When the levy brakes: Trump’s tariffs struck down

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1:06Jon Fasman:The Economist

1:13Jon Fasman:Hello and welcome to The Intelligence from The Economist. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world.

1:28Jon Fasman:A surging populist right movement in Australia is now the best polling conservative party in the country, and that is picking away at one of the most persistent coalitions in the Western world. And you can't argue that Agatha Christie wasn't prolific, but plenty have argued that she wasn't actually all that good. Our culture correspondent digs into the secrets of her enduring success.

2:06But first...

2:13Jon Fasman:On Friday, the Supreme Court kicked hard at one of the legs of Donald Trump's presidency. Mr. Trump had invoked a 1970s-era law, the International Emergency Economic Powers Act, or AEPA, claiming it allowed him to set tariffs whenever and on whichever country he liked. Six of the nine justices, including three conservatives, said, nope, the peacetime power to set taxes lies with Congress. Instituting and enforcing those tariffs was messy, to say the least. Unwinding them, refunding them will be messier still. And Mr. Trump, never one to take a court defeat gracefully, has more taxing tricks at the ready.

2:56Jon Fasman:Better deals for some, worse deals for others, and headaches for all involved.

3:01Rachana Shanbhogue:So this is a totemic policy of Donald Trump's that's been struck down, and estimates suggest that the ruling would lower America's effective tariff rate by about half.

3:13Jon Fasman:Rachana Shanbog is our business affairs editor.

3:16Rachana Shanbhogue:But the president is already determined and is already rebuilding his tariff barriers brick by brick.

3:25Jon Fasman:Well, let's talk about that. How has he immediately responded to this ruling?

3:29Rachana Shanbhogue:So shortly after the Supreme Court ruling, Donald Trump held a press conference where he said he was deeply disappointed by the decision. And I'm ashamed of certain members of the court, absolutely ashamed for not having the courage to do what's right for our country. He thought that the judges who had voted with the majority were unpatriotic. Well, I think that foreign interests are represented by people that I believe have undue influence, have a lot of influence over the Supreme Court. And he also announced a temporary global tariff of 10 percent on all international trade coming into America, which then the next day he increased to 15 percent.

4:12Jon Fasman:Under what authority, though?

4:14Rachana Shanbhogue:So instead of using the International Economic Emergency Powers Act, which is what the Supreme Court said, the use of that was illegal. Instead, he's using something called Section 122 of the Trade Act of 1974. And that only allows temporary duties for up to 150 days. So this 15 % tariff will be in place for 150 days. And after that, we're not quite sure what's going to come. Now, this authority hasn't been used before and it relies on the administration claiming that America faces fundamental international payment problems, that there's a large and serious balance of payments deficit, which is highly debatable and means that this authority too could be open to legal wrangling.

5:00Rachana Shanbhogue:There is another option here, which is implicit in the Supreme Court decision, which would be to go through Congress and get tariffs approved by Congress. But it's really hard to see that happening. Lots of lawmakers have slim majorities. There are midterms coming up. They don't want to be open to accusations of raising the cost of goods when voters are already very worried about affordability.

5:25Jon Fasman:But essentially, right out of the gate here, President Trump is doing more or less what we thought he'd do, what he said he would do, which is basically replace that system of tariffs with other kinds of tariffs over which he has clearer control.

5:36Rachana Shanbhogue:Yes, that's right. So it was expected that the Supreme Court would strike down these reciprocal tariffs and that the Supreme Court would say that the use of IEPA was illegal to impose tariffs. So the administration has had some time to think about what a plan B might look like. Now, Section 122 is one part of that, but another option is to rely on sector-specific or country-specific tariffs under Sections 232 and 301. And these appeal to national security arguments. They also argue that some trade discriminates against America. These require long-running investigations before tariffs can be put into place, so Donald Trump loses some flexibility.

6:20Rachana Shanbhogue:but it does mean that he can reassemble his tariff wall.

6:25Jon Fasman:But in the meantime, I mean, as from the start with this, this entire tariff effort, it's led to even more uncertainty or renewal of uncertainty.

6:33Rachana Shanbhogue:Yeah, that's right, Jason. Even if America's effective tariff rate ends up pretty close to where it was before the Supreme Court ruling, there's still uncertainty for businesses here because the precise winners and losers after the ruling will change. Some businesses might find that they do slightly better than they did in the old regime. And we know that uncertainty over tariffs has already been a drag for them. It's already made them uncertain about hiring and investing. And that's just going to continue.

7:04Jon Fasman:And as for the countries that had already struck bilateral deals trying to avoid the previous tariff, well, they may feel stiffed again.

