Trump's Tariffs Are Illegal. He's Got a Plan B.

0:05Ryan Knutson:A big day for trade reporters, huh? Yes, one of many, but maybe this is the biggest one so far. Today, the Supreme Court ruled that the majority of President Trump's tariffs are illegal. Our colleague Gavin Bade has been following Trump's tariffs since the get-go.

0:24Gavin Bade:He has used emergency economic authority under a novel use of an emergency law to institute most of his tariffs. And today, the Supreme Court said that he overstepped his bounds, that this should be a congressional authority, and that most of his tariffs were illegal. So raises a lot of questions for both the administration and, you know, the law firms here in Washington. And for the U.S. economy, quite frankly. Yes, absolutely. You know, there are many, many answers that still, you know, in the hours after this decision are still unknown. But what we know now is that he overstepped his bounds in instituting a lot of these levies and is going to have to go back to the drawing board on many of them.

1:05Ryan Knutson:Trump has justified the bulk of his tariff policy using a 1977 law called the International Emergency Economic Powers Act, known as IEPA.

1:14Gavin Bade:When you see him threatening tariffs at the drop of a hat, this is the legal authority he's using because it's the most flexible and it allows him to just instantaneously, with a presidential proclamation, change the tariff code. The Supreme Court today said, you can't do that. That is not an appropriate use of this law. You're going to have to come up with another legal justification for these tariffs.

1:39Ryan Knutson:How big of a setback is this for Trump's economic agenda?

1:44Gavin Bade:I think it's a big setback. So he's going to have to, you know, recalibrate his approach to economic diplomacy here.

1:53Ryan Knutson:Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Friday, February 20th.

2:06Ryan Knutson:Coming up on the show, the Supreme Court says Trump's global tariffs are illegal, but Trump is not backing down.

2:23Ryan Knutson:This episode of The Journal is presented by Intuit Enterprise Suite. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite. The AI native ERP is here. From the makers of QuickBooks. Learn more at intuit.com slash ERP. If you've been diagnosed with moderate to severe plaque psoriasis, This is what it sounds like to be a million miles away. Imagine being a million miles away.

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3:57Ryan Knutson:We're a little over a year into Trump's second term and a little bit less than a year since Liberation Day last April when he really announced most of these sweeping tariffs. How have these tariffs actually performed? What impact have they had on the economy as far as we can tell so far?

4:12Gavin Bade:Well, first and foremost, I think they've brought in a lot of money to the Treasury, right? At last count, you know, tariffs as a whole have brought in about$250 billion. Most of that has been through the IEPA tariffs. You've also forced up costs for a lot of American businesses, right, and for American consumers. A lot of factory owners saying, I used to get a widget that I use in my factory. I used to get it for less money. Now I have to pass those costs on to consumers.

4:40Ryan Knutson:Meanwhile, the tariffs don't seem to have created a big incentive for companies to bring manufacturing back to the U.S. According to the Department of Labor, the U.S. lost over 100 ,000 manufacturing jobs last year. And then there's the trade deficit, the difference between how much the U.S. buys from other countries versus how much it sells to other countries. Shrinking the trade deficit has been something Trump has been really focused on, but it actually increased in 2025.

5:07Gavin Bade:There's a couple reasons for this. One is that many companies were anticipating the tariffs and trying to front run them. So you'll remember that Trump in April on Liberation Day said, we're going to put all these tariffs in place. And then after a bunch of stock market upheaval, bond market upheaval, he paused them for a long time. And so when he paused those tariffs, a lot of companies tried to bring in as much as they could, fill their warehouses so they wouldn't have to pay tariffs in the future. That really ballooned the trade deficit in a few months of 2025. Then after the tariffs got in place, you saw that trade deficit narrow a little bit, but But you still saw more than us importing less.

5:45Gavin Bade:What happened instead is that we just switched the places that we were importing from.

5:49Ryan Knutson:U.S. businesses switched to other countries with lower tariffs, or they'd been part of new trade deals.

5:54Gavin Bade:So we had very high tariffs on China for a number of months last year. Our imports from China dropped, but our imports from India, from Southeast Asia, from other nations actually grew.

6:05Ryan Knutson:Despite the mixed economic record, tariffs have played a big role in Trump's foreign policy.

6:12Gavin Bade:Trump has used this tariff authority to threaten other nations over a variety of issues, right? It could be a trade issue. It could be something like, I want control of Greenland, so I'm going to threaten tariffs on the European Union. Every one of those cases, he was using this legal authority under the International Emergency Economic Powers Act. He used it because it allowed him to impose tariffs very, very quickly and really at the drop of a hat whenever he wanted to.

