The U.S. Supreme Court on Friday struck a final blow, overturning Donald Trump's decision to impose sweeping tariffs on foreign countries, weakening his signature economic policies and causing him to suffer his biggest legal setback since returning to the White House.The president immediately launched a counterattack, on the one hand preparing to impose a global benchmark tariff of 10%, and on the other hand launching a series of investigations to prepare for more import taxes.
Supreme Court ruling
The Supreme Court ruled in the case of Learning Resources v. Trump that the use of federal emergency powers to impose "reciprocal" tariffs on foreign countries and to impose additional import taxes on goods from Canada, Mexico and other countries in the name of combating fentanyl trafficking exceeded the authority of the president. It also questioned Trump's use of the International Emergency Economic Powers Act to impose tariffs on Brazilian and Indian goods for various reasons.
The vote was 6 to 3. Trump-appointed Justices Neil Gorsuch and Amy Coney Barrett sided with Chief Justice John Roberts and three liberal justices in the majority, which held that the 1997 International Emergency Economic Powers Act did not authorize the imposition of tariffs.
Justices Brett Kavanaugh, Clarence Thomas, and Samuel Alito dissented; Kavanaugh wrote the opinion for the minority, arguing that the International Emergency Economic Powers Act "clearly authorizes the president to impose tariffs."
He added that the ruling "may not prevent the president from imposing most or even all such tariffs under other legal authority."
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Trump held a press conference and said that the ruling was deeply disappointing. He angrily denounced the Supreme Court as a "fool" and a "stooge" and accused some justices of being "unpatriotic and disloyal to the Constitution."
He said the Supreme Court "did not strike down the tariffs, they just rejected the use of the International Emergency Economic Powers Act to impose them."
Trump announced that he would impose base tariffs in accordance with Section 122 of the Trade Act of 1974. It is expected that the new base rate of 10% will officially take effect in three days.
A new import investigation will be launched under "Article 301" and "Article 232", and it is recommended that it can be conducted during the implementation period of the 10% baseline tariff and eventually replace the former.
Trump also said he was considering imposing tariffs ranging from 15% to 30% on foreign cars.
"What we're doing is just going through a slightly more complicated process, not much more complicated than what we were doing before," Trump said. "We're going to be able to impose tariffs, more tariffs."
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Article 201 of the Trade Law of 1974: The upper limit is 50% plus the existing tax rate; the initial collection period is four years, which can be extended to a maximum of eight years; if the tariff is implemented for more than one year, the tax rate must be gradually reduced according to a fixed period and cannot be implemented immediately. The U.S. International Trade Commission must first launch an investigation and submit a report to the President within 180 days of the petition being filed. ITC must hold public hearings and solicit public input; focus on industry level rather than imposing broad tariffs on all imports from trading partners
Section 338 of the Smoot-Hawley Tariff Act of 1930: Capped at 50%; tariffs can be imposed without prior investigation by federal agencies.
Potential refunds
The Supreme Court did not rule on the extent of an importer's right to a refund, leaving it to lower courts. If full refunds are supported, the scale could be as high as $170 billion, more than half of Trump's tariff revenue.
Justice Brett Kavanaugh wrote in the minority opinion: "The Court today said nothing about whether and how the government should return duty payments collected from importers. The refund process can be chaotic, as was acknowledged during oral argument."
An analysis shows more than 1,500 companies have filed lawsuits in trade courts over the tariffs while awaiting the chancellor's ruling. As of December 14, certain industries accounted for a larger share of taxes paid under IEEPA; according to the analysis, the textiles, toys, and food and beverage industries ranked among the top industries importing final consumer goods.
Reactions from all parties
California Governor Gavin Newsom urges Trump to refund tariffs imposed
U.S. Treasury Secretary Scott Bessant said that the use of Section 122 authorization and the "potential strengthening" of Section 232 and Section 301 tariff measures will mean that tariff revenue will "little change" in 2026.
Alberto Mussallem, president of the Federal Reserve Bank of St. Louis, said his judgment on the economic outlook would not change significantly if the Trump administration maintains most tariff measures in place.
Dallas Fed President Lori Logan said the economic impact of the tariff rebates will depend on other policies that may be implemented and how financial conditions respond.
Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said the economic impact of the ruling will depend on whether businesses that have paid the tariffs will receive refunds and the extent to which businesses will adjust their practices as a result of the ruling.
The European Parliament's trade committee will hold an emergency meeting on Monday to reassess the EU-US trade deal.
House Speaker Michael Johnson said Congress and the Trump administration will "determine the best path forward in the coming weeks."
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Market reaction has been relatively muted, in part because the justices questioned the legality of the tariffs in hearings last year, and prediction market trading has since been leaning toward a Supreme Court overturn of the tariffs this year.
Ian Lyngen, head of U.S. interest rate strategy at BMO Capital Markets: The Supreme Court's ruling has been widely expected by market participants, and it is not surprising that the U.S. interest rate market has had a limited reaction.
Tom Garretson of RBC Wealth Management said that so far, policy shocks should be regarded as an integral part of the investment environment, but in recent years it has been proven that such shocks are often fleeting and may not even be considered in long-term decision-making, but only tactically grasped."
market fluctuations
U.S. stocks ended broadly higher, with more than 330 stocks in the S&P 500 index rising.
Treasuries received a significant boost, but the initial spike in yields quickly subsided, causing the yield curve to rise 1-2 basis points across the board in late trading.
The dollar fell after the U.S. Supreme Court struck down the Trump administration's sweeping global tariffs, and dollar swap spreads narrowed on the tariff news, but that tightening was quickly reversed.
European stock markets hit new highs, with the Stoxx 600 index rising 1.1% at one point, before closing gains narrowed to 0.8%. Tariff-sensitive luxury goods makers such as LVMH and Hermès International outperformed the market. European government bonds fell on the short end, reversing early gains. Long-term bonds edged higher, with the yield curve flattening.