In the wake of the Supreme Court’s 6-3 ruling Friday disallowing the International Emergency Economic Powers Act (IEEPA) as a basis for President Trump’s tariff policy, two economists told ProSight they expect the administration to try levying tariffs through other authorities—but said getting workarounds in place would take time.
The ruling creates a near-term gap in tariff revenue. Meanwhile, they said, what will be at least a temporary reduction in tariff levels will put more money into the economy and necessitate more Treasury issuance, as the government replaces the funding the IEEPA tariffs provided—an estimated $175 billion so far.
Refunds remain an open question. “The court did not say anything about what’s supposed to happen with refunds,” said Jill Cetina, executive professor and associate director of the commercial banking program at Texas A&M’s Mays Business School and a former associate managing director for U.S. bank ratings at Moody’s. She added that the “clear 6-3 majority” may mean “there will be an expectation of refunds”—an issue that could be tested in a lower court.
For as long as the ruling lowers tariff levels, it is “good for households and small businesses, as their costs will drop,” said John Silvia, founder of Dynamic Economic Strategy and a former chief economist at Wells Fargo.
Banks may have a harder time pricing risk. Silvia said, “credit officers will find it hard to price risk given the uncertainty of what is tariffed and how much under the new rules.”
Cetina said banks will be keeping an eye on Treasurys, with longer-term interest rates tied to their fortunes. She noted that Treasury yields rose as their values dropped on the high court’s ruling. The loss of tariff revenue, to the extent it adds to the U.S. debt, could also add to inflation.
Reinstating tariffs will take time. Economists and trade watchers have pointed to several other trade act authorities the administration could pursue, including Section 232, Section 301, Section 122, and Section 338. “But it’s not going to be instantaneous,” Cetina said. And with tariff revenues part of the budget funding formula, “there is going to be a need for the Treasury to figure out some incremental financing.” All else equal, the more Treasurys on offer will reduce their price—and raise the interest rate they pay. A determination that refunds are owed would create an even greater funding bind.
If there are refunds, it will be up to the entities that paid the tariffs to decide whether to pass them along to customers. Given the likelihood that the administration will try to reinstate tariffs through other authorities, Cetina said some businesses may decide not to change their pricing strategy—but others may feel “pressure from their customers” to do so.
In a press conference following the decision, President Trump said he would be able to get alternate tariffs in place within days.
Silvia said the high court decision “adds to economic uncertainty on company orders [and] pricing.”
One thing that’s clear: “Anytime meaningful sums of money get moved around in the economy on a cash basis, that’s impactful to liquidity conditions and affects banks,” Cetina said.
By: Frank Devlin
