A ruling by the U.S. federal court on Wednesday not only denied Trump the authority to implement some of the most severe tariffs but also could deliver a fatal blow to his entire economic agenda.
Trump's core economic policy has been historically significant tariff measures, but the administration has described its aggressive trade actions as one leg of a "three-legged stool"—this stool is built on tariffs, spending cuts, and tax cuts, all of which are indispensable.
However, a three-judge panel of the U.S. International Trade Court halted Trump's global tariffs on the grounds of emergency economic powers. These trade actions include "reciprocal tariffs" on "Liberation Day," a 10% universal tariff, and tariffs aimed at preventing fentanyl from entering the U.S. This three-legged economic stool has at least temporarily lost one leg; without trade support, Trump's entire economic policy agenda could collapse.
The historically significant tariff measures have convinced dozens of U.S. trading partners to reach agreements with Trump. Theoretically, these trade agreements could open foreign markets to U.S. goods. Meanwhile, the revenue from Trump's tariffs could at least partially help fund the costly tax cuts advocated by Trump and congressional Republicans, which could promote economic growth and increase market certainty by raising the debt ceiling. Trump's deregulation and spending cuts, particularly through initiatives from the Department of Government Efficiency, could also reduce government costs and partially offset the impact of tax cuts on the soaring federal debt.
Due to its fragile structure, Trump's plan to usher in a new "golden age" of the economy has faced substantial skepticism, including opposition from most mainstream economists who believe the government lacks the discipline, power, and political support to achieve this plan. The intermittent trade policies, legal disputes over the "Department of Government Efficiency" (DOGE), and the stalemate over the "America First Act" are clear evidence of this.
One of Trump's biggest financial backers, Musk, criticized the bill this week, stating that the legislation significantly increases U.S. debt, effectively undermining the efforts of the Department of Government Efficiency. Now, with the potential loss of the tariff pillar from Trump's agenda, deficit-reducing Republicans in Congress may not support Trump's tax cuts. Many are already extremely uneasy about the nearly $4 trillion cost of the bill—even with about $1 trillion of unpopular Medicaid cuts included.
Aniket Shah, head of sustainable development and transformation strategy at Jefferies Group, wrote in a report to clients last Wednesday: "The increase in tariff revenue (around $150 billion annually) could have helped offset some of the deficits created by the coordination plan." With the uncertainty of the legal outcome, Shah indicated that Trump and Republicans may be forced to accept a reduction in tax cuts or an increase in spending cuts to push the House-approved bill through the Senate's reconciliation process.
Currently, there are more questions than answers. The Trump administration has appealed the ruling, which could ultimately be overturned. Keith Lerner, co-chief investment officer at Truist Advisory Services, noted, "This indeed raises questions about how the government will respond and whether this will affect the tax plan currently moving through Congress."
Even if the appeal proceeds through the legal system—potentially reaching the Supreme Court—Wednesday's ruling could undermine the highly anticipated trade agreements Trump has reached with foreign partners. These agreements have been announced sparingly, even with just over a month remaining in Trump's "reciprocal tariffs" three-month pause.
Shah stated, "We believe one reason for the stalemate in bilateral negotiations is that U.S. trading partners may have anticipated this outcome. Will they now view trade negotiations as matters resolved by the courts, or will they re-engage with the U.S. to develop trade policies?"
However, the setbacks to the Trump agenda may be temporary. For businesses, the court's ruling provides little certainty—especially since the government has appealed. Ernie Tedeschi of the Yale Budget Lab stated, "If there is any impact, this ruling exacerbates the uncertainty that businesses and consumers already face, as this is... the first sign that tariffs may be completely eliminated. But even if eliminated, the government may attempt to raise tariffs using other powers. The potential outcomes become more uncertain in both directions—tariffs could be lower or higher."
The government may have other avenues to implement tariffs and avoid legal scrutiny. This could include using Section 232 of the Trade Expansion Act, which was unaffected by the court's ruling. Trump has utilized Section 232 powers to impose a 25% tariff on steel, aluminum, automobiles, and auto parts.
Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics, remarked: "It's not over. This adds a whack-a-mole flavor to the entire story."
