President Trump has raised alarms about the potential for an economic disaster reminiscent of the Great Depression if the Supreme Court rules against his authority to impose tariffs. This warning comes in the wake of significant fluctuations in the stock market, particularly the S&P 500, which initially plummeted when the president rolled out sweeping tariffs earlier this year. However, the index has since shown resilience, climbing 16% year to date and positioning itself for a potential third consecutive year of double-digit gains—an achievement that has occurred only twice in the past two decades.
At the center of this looming economic debate is whether President Trump has overstepped his constitutional authority regarding tariffs. The issue is currently under review by the Supreme Court, which is expected to deliver a ruling by January. The stakes are high: analysts ponder whether the stock market would react favorably in the event of a ruling that invalidates Trump’s tariff authority.
The political and legal background traces back to the International Economic Emergency Powers Act (IEEPA) of 1977, which grants the president broad authority to regulate economic transactions during a national emergency. President Trump invoked this act when he imposed tariffs, citing persistent trade deficits as a national crisis. These tariffs include various duties on imports from countries like Mexico, Canada, and China, aimed partly at curbing the influx of fentanyl. According to estimates from Yale’s Budget Lab, the average tax on U.S. imports has soared to 17.4%, the highest level recorded since 1935.
However, challenges to this tariff authority have arisen, with three different courts declaring the tariffs illegal, including rulings from the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit. As the case heads to the Supreme Court, reports indicate that justices are skeptical about the legitimacy of Trump’s tariffs. Insights from The Wall Street Journal indicate that some justices, including one appointed by Trump himself, have expressed outright hostility towards the administration’s stance, while others have raised doubts about the legality of the tariffs.
In stark contrast to optimistic claims from Trump that tariffs would enrich the U.S. economy, the ongoing trade policies appear to have created financial strain. Hiring rates have significantly slowed in recent months, and October saw layoffs reach a 22-year high, as reported by outplacement firm Challenger, Gray & Christmas. Furthermore, inflation—a concern many economists initially predicted would arise from these policies—has climbed steadily since the tariffs were announced, with inflation rates expected to remain above 3% well into the upcoming year.
Adding to the complexity of the situation is the reality that consumer sentiment is waning. The University of Michigan’s Consumer Sentiment Index recorded one of its lowest readings in history this November, underscoring rising pessimism among consumers amid weak job growth and soaring prices.
Should the Supreme Court strike down Trump’s tariffs, there could be mixed reactions from investors. The U.S. government has amassed over $225 billion in tariff revenue so far this year, almost three times the amount collected at the same time last year. A court ruling against the tariffs would likely necessitate the repayment of a portion of this revenue, leading the government to increase borrowing. Such a scenario could elevate Treasury yields as bond investors may seek higher returns amid rising federal debt, potentially exerting downward pressure on the stock market.
Nonetheless, analysts also emphasize the importance of focusing on long-term investment strategies. The S&P 500 has seen a staggering increase of 1,900% over the past 30 years, translating to an average annual return of 10.5%. Investors are encouraged to maintain a horizon that accounts for such historical performance, regardless of the immediate implications of the ongoing tariff debate.
