By Rajan Philips –

Rajan Philips

President Donald J. Trump, as the American President often calls himself, is a global spectacle. And so are his tariffs. On Friday, February 20, the US Supreme Court led by Chief Justice John Roberts and a 6-3 majority, struck down the most ballyhooed tariff scheme of all times. Upholding the earlier decisions of the lower federal courts, the Supreme Court held that Trump’s use of ‘emergency powers’ to impose the so called Liberation Day tariffs on 2 April 2025, is not legal. The Liberation Day tariffs, which were comically announced on a poster board at the White House Rose Garden, is a system of reciprocal tariffs applied to every country that exported goods and services to America. The court ruling has pulled off the legal fig leaf with which Trump had justified his universal tariff scheme.

Trump was livid after the ruling on Friday and invectively insulted the six judges who ruled against Trump’s tariffs. There was nothing personal about it, but for Trump, the ever petulant man-boy, there isn’t anything that is not personal. On Tuesday night in Washington, Trump delivered his first State of the Union address of his second presidency. The Chief Justice, who once called the State of the Union, “a political pep rally,” attended the pomp and exchanged a grim handshake with the President.

Tuesday’s State of the Union was the longest speech ever in what is a long standing American tradition that is also a constitutional requirement. The Trump showmanship was in full display for the millions of Americans who watched him and millions of others in the rest of world, especially mandarins of foreign governments, who were waiting to parse his words to detect any sign for his next move on tariffs or his next move in Iran. There was nothing much to parse, however, only theatre for Trump’s Republican followers and taunts for opposing Democrats. He was in his usual elements as the Divider in Chief. There was truly little on offer for overseas viewers.

On tariffs, he is bulldozing ahead, he boasted, notwithstanding the Supreme Court ruling last Friday. But the short lived days of unchecked executive tariff powers are over even though Trump wouldn’t let go of his obsessive illusions. On the Middle East, Trump praised himself for getting the release of Israeli hostages, dead or alive, out of Gaza, but had no word for the Palestinians who are still being battered on that wretched strip of land. On Ukraine, he bemoaned the continuing killings in their thousands every month but had no concept or plan for ending the war while insisting that it would not have started if he were president four years ago.

He gave no indication of what he might do in Iran. He prefers diplomacy, he said, but it would be the most costly diplomatic solution given the scale of deployment of America’s fighting assets in the region under his orders. In Trump’s mind, this could be one way of paying for a Nobel Prize for peace. More seriously, Trump is also caught in the horns of a dilemma of his own making. He wanted an external diversion from his growing domestic detractions. If he were thinking using Iran as a diversion, he also cannot not ignore the warnings from his own military professionals that going into Iran would not be a walk in the park like taking over Venezuela. His state of mind may explain his reticence on Iran in the State of the Union speech.              

Even on the domestic front, there was hardly anything of substance or any new idea. One lone new idea Trump touted is about asking AI businesses to develop their own energy sources for their data centres without tapping into existing grids, raising demand and causing high prices and supply shortages. That was a political announcement to quell the rising consumer alarms, especially in states such as Michigan where energy guzzling data centres are becoming hot button issue for the midterm Congress and Senate elections in November. Trump can see the writing on the wall and used much of his speech to enthuse his base and use patriotism to persuade the others.

Although a new idea, asking AI forces to produce their own energy comes against a background of a year-long assault on established programs for expanding renewable energy sources. Fortunately, the courts have nullified Trump’s executive orders stopping renewable energy programs. But there is no indication if the AI sector will be asked to use renewable energy sources or revert to the polluting sources of coal or oil. Nor is it clear if AI will be asked to generate surplus energy to add to the community supply or limit itself to feeding its own needs. As with all of Trump’s initiatives the devil is in the details and is left to be figured out later.   

The Supreme Court Ruling

The backdrop to Tuesday’s State of the Union had been rendered by Friday’s Supreme Court ruling. Chief Justice Roberts who wrote the majority ruling was both unassuming and assertive in his conclusion: “We claim no special competence in matters of economics or foreign affairs. We claim only, as we must, the limited role assigned to us by Article III of the Constitution. Fulfilling that role, we hold that IEEPA does not authorize the President to impose tariffs.”

