Tariffs Are Headed to the Bench

We anticipate the U.S. Supreme Court will invalidate President Trump’s tariffs early next year, sending markets higher.

The legality of widespread tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) is now before the United States Supreme Court. The question is whether the law intended for specific emergencies allows the President to levy unbounded tariffs on nearly all U.S. trading partners, bypassing Congress’s constitutional power to tax and impose duties.

During the recent oral arguments heard on November 5, most of the justices (both conservative and liberal) sounded deeply skeptical about the legality of these tariffs. The administration’s defense, presented by Solicitor General D. John Sauer, argued that the duties are merely “regulatory tariffs” and not revenue-raising taxes. Justice Sonia Sotomayor, one of the liberal jurists, cut to the point saying, “You say tariffs are not taxes, but that’s exactly what they are.” Conservative justices, including Neil Gorsuch, John Roberts, and Amy Coney Barrett, also questioned the idea of the executive branch unilaterally imposing levies without clear congressional authorization.

Following the November 5 oral arguments, betting markets now assign only a 24% chance that the Supreme Court will rule in favor of the tariffs. Before arguments began, it sat around 50%.

Lower courts have already ruled against the administration. The Court of International Trade and the Federal Circuit have both affirmed that IEEPA does not authorize such broad, sweeping tariffs.

The financial implications of a ruling against the tariffs are quite significant.

Treasury Secretary Scott Bessent, who attended the November 5 arguments, previously stated in a court filing that the U.S. government might have to refund $750 billion or more if the tariffs are ruled illegal. This colossal amount would be returned to the U.S. businesses that imported the goods and paid the duties.

Striking down tariffs would be very bullish for stock prices. A refund would function as a massive tax cut for U.S. importers. This influx of capital would likely boost business investment, increase corporate profits, and support economic growth.

Furthermore, the existing tariffs on imports have been a factor cited by Federal Reserve Chairman Jerome Powell in his caution regarding interest rate cuts. Powell himself stated during a recent press conference that tariffs have indeed increased the costs of imported goods. A ruling that invalidates these tariffs would provide the Federal Reserve with greater flexibility to consider cutting interest rates sooner.

The Trump administration has asked the Supreme Court to expedite its decision, citing an “urgent need for swift resolution.” We expect the court to issue that ruling in the early months of 2026.

A decision against the tariffs would be bullish for the market, driving stock prices higher.

(Note: this case only challenges the tariffs imposed under the IEEPA, specifically the reciprocal tariffs and the new fentanyl-related tariffs on certain Canadian, Mexican, and Chinese exports. It will not affect the existing tariffs on Canadian steel, aluminum, the auto sector, and softwood lumber.)

-written by Jeff Pollock