7:12Rachana Shanbhogue:Yes, I mean, the result is just complete confusion. For example, the European Parliament has said it's going to delay ratifying the agreement that was struck between the EU and America last summer because it's not quite clear what's happening. Indian officials were meant to travel to Washington this week to talk about implementing their trade agreement. That's on hold now. What seems to be the case is that some countries that had quite high tariff rates are going to benefit in this new temporary regime. Those countries include China, Brazil, India, parts of Southeast Asia, Canada and Mexico, if you remember, had to face an extra tariff because of the so-called fentanyl emergency, and the Supreme Court has said that's illegal.

7:57Rachana Shanbhogue:So those tariffs are coming off. But there are some countries that are going to be losing in this Section 122 world, and that includes Britain, for example, which had struck a deal quite early on for 10 % tariff rates and now could face something higher. So in a sense, there's a disadvantage for those countries that went early to strike a deal.

8:16Jon Fasman:And what about the money that countries have already spent to accommodate the tariffs that were there before, that giant pot of money that was illegally collected?

8:24Rachana Shanbhogue:It's estimated that companies have paid more than$100 billion in these tariffs and that will now need to be refunded. Everyone from Brett Kavanaugh, one of the dissenting judges, the president to Scott Bessent, the treasury secretary, has been talking in the past couple of days about how difficult this refund process is going to be, figuring out what sort of paperwork the beneficiaries would need to file, and so on. So this question of refunds and how they're going to be delivered is still extremely unclear. It's another source of uncertainty for businesses. If they do come quickly, there's a bit of an irony here, because it might actually help juice the economy ahead of the midterm elections, and that could actually benefit Donald Trump.

9:11Jon Fasman:But what about more broadly the tenor of the ruling, the fact that this was such a flagship policy for Mr. Trump? There is a suggestion here that the Supreme Court is being less emollient, let's say, than it has been earlier in Mr. Trump's term.

9:25Rachana Shanbhogue:I think you're right, Jason. Over the first year of Trump's second term, we didn't really see much confrontation between the court and the president. and with this case a case that was on the court's regular docket not the emergency docket justices had a chance for a full briefing and to listen to oral arguments and they decided to strike down the tariffs and the one case to be watching now regards the firing of Lisa Cook now as you might remember the administration wants to sack Ms Cook who is a governor on the Federal Reserve Board and what's at stake here is the very independence of the central bank and so the key case to be watching next is what happens there.

10:06Jon Fasman:Rajna, thanks very much for joining us.

10:08Rachana Shanbhogue:Thanks for having me, Jason.

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11:28Jon Fasman:For the entire post-war period, the governments in Australia have sloshed gently between two types. Ones led by the center-left Labour Party, or those led by a perpetual coalition that contains the Liberals, confusingly a conservative party, and the Nationals, a smaller and even more conservative one. Not many independents, not many spoiler parties. Until recently.

11:53Rachana Shanbhogue:Activists would think that I'm divisive. I'm not divisive. No, you're not. I just want to pull people together to be proud who we are and live in peace.

12:04Jon Fasman:Pauline Hanson and her anti-immigration One Nation party are spoiling for a fight. Polls in January suggest that One Nation is now the most popular conservative party in the country. It's upending all of that gentle sloshing. The liberals are in disarray. On February 13th, they ousted their first female leader.

12:25Rachana Shanbhogue:Less than nine months into her tenure, Susan Lee is gone, no longer the liberal leader, and quitting politics.

12:32Jon Fasman:Her successor has his work cut out to right the ship on the political right. And he knows it.

12:39Jason Palmer:Well, after winning the Liberal Party leadership, Angus Taylor issued a warning. It is clear we are running out of time. I won't mince words. The Liberal Party is in the worst position that it has been since it was founded in 1944. And that's no hyperbole. Aaron Connolly is our Asia diplomatic editor. At the last election in May 2025, the Liberals suffered their gravest electoral defeat since it first contested an Australian election in 1946. And surveys suggest it would fall even farther at the next election.

13:14Jon Fasman:So let's wind back here and give me sort of a thumbnail sketch of Australian politics on how we got to this point.

13:21Jason Palmer:Well, the Liberals have governed in coalition with the National Party since the end of the Second World War. And the Liberals primarily contest the cities. And the National Party mostly holds rural Australia. Liberal voters have tended to skew more affluent and tend to be more centrist on social issues. And national voters tend to favor a bigger state and tend to be more culturally conservative. But this has been a really successful arrangement. The two parties have governed together for nearly two-thirds of the period since the Second World War, and they've worked together in opposition for the rest.