6:40Ryan Knutson:So in other words, it's not just the economy that hinges on this. It's so many other aspects of Trump's foreign policy that hinge on his ability to use tariffs as a bludgeon. Absolutely.

6:49Gavin Bade:I mean, he and his team would say, you know, we've used tariffs to not only get trade deals with other nations, right? There was one sign with Indonesia yesterday. And then he's also said, oh, I use tariffs to prevent wars. You know, whether or not that is true in every case, tariffs are a hammer and every single international issue is a nail to Trump. He's used them for just about everything.

7:10Ryan Knutson:The law Trump used to justify most of his tariffs, IEPA, doesn't specifically mention the word tariff. But it gives the president broad power over foreign imports during emergencies. The Trump administration cited the trade deficit and the fentanyl epidemic as emergencies under the law.

7:27Gavin Bade:And they said, well, if you read the IEPA statute, it allows you to regulate imports. It allows you to issue licensing fees. And so although it doesn't say tariff in particular, well, you know, it allows us to do all these other things that should allow us to use tariffs as well. The Supreme Court said not exactly correct.

7:52Ryan Knutson:In a 6-3 vote, the Supreme Court said that interpretation was wrong. There are plenty of laws that give the president explicit power to impose tariffs, but not this one.

8:03Gavin Bade:You can regulate imports. You can put on licensing fees. You can even have an all-out blockade of certain imports and, you know, limit them completely, but it does not say tariff. And so that's, you know, the Supreme Court got hung up on that, you know, pretty important distinction there. And they said, you can't, you know, if it doesn't say that, we can't write it into the statute completely.

8:23Ryan Knutson:Chief Justice John Roberts also wrote in the majority opinion that the power to impose tariffs, the type of tax, rests squarely with Congress.

8:32Gavin Bade:If Congress was going to give away that authority to the executive branch, it would have had to state it very explicitly. And they said this is just not the case. They did not explicitly give away tariffing authority to the executive branch with this law. If they were to do that, it would have to be, you know, clear as day. It wouldn't be that they, oh, they didn't write in tariff, but they meant tariff. It wouldn't be an oblique mention. And does that leave any of Trump's tariffs intact? Yes, absolutely. When you think about the tariffs on specific industries, the tariffs on steel and aluminum products, for instance, on cars and car parts, on trucks, on lumber, all of these things were promulgated under what's called Section 232.

9:17Gavin Bade:It's a much more often used, much more durable and familiar statute. All of those are going to stay in place. So, you know, the tariffs on steel and aluminum and products made out of them, those are still in place. The ones on cars and trucks still in place, lumber, etc. And there are a number of other investigations that are still being worked through by the Trump administration under this law. So none of those are going away.

9:42Ryan Knutson:The three justices that dissented in today's ruling were Clarence Thomas, Samuel Alito, and Brett Kavanaugh.

9:49Gavin Bade:Kavanaugh, who has been very deferential to presidential powers, saying, well, I think they should have this authority. It's under emergency authorities.

9:57Ryan Knutson:Kavanaugh wrote in his dissent that, quote, quote, tariffs are a traditional and common tool to regulate importation, end quote. He said AIPA allows the president to impose tariffs more efficiently.

10:08Gavin Bade:Basically, he has a more expansive view of what the executive branch should be able to do with economic power. So not entirely surprising that the justices who dissented decided to do that in this case.

10:21Ryan Knutson:A few hours after the court's ruling, Trump slammed the decision at a press conference.

10:25Gavin Bade:The Supreme Court's ruling on tariffs is deeply disappointing. 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.

10:42Ryan Knutson:Then Trump laid out his new plan for how to keep the tariffs in place. That's next.

10:53Ryan Knutson:This episode is brought to you by Intuit. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite is the AI-native ERP solution that's powerful, painless, and proven. Learn more at intuit.com slash ERP.

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11:58Ryan Knutson:The Supreme Court has ruled that these tariffs are illegal. So what happens to all the tariff money that's already been collected?

12:04Gavin Bade:So this is a big open question. The majority opinion does not explicitly address the issue of refunds, right? Typically in a smaller tariff case, if the government, you know, takes some tariff money from a company and then it's, you know, ruled that it was improper to do so, there's a whole process that you go through with customs to get that tariff money back. Those processes are probably not adequate for just this scale, for hundreds of billions of dollars of tariff revenue that's come in.