Supreme Court questions emergency Trump tariffs

0:29Good morning from the Financial Times. be an epic fight. I'm Mark Filippino, and here's the news you need to start your day.

0:42Javier Malay is blowing off investor calls to let the peso float freely. The president of Argentina sat down with the FT after his party's huge win in legislative elections, and Malay said he would keep the peso within gradually widening bands against the U.S. dollar, at least until elections in late 2027. This is to temper Argentina's chronic currency volatility. But critics say this has caused the peso to become overvalued. The U.S. spent an estimated$2 billion propping up the currency last month. Pressure on the exchange rate has eased since Malay's electoral victory. And in his interview with the FT, Malay said he would continue to deepen ties with President Donald Trump.

1:29America's highest court heard arguments yesterday about the legality of President Trump's emergency tariffs. We will hear argument this morning in case 24-1287, Learning Resources v. Trump, and the consolidated case. And there was a lot of skepticism on the docket. I just don't understand this argument. It's not an article. It's a congressional power, not a presidential power to tax. And you want to say tariffs are not taxes, but that's exactly what they are. That's Justice Sonia Sotomayor, one of the Supreme Court's nine justices. The FT's U.S. legal and enforcement correspondent, Stefania Palma, followed the proceedings and joins me now.

2:08Hi, Stefania. Hi. So these were just oral arguments, right? Like, we should mention that. And Sotomayor, who we just heard from, is one of three liberal justices on the nine justice bench. So it's probably no surprise that she was skeptical. How did the conservative justices respond? I think that was sort of the most interesting part of the day and the one that kind of everyone was anxiously waiting for. We saw sort of a mixed bag from the conservative wing, which is very, very interesting. A couple of, two or three of them, for example, like Samuel Alito or Brett Kavanaugh, appeared to be more open to the government's arguments when it came to sort of the legality of Donald Trump using a law that's called the International Emergency Economic Powers Act, also called AIPA, to impose tariffs.

2:59But other conservative justices actually appeared far, far more skeptical, including Neil Gorsuch, even the Chief Justice John Roberts at times, as well as Amy Coney Barrett. Is it your contention that every country needed to be tariffed because of threats to the defense an industrial base? I mean, Spain, France, I mean, I could see. So it was quite something to see some conservative justices, some of whom were appointed by Trump, but also many of whom believe firmly in U.S. presidents having very, very broad powers, actually come in and raise very fundamental questions and challenge the government when it came to this policy.

3:42So what were some of the arguments for both sides? I think some of the key questions essentially are that the government is arguing we currently are in a national emergency. The deficits that the U.S. has had to face and the fact that other countries have been taking advantage of the U.S. for so long is putting us in sort of on the brink of disaster. On the other side, the businesses that have brought actually this lawsuit claiming essentially that they have been harmed by these tariffs, their key arguments are this is not the type of law that should be used for this kind of policy move. No other president has ever used the AIPA law to impose tariffs.

4:28And it also raises constitutional questions around the power of Congress because under the Constitution, it is Congress that actually has the power to impose tariffs. So there was a lot of talk yesterday about, you know, if you open this door in terms of Congress delegating away this power, are you ever really going to get it back? Stefania, how crucial is this decision to U.S. economic policy? I mean, this is fundamental, I think, definitely for the Trump administration, because for his second presidency, this has really, really become a critical pillar of his administration. Also, you know, we have to remind ourselves, if the government loses this case, it really throws into question something like more than$50 billion in extra revenue that the tariffs have generated for the government in 2025.

5:19And this was sort of a big boon for the administration because it also kind of calmed down investors who may have been, say, nervous about U.S. borrowing levels. So it presents a whole host of very, very complex legal questions. Okay, so then what's next for this case and the outcome? Yesterday, we just had oral arguments. Now, basically, the Supreme Court is going to go away and deliberate, and it will be at least several weeks before they hand down a decision. I think it's also worth reminding our listeners that there definitely are other sort of tools that the government can use to impose tariffs.

6:05And I wouldn't be surprised if they weren't already putting together contingency plans in terms of finding other ways to implement these levies. That's the FT Stefania Palmer. Thanks, Stefania. Thank you.

6:22The swift and messy unraveling of auto parts maker First Brands has gripped the world of finance. It also attracted the attention of federal prosecutors who are suspicious about alleged fraud. Today, attorneys and dozens of involved parties will gather in a Texas courtroom. It'll be the second hearing on First Brands bankruptcy. So what's at stake and what's next for the company? The FT Sujit Indap joins me now to delve into all those details. Hi, Sujit. Hi, Mark. Good to talk to you. So before we get into the case itself, remind me, how did we get here? In late September, First Brands, this company we had never really have heard of, it's private, it's family-owned, essentially ran out of money.

7:05It had$12 billion of debts and couldn't refinance or repay some of them, and it crashed into bankruptcy very suddenly. In this first-day hearing that was held about a month ago, the most interesting detail that lawyers for the company shared was that there was a more than$2 billion hole or gap or just missing cash that was supposed to be accounted for that was just gone. It was owed to various creditors. And that is like the mystery of the case. Where is that cash? Today's court session really is a progress check on where we are in the case a month later now that some dust has settled. Earlier this week, the founder of First Brands, Patrick James, a longtime auto parts entrepreneur, was formally sued by the new First Brands management and board of directors.

7:52And he's been now accused of pilfering hundreds of millions, perhaps billions of dollars from First Brands in the lead up to the bankruptcy. Yeah. Can you go a little bit more into those allegations from the company about the CEO? What is it saying? And how does that affect today's proceedings? The lawsuit essentially makes two large scale charges, if you will. One is that James looted the company. That was money that belonged to the company. And it ended up in his personal possession, in his accounts, in his family investment firm. And then separately, the thing that is most interesting about First Brands and why we're all paying attention to it is that it relied on so-called working capital finance, where it would sell invoices.

8:36Let's say Walmart bought some brake pads. rather than getting that cash immediately, Walmart would pay in 90 days. And so what First Brands would do is they would find some third-party lender who would buy that invoice and get paid by Walmart, and First Brands itself would get the money up front from that lender. The allegation now is that those invoices, which it was using to raise immediate cash, were in fact fraudulent. They were either manipulated or manufactured, and that is the fraud here, that in fact he just invented money out of thin air, and then that money somehow ended up in his personal accounts.

9:11Among all this, creditors are trying to get their money back, right? So what is happening with that part of the process and what is First Brand's plan for moving forward? That is what this court hearing today is about. It's about establishing some order on how this case is going to proceed. The company's new management and directors want to sell the underlying business. It does make auto parts and sell auto parts and that's like real. How valuable that is, we don't know. but that business is going to get sold. And then separately, there are these legal claims. We talked about the lawsuit. If there's any proceeds from that, that's another pot of cash.

9:45So these pots of cash have to be received. And then after that, how that flows to the various creditors is what the fight in court is about. Who's first, who's second, who owns the existing collateral, who owns the legal claims. It's very messy. It's very complicated. It's going to be an epic fight. That's the FT's Wall Street editor, Sujit Indap. Thanks, Sujit. Thanks, Mark. you can read more on all these stories for free when you click the links on our show notes this has been your daily ft news briefing check back tomorrow for the latest business news