Trump Warns of Economic Disaster if Court Strikes Down Tariffs

New York Times

4 days ago

The Trump administration's top lawyers urged a federal court this week to uphold its sweeping global tariffs or risk 'financial ruin,' warning that the United States could slip into an economic depression if an adverse ruling forces the government to refund billions of dollars in duties.
While experts broadly disputed that a losing verdict would trigger a calamity of that magnitude, many said the government's extraordinary assertions underscored the risks looming over President Trump, who has widened the scope of his punishing trade war even while its legal basis remains unsettled.
At the heart of the wrangling is a 1977 law that empowers the president to impose trade embargoes and sanctions in response to economic emergencies. The word tariff appears nowhere in that statute, but Mr. Trump has nonetheless invoked its powers as the basis for his withering levies, including the steep taxes he imposed on imports from more than 90 countries on Aug. 7.
For Mr. Trump, the worst-case scenario would be a resounding defeat at the hands of the Supreme Court, which is likely to take up one of the pending cases. If the justices rule overwhelmingly against the president, the decision could halt tariff collections while triggering 'a significant wave of claims' from businesses demanding refunds, said Andrew Morris, a senior litigation counsel at the New Civil Liberties Alliance. The legal group has represented businesses in tariff lawsuits.
The mechanics of that process — from how it would work, to whom would be eligible to reclaim the money — would depend on the scope of any court decision. Still, a loss could undercut one of Mr. Trump's primary reasons for imposing tariffs in the first place, choking off a source of revenue that the president says is already making America 'rich.'
The prospect has spooked Mr. Trump, who took to social media last week to warn it would be 'impossible to ever recover, or pay back, these massive sums of money,' if a court ruled against him, adding that a loss could trigger a 'GREAT DEPRESSION!'
Mr. Trump's top lawyers formalized those arguments in a filing on Monday with the U.S. Court of Appeals for the Federal Circuit, which is considering a legal challenge initially brought by small businesses and states. In a letter signed by D. John Sauer, the U.S. solicitor general, the government said that a ruling against tariffs would undermine the president on foreign policy, jeopardize his recent trade deals and damage the U.S. economy.
The letter echoed Mr. Trump in cautioning that such a loss would leave the government in 'financial ruin,' and carry a '1929-style result,' a reference to the depression. It added that such a disruption could see Americans 'forced from their homes' while leaving Social Security and Medicare 'threatened' financially.
Many budget experts raised significant objections to the Trump administration's claims about the potential loss of tariff revenue, with has helped to generate about $152 billion in customs duties through July, according to the Treasury Department.
Economists say the U.S. government long has operated with a substantial debt, and the loss of tariff revenue would be unlikely to cause a catastrophic economic downturn. Those import taxes also do not directly affect Social Security and Medicare. Payroll taxes fund those entitlements, with Medicare receiving additional support through other sources, such as premiums.
'Tariff money is not a game changer with a $2 trillion deficit and a $7 trillion budget,' said Jessica Riedl, a senior fellow at the Manhattan Institute, who said the result of refunds would not be a 'budgetary earthquake.'
Ted Murphy, the co-leader of the trade practice at the law firm Sidley Austin, said the administration's claims were 'remarkable' in seeking to advance the idea that the 'ends justify the means.'
By Mr. Murphy's reading, Mr. Trump and his advisers had argued he should win the case because 'what he's achieved is so good, and the consequences of taking it away are so bad, the courts should look beyond the legality of the matter.'
For now, at least, the Trump administration's plea to the courts illustrated the stakes for the president's trade strategy, which hinges on his ability to impose or threaten tariffs on a whim, and without the need to obtain the approval of Congress.
Mr. Trump has used these rates as carrot and stick to induce favorable trade deals and punish nations that fail to acquiesce — or, in some cases, to accomplish political objectives well outside the remit of trade. A ruling against him could neuter that primary source of leverage, leaving Mr. Trump with only limited options to impose duties on his own. The White House did not respond to a request for comment.
'I think the more deals we've done, the more money coming in, it gets harder and harder for SCOTUS to rule against us,' said Scott Bessent, the Treasury secretary, in an appearance Tuesday on Fox Business, using an acronym to refer to the Supreme Court.
The Trump administration lost the first round of arguments at the Court of International Trade, where a panel of judges determined in May that the president did not have 'unbounded authority' to issue tariffs under the 1977 International Economic Emergency Powers Act, known as I.E.E.P.A.
The administration quickly appealed, and in oral arguments this month, Brett A. Shumate, an assistant attorney general, maintained that the law allowed the president 'to take extraordinary action' to regulate trade, which Mr. Trump had interpreted to mean tariffs. But Mr. Shumate also told the judges that they could not second guess Mr. Trump in his declaration of a national emergency.
At times, the judges appeared skeptical about some of the arguments, which trade experts later interpreted as a poor sign for the president. The administration has already asked the appellate court to pause any decision that might invalidate its tariffs, which would buy the government time to seek emergency relief at the Supreme Court.
In their letter Monday, lawyers for the government specifically called attention to the agreements that Mr. Trump has brokered recently with major trading partners, including those in the European Union, some of which had also committed to investing in the United States.
Mr. Sauer, the solicitor general, said a verdict against the president may result in the 'forced dissolution' of those deals, which would be 'ruinous' for the economy, given that foreign leaders had 'committed' to pay trillions of dollars to the United States.
'There is no substitute for the tariffs and deals that President Trump has made,' he wrote along with Mr. Shumate.
The small businesses that sued the government responded on Tuesday. Lawyers for those firms, including VOS Selections, a wine importer in New York, told the court that the president did indeed have other powers to achieve his trade goals — and could, for example, 'submit agreements for congressional approval.'
Michael Lowell, who is chair of the regulatory enforcement group at the law firm Reed Smith, described the administration's strategy and pacing as deliberate. He said it showed that Mr. Trump hoped to 'move far enough, fast enough,' on tariffs, potentially dissuading the Supreme Court from unwinding them because doing so would prove too damaging.
In the meantime, the president has continued to brag about the revenue tariffs have raised.
'Trillions of Dollars are being taken in on Tariffs," Mr. Trump said on Tuesday, overstating the amount, adding it 'has been incredible for our Country, its Stock Market, its General Wealth, and just about everything else.'