The US trade court block of Trump administration tariffs adds a new layer of uncertainty to trade policy.
At issue is the administration’s authority to unilaterally impose tariffs on imports, a responsibility that is Constitutionally allocated to Congress.
A president can only impose tariffs under limited exceptions, including for a national emergency. While the Trump administration argued that the US trade deficit represents an “unusual and extraordinary threat,” the US has run a trade deficit since 1976. During the 12 months through March, the trade deficit equated to 3.99% of GDP. In comparison, the trade deficit neared 6% of GDP during the early 2000s, peaking at -5.9% in 2006.
The economic impacts of the court order will be varied. While some initial tariff impacts will be rolled back, others will remain present or become more acute.
The tariff-related impacts on inflation are likely to decline. However, ITR Economics forecasts rising inflation in the latter half of 2025 and beyond for other non-tariff reasons. Fundamental drivers, including rising employment costs associated with a still-tight labor market, rising energy costs, and impacts from both fiscal and monetary policy, will keep upside pressure on prices. The removal of tariffs will not remove these factors and, therefore, will not fully alleviate building inflation pressures.
For manufacturers, removing these tariffs will – at least in the short term – reduce the cost of some inputs and allow for a more efficient supply chain. The court ruling will not, however, initiate a reversal in foreign direct investment, which is flowing to the US for other reasons. While the stated goal of tariffs is to bring production back to US shores, the recent bout of tariffs was not sufficient in either duration or scope to trigger substantial investment. A significant amount of re-onshoring has occurred in recent years and the trend is ongoing, but tariffs are not the only driver. Firms are looking to the US for reasons other than nationalism, including technological advantages and relatively cheaper energy. Tariff protection may entail an extra “bonus” for US-relocating firms, but taken alone are rarely enough to trigger that relocation in the first place. Take, for example, the 30% tariff on Chinese goods. This amount removes some of the cost advantage of Chinese manufacturing but does not take those products completely out of competition.
Ultimately, this court ruling introduces new uncertainties. The Trump administration has already appealed, thereby extending the timeline to finally having settled trade policy in effect. If this ruling holds, the Republican-controlled Congress may take up the tariff issue, as international trade policy is their purview. Some economic risks accompany these delays, as businesses may put off decisions and investments until the policy landscape is settled. In the interim, some activity may be pulled forward as firms attempt to get ahead of whatever comes next.
Tariffs and other trade barriers skew incentives, creating new winners and losers. But their imposition – or their removal – will not single-handedly upend the business cycle.
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Lauren graduated with honors from Wellesley College, double majoring in economics and religion. She also earned an MBA from the Boston University Questrom School of Business. Lauren is frequently featured in the media, with appearances on CNBC, Reuters, Bloomberg, NPR, and many other outlets.
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