IEEPA (International Emergency Economic Powers Act) is a 1977 federal legislation that was enacted during the Carter presidency, to both clarify and restrict presidential powers to act during national emergency situations. The immediate context for the restrictive element was the experience of the Nixon presidency. One of the implied restrictions in IEEPA is in regard to tariffs which are not specifically mentioned in the legislation. On the other hand, Article 1, Section 8 of the US Constitution establishes taxes and tariffs as an exclusively legislative function whether they are imposed within the country or implemented to regulate trade and commerce with other countries. In his first term, Trump tried to impose tariffs on imports through the Congress but was rebuffed even by Republicans. In the second term, he took the IEEA route, bypassing Congress and expecting the conservative majority in the Supreme Court to bail him out of legal challenges. The Court said, No. This far, but no farther.

The main thrust of the ruling is that it marks a victory for the separation of powers against a president’s executive overreach. Three of the Court’s conservative judges (CJ Roberts, Neil Gorsuch, and Amy Coney Barrett) joined the three liberal judges (all women – Sonia Sotomayor, Elana Kagan and Ketanji Brown Jackson) to chart a majority ruling against the president’s tariffs. The three dissenters were Brett Kavanugh, who wrote the dissenting opinion, Clarence Thomas and Samuel Alito. Justices Gorsuch, Kavanaugh and Barrett were appointed by Trump. Trump took out Gorsuch and Barrett for special treatment after their majority ruling, while heaping praise on Kavanaugh who ruled in favour of the tariffs. Barrett and Kavanaugh attended the State of the Union along with Roberts and Kagan, while the other five stayed away from the pep rally (see picture).

The Economics of the Ruling

In what was a splintered ruling, different judges split legal hairs between themselves while claiming no special competence in economics and ruling on a matter that was all about trade and economics. Yale university’s Stephen Roach has provided an insightful commentary on the economics of the court ruling, while “claiming no special competence in legal matters.”  Roach takes out every one of Trump’s pseudo-arguments supporting tariffs and provides an economist’s take on the matter.

First, he debunks Trump’s claim that trade deficits are an American emergency. The real emergency, Roach notes, is the low level of American savings, falling to 0.2% of the national income in 2025, even as trade deficit in goods reached a new record $1.2 trillion. America’s need for foreign capital to compensate for its low savings, and its thirst for cheap imported goods keep the balance of payments and trade deficits at high levels.

Second, by imposing tariffs Trump is not helping but burdening US consumers. The Americans are the ones who are paying tariffs contrary to Trump’s own false beliefs and claims that foreign countries are paying them. 90% of the tariffs have been paid by American consumers, according to the Federal Reserve Bank of New York. Small businesses have paid the rest. Foreign countries pay nothing but they have been making deals with Trump to keep their exports flowing.

According to published statistics, the average U.S. applied tariff rate increased from 1.6% before Trump’s tariff’s to 17%, the highest level since World War II. The removal of reciprocal tariffs after the ruling would have lowered the to 9.1%, but it will rise to 13% after Trump’s 15% tariffs. The registered tariff revenue is about $175 billion, 0.6% of U.S. gross domestic product. The tariff monies collected are legally refundable. The Supreme Court did not get into the modalities for repayment and there would be multiple lawsuits before the lower courts if the Administration does not set up a refunding mechanism.

Lastly, in railing against globalization and the loss of American industries, Trump is cutting off America’s traditional allies and trading partners in Europe, Canada and Mexico who account for 54% of all US trade flows in manufactured goods. Cutting them off has only led these countries to look for other alternatives, especially China and India. All of this is not helping the US or its trade deficit. The American manufacturers (except for sectoral beneficiaries in steel, Aluminum and auto industries), workers and consumers are paying the price for Trump’s economic idiosyncrasies. As Roach notes, the Court stayed away from the economic considerations, but by declaring Trump’s IEEPA tariffs unconstitutional, the Court has sent an important message to the American people and the rest of the world that “US policies may not be personalised by the whims of a vindictive and uninformed wannabe autocrat.”