Will the Federal Courts Ignite a Stock Market Rally by Nixing Trump's Tariffs?

Yahoo

20-04-2025

You might have noticed an interesting phenomenon in recent weeks. News about the implementation of President Donald Trump's tariffs tends to cause the stock market to sink like a brick. However, even the slightest hint that those tariffs will be relaxed or delayed usually causes stocks to rebound.
It stands to reason that a complete reversal of the Trump administration's tariffs could serve as a significant catalyst for the stock market. The chances that the president will make such a move on his own seem very low. With the GOP in control of the Senate and the House, don't expect Congress to halt tariffs, either.
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However, there is one other mechanism for checks and balances built into the U.S. Constitution. Will the federal courts ignite a stock market rally by nixing Trump's tariffs? The answer: It's a definite maybe.
We could soon find out whether the "definite maybe" answer becomes a "definite yes." Multiple lawsuits have been filed in recent days seeking to overturn the Trump administration's tariffs.
One of those lawsuits was filed by the New Civil Liberties Alliance on behalf of a small business in Florida named Simplified. The company sells home management products, organizational tools, and planners. The New Civil Liberties Alliance and Simplified are arguing that President Trump's tariffs will cause Simplified financial harm by requiring it to pay significant tariffs and change its supply chain.
The Liberty Justice Center filed a similar lawsuit on April 14, 2025, in the U.S. Court of International Trade. This lawsuit was initiated on behalf of five small businesses: New York-based wine, spirits, and sake importer VOS Selections; sportfishing products e-commerce retailer and wholesaler FishUSA; Utah pipe manufacturer Genova Pipe; Virginia educational electronic kits and musical instruments company MicroKits; and Vermont women's cycling apparel company Terry Precision Cycling.
On April 16, California became the first state to sue the Trump administration over its tariffs. California Governor Gavin Newsom said in a statement, "President Trump's unlawful tariffs are wreaking chaos on California families, businesses, and our economy -- driving up prices and threatening jobs. We're standing up for American families who can't afford to let the chaos continue." California, which ranks as the fifth-largest economy in the world, with several major industries involved in global trade, could be significantly impacted by tariffs.
All these lawsuits share common legal arguments against President Trump's tariffs. Most importantly, they all maintain that the tariffs are unconstitutional.
The U.S. Constitution grants Congress the exclusive right to levy tariffs. However, Congress has passed legislation in the past that delegates some of its authority to the president in certain circumstances. President Trump used one of those pieces of legislation, the International Emergency Economic Powers Act (IEEPA), as the basis of his executive order implementing steep reciprocal tariffs on most countries.
But the IEEPA grants the president only the power to take financial actions against other countries to "deal with an unusual and extraordinary threat" by declaring a national emergency. The Liberty Justice Law Center's lawsuit argues that trade deficits, the justification used by President Trump to impose tariffs, are "neither an emergency nor an unusual or extraordinary threat."
The organization argued that "Trade deficits have existed for decades, and do not constitute a national emergency or threat to security." Its lawsuit noted that the Trump administration's tariffs even apply to countries with which the U.S. doesn't have a trade deficit, which further undermines the White House's justification.
California is taking a similar approach. The state's lawsuit argues that the president is misusing the emergency powers granted by the IEEPA and that Congress must approve the type of tariffs the White House is levying.
The New Civil Liberties Alliance's lawsuit doesn't challenge the president's power to declare a national emergency. Instead, it argues that the IEEPA doesn't mention tariffs and that the Trump administration can't demonstrate that tariffs are necessary to address the "emergency" on which they're based.
Could these lawsuits really reverse the Trump administration's tariffs? Again, it's a definite maybe.
George Mason University law professor Ilya Somin wrote in Reason magazine earlier this year (before the various lawsuits were filed) that the constitutional arguments against using the IEEPA to impose tariffs "are strong." Somin said that the Supreme Court's "major questions" doctrine requires Congress to "speak clearly" when it empowers the executive branch to make decisions that have a major economic and political impact. Since the IEEPA doesn't specifically grant the president the power to levy tariffs, this argument could be compelling to the federal courts.
Ultimately, the Supreme Court will probably have to determine whether President Trump's tariffs are constitutional. If at least five justices decide the administration has gone beyond its authority, the tariffs will go away. And the stock market will almost certainly take off again.
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Will the Federal Courts Ignite a Stock Market Rally by Nixing Trump's Tariffs? was originally published by The Motley Fool