Trump administration officials in Washington hammering out tariff deals may find their next battle in the courtroom, where the outcome is far from assured.
Multiple states and businesses are suing the administration, saying it overstepped its bounds with the April 2 tariffs that upended global trade and sank markets. Many of them argue that Congress, not the executive branch, has the authority to impose the levies, making the recent moves unconstitutional.
The White House, which is using the International Emergency Economic Powers Act to justify the tariffs, has defended the moves as legal. Spokesman Kush Desai says the lawsuits are part of a “witch hunt.”
“The Trump administration remains committed to using its full legal authority to confront the distinct national emergencies our country is currently facing—both the scourge of illegal migration and fentanyl flows across our border and the exploding annual U.S. goods trade deficit,” he said.
Dismissals of the lawsuits, or rulings in favor of the administration, would mean more trouble for markets as investors focus on the uncertainties inherent in inking deals with so many countries individually. But if the tariffs were to be struck down, stocks likely would soar, given the levies have been the major factor dragging the market lower since Trump’s inauguration.
Shortly below the close on Tuesday afternoon, the S&P 500 SPX +0.15% was down 5.4% so far this year.
Courts “invalidating Trump’s tariffs likely would key a substantial rally, as long as the economy wasn’t cratering at the same time,” Sevens Report President Tom Essaye wrote Tuesday. Starting “later this summer, we should start hearing more about these challenges and they will have the potential to move markets. We’ll be watching.”
Given that these challenges have only recently been filed and will take time to work their way through the courts, investors can’t expect much in terms of near-term news on how they might shake out.
One school of thought holds that negotiations will be completed quickly, before the end of the 90-day pause Trump announced this month, making the court rulings moot. Yet they could have more impact than many investors think.
There is a good deal of merit to the lawsuits that could tip the scales in favor of the plaintiffs, argues New Street Research policy analyst Blair Levin. The White House itself has provided evidence that it wasn’t acting in response to an emergency, making it less likely that the IEEPA gives the administration the power to impose the tariffs, given the many exceptions granted and the back-and-forth nature of their implementation.
Further hurting the cause is that there “is no evidence that the Trump White House considered the risks of the litigation in preparing the Executive Orders and its public campaign in support of the tariffs,” Levin wrote. “The many conflicting White House statements on the tariffs—such as allowing the President to discuss tariffs replacing taxes—signal to us that the White House is not seriously contemplating how those statements will appear in a legal challenge to the tariffs.”
Levin goes on. Then there are recent rulings like West Virginia v. EPA, in which the Supreme Court stated, via the ‘major questions doctrine’ that Congress must address big economic or political questions, rather than other actors like government agencies. That kind of “jurisprudence, adopted as part of a long-running effort by conservative lawyers and jurists, [has] put constraints on Administration action in ways that make it easier to block the tariffs.”
The upshot is that he could see the issue advancing to the Supreme Court, where he believes it has a better chance than many investors might think. The odds that the lawsuits might succeed will be in the back of other nations’ minds as they look to reach deals on trade.