The fate of a signature tariff policy of the Trump administration hangs in the balance of a crucial ruling by the U.S. Supreme Court. Although senior U.S. government officials have tried to downplay a potential legal defeat, President Trump's increasingly anxious rhetoric, combined with widespread predictions from the market and analysts, points to a growing possibility: the administration may lose this lawsuit, and the subsequent remedial measures are far more complex than officials have portrayed.
The ruling, expected to be announced in January next year, centers on whether the government has the authority to impose broad-based 'reciprocal tariffs' under the International Emergency Economic Powers Act (IEEPA). Recently, Trump has been vocal on social media, stating that 'evil, America-hating forces are fighting us in the Supreme Court,' and calling on the justices to 'do the right thing for America.' This rare public statement has been interpreted by the market as deep concern over the potential overturning of his policy.
On November 6 of this year, Trump also told reporters that if he loses this lawsuit at the Supreme Court, it would be 'a devastating blow to our country.' Trump said, if that happens, 'we'll have to go to a second plan.'
In contrast to Trump's anxiety, cabinet members project an air of confidence. Treasury Secretary Besant warned on Tuesday (December 16) that overturning the tariffs would 'harm national security,' because 'economic security is national security.' But he also stated that the government has 'many other ways to increase revenue.'
Risk of Defeat Nears: An Anxious President and a 'Calm' Cabinet
Currently, market confidence in the Trump administration winning the tariff lawsuit is not high. According to a Goldman Sachs Group report dated December 16, based on the justices' questions during November's oral arguments, the Supreme Court is 'likely' to rule early next year that most of the tariffs imposed this year are illegal. This view is also reflected in the general expectations of prediction markets.
The two core cases being heard by the Supreme Court are Learning Resources Inc. v. Trump and V.O.S. Selections Inc. v. Trump. The central question they challenge is whether the President overstepped constitutional boundaries by using IEEPA to exercise the power to levy taxes, which is reserved for Congress.
Facing the looming risk of defeat, public statements within the White House show a noticeable temperature difference. Trump's rhetoric is full of urgency, while officials represented by Treasury Secretary Besant are trying to send a message to the outside world: even in the worst-case scenario, the government still has a backup plan.
While emphasizing national security, Besant also acknowledged the existence of alternatives, hinting that the government is already preparing for a possible loss. However, this public display of composure stands in stark contrast to the claim in their court filings that overturning the tariffs would cause a 'fiscal disaster.'
Plan B is Not Easy: Alternative Plans Face Numerous Legal Hurdles
Although government officials claim they can easily turn to other trade laws to rebuild the tariff system, legal experts and analysts point out that this path is fraught with difficulties. According to Politico, any alternative plan will face new legal and political obstacles, and the process is far from smooth.
The two main legal tools the government might resort to both have significant limitations:
Section 122 of the Trade Act of 1974: This clause authorizes the President to impose tariffs of up to 15% to address a 'serious' balance of payments deficit.' This could temporarily replace the current 10% baseline tariff, but the problems are: First, the tariff must be 'non-discriminatory,' which conflicts with the Trump administration's practice of reaching exemption agreements with specific countries; Second, its validity period is only 150 days, unless extended by Congress, which is almost impossible in the current political environment.
Section 338 of the Tariff Act of 1930: This clause allows the President to impose tariffs of up to 50% on countries that discriminate against U.S. trade. However, this statute has never been used since its enactment, and its legal issues have not been tested in court. A key controversy is whether the President must first have an investigation by the U.S. International Trade Commission (ITC) before taking action. If an investigation is required, it would consume significant time, preventing the immediate replacement of tariffs.
Law professor Timothy Meyer told Politico that although the U.S. Court of International Trade is generally deferential to the executive branch when interpreting tariff laws, every step of activating these alternative plans could trigger new lawsuits.
Goldman Predicts: Tariff Rates May Fall, Long Road Ahead for Refunding Hundreds of Billions
For investors, the most direct impact is the change in tariff costs. Goldman's report predicts that if the IEEPA tariffs are overturned, the risk will 'tilt towards lower tariff rates.'
The bank's analyst Alec Phillips pointed out that even if the government turns to Section 122 as a temporary measure, its 15% rate cap means that the higher tariffs currently imposed on some trading partners (e.g., India, with rates as high as 50%) would have to be reduced. Furthermore, imposing higher tariffs on specific countries under Section 301 would require time-consuming and complex investigations, making it operationally unfeasible to investigate all trading partners.
Goldman Sachs expects that by the end of 2026, the U.S. effective tariff rate will be about 2 percentage points lower than current levels.
Additionally, a defeat would also trigger the huge issue of tariff refunds. Goldman estimates that the government has already collected approximately $130 billion in tariffs through IEEPA, and the amount is still increasing by about $20 billion per month. Companies (like Costco) have already filed lawsuits to ensure refunds. However, the refund process could be very lengthy, requiring subsequent legal action. According to Politico, the government is accelerating the deposit of tariff revenue into the U.S. Treasury, an move seen as intended to make it more difficult for companies to obtain refunds.
Dual Test of Political and Diplomatic Credibility
A legal defeat would also bring serious political and diplomatic consequences for the Trump administration.
On the diplomatic front, many 'trade agreements' reached under the threat of IEEPA tariffs are not legally binding themselves. Once the foundation of the tariffs is shaken, foreign governments may demand renegotiation and withdraw previous concessions, which will test the administration's negotiating ability and credibility.
Domestically, the credibility of senior government officials will be hit. Multiple officials, including Besant, have claimed in court filings that overturning the tariffs would plunge the U.S. into 'domestic and international turmoil.' If such a scenario does not materialize after a defeat, they will face accusations of misleading the court and the public. Simultaneously, this will put Republican lawmakers in an awkward position ahead of the 2026 midterm elections, forcing them to make a difficult choice between supporting a tariff policy that polls show is extremely unpopular (about two-thirds of Americans oppose it) and alienating Trump.
