruling on Friday that struck down President Donald Trump’s go-to method of imposing tariffs upended a cornerstone of the administration’s trade policy, heaping additional uncertainty on trading partners and businesses across the globe.
Just how this latest jolt will affect international commerce and filter down to prices, jobs and growth in countries around the world remains a big question mark. So far, the global economy has proved resilient amid the political and economic turmoil wrought by Trump’s unpredictable trade moves since he took office last year.
At the moment, most economists are betting that, whatever the legal consequences, US economic policy will not shift meaningfully. Foreign leaders and business executives are, for the most part, operating under the assumption that as long as Trump is in office, tariffs are here to stay in one form or another.
On Friday, in a news conference after the Supreme Court ruling, Trump said he would invoke a portion of law known as Section 122, which no President has ever used, to impose an across-the-board 10 per cent tariff starting in a matter of days.
“The Supreme Court ruled on constitutional limits, not trade policy,” Carsten Brzeski, the global head of macro for ING Research, wrote in a note. “Trump’s tariff agenda survives with new legal foundations and a messy transition period.”
Brzeski and several other analysts said they did not expect to immediately alter their forecasts for global growth and trade because of the Supreme Court’s decision.
Trump may not be able to impose tariffs as rapidly or broadly as he has to date, using a 1977 law that gives the President emergency powers. There are other provisions he can use to issue more targeted tariffs, either on his own or in concert with the Republican-controlled Congress.
Foreign governments, so far, have been circumspect in their public comments, saying they were reviewing the decision and its potential impact.
But as tempting as it might be for US trading partners to contemplate reopening tariff negotiations, policy analysts said most were unlikely to take that route. For starters, the chances of wrangling a better deal are slight, and merely asking to renegotiate might irk a President who has already admitted that his policy decisions are sometimes made out of pique.
Trump, for example, admitted that he raised tariffs on Switzerland to 39 per cent, from 31 per cent, because the Swiss President "rubbed me the wrong way".
Additionally, as unsettling and unwelcome as US tariffs have been, the current rates at least have the virtue of eliminating some of the uncertainty that enveloped businesses and governments last year, when Trump’s tariff policies sometimes changed between breakfast and dinner.
Nonetheless, uncertainty is likely to continue. As William Bain, head of trade policy at the British Chambers of Commerce, said, the ruling "does little to clear the murky waters for business".
Other geopolitical concerns have sometimes overshadowed tariffs in relations with the US. In Europe, national security, the Atlantic alliance and defence cooperation are all pressing priorities given the war in Ukraine, Russia’s aggressive stance towards Europe and Trump’s attempts to acquire Greenland.
Japan and South Korea, which are also dependent on US security guarantees, are interested in preserving their relationship with Washington at a time of rising tensions with China.
With the fate of many trade agreements already agreed upon now up in the air, the court’s ruling will also be a factor in upcoming trade negotiations. The US-Mexico-Canada Agreement, which Trump signed into law during his first term, comes up for review this summer.
Analysts and traders are also considering the impact of the ruling on the large debt that the US has racked up. Tariffs have generated more than $200 billion in revenue since April.
Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said on Friday that the economic impact of the ruling would depend on whether companies would receive any tariff refunds. He also said it would depend on how companies changed their operations in light of the decision.
“Is there a requirement to pay back the firms that have paid in the tariffs? If so, that’s a lot of disruption,” Bostic said.
Many firms in the US and elsewhere have already pushed for refunds. The research firm Capital Economics estimated that if the US Treasury was forced to issue repayments, the cost would run to $120 billion, or 0.5 per cent of gross domestic product in the US.
Juan Pellerano-Rendón, a logistics expert and chief marketing officer at Swap, a software company, said businesses should not expect a windfall. Refunds, if they happen, could take months or years.
New York Times News Service