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President Donald Trump used his first State of the Union of his second term to touch on the single most important issue to a discontented electorate: the cost-of-living crisis created by former President Joe Biden. But only briefly. After quickly paying lip service to his landmark One Big Beautiful Bill Act and its corresponding tax cuts and investment accounts for children, the president pivoted to his true passion: tariffs.
Trump, who had spent the prior weekend smearing Supreme Court justices as “unpatriotic and disloyal to our Constitution,” took a more tactful approach to his legal loss. After politely shaking the hands of all four justices who showed up, including three who ruled against his tariffs on Friday, Trump simply described the decision as “unfortunate” and “disappointing.”
SCOTUS OVERTURNS TRUMP’S TARIFFS — BUT DOESN’T FORCE TREASURY TO REFUND REVENUE
But far from conceding defeat, Trump was defiant about the future of his tariff regime.
“Despite the disappointing ruling … [they] will remain in place under fully approved and tested alternative legal statutes,” Trump said. “They’re a little more complex, but they’re actually probably better — leading to a solution that will be even stronger than before. Congressional action will not be necessary. It’s already time-tested and approved. And as time goes by, I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love.”
Unlike his previous economics boasts, which were largely all correct, there’s a lot to fact-check here. Obviously, foreign countries do not pay for tariffs, which, by definition, are a tax charged on domestic importers. And while Trump’s tariffs have made a sizable dent in the federal budget deficit, their projected annual revenue of $500 billion before the Supreme Court banned the cornerstone of the tariff regime is still dwarfed by the $2.7 trillion generated by personal income taxes and the more than $7 trillion spent by the federal government overall.
But as far as actionable falsehoods go, the notion that Trump believes that his tariffs “will remain in place under fully approved and tested alternative legal statutes” without the assistance of Congress is the most important, simply because of how incorrect it is.
To understand why Trump’s tariffs can’t be so easily replaced without Congress, we have to understand the tariffs that the Supreme Court overruled. The court determined the nationwide, non-sector-specific, “reciprocal” tariffs were not allowed by the International Emergency Economic Powers Act, not because Trump’s emergency justification wasn’t strong enough, but because the majority said that the IEEPA does not permit the president any tariff power at all. While only Justice Neil Gorsuch went as far as to note that Congress does not have the right to broadly delegate away core Article I powers such as the imposition of import duties, a fractious majority of five different opinions was still unanimous in its determination that the IEEPA specifically does not grant the president any tariff power.
Note that the Supreme Court did not overturn any of the sector-specific tariffs, such as the 50% tariffs on copper imports and 25% tariffs on furniture. Nor did it overturn the bulk of Trump’s tariffs on Chinese imports, which were invoked through Section 301 of the Trade Act of 1974. The IEEPA tariffs were a “Frankenstein’s monster” of evolving rates and exemptions, yet they still represented almost half of the administration’s tariff program until last Friday. According to the Yale Budget Lab, the Supreme Court ruling brought the nation’s effective average tariff rate down from 16% to 9.1%.
Trump immediately responded to the ruling with his new “alternative legal statutes” to preserve the functionality of his overturned IEEPA tariffs. By imposing new 15% tariffs under Section 122 of the Trade Act, the effective tariff rate was theoretically restored to 13.7%.
But there are a few insurmountable problems here.
Unlike the IEEPA, Section 122 explicitly grants the president the power to impose a maximum tariff rate of 15% for no longer than 150 days “to deal with large and serious balance-of-payment deficits.” Not only are Trump’s tariffs time-limited, but they might not even meet the legal threshold of justification within the time limits.
Trump moans about our balance of trade deficit, but this is different than our balance of payments. In fact, our current account deficit, the majority of which is our trade deficit, is just one-half of the ledger of our balance of payments. On the other side is an equal and opposite capital account surplus.
Yes, Americans send over $1 trillion out of the country as we buy goods and services. But those dollars don’t just disappear. Instead, after being used as the world’s reserve currency and medium of exchange, U.S. dollars come back into the country through the purchases of U.S. Treasurys that allow us to maintain a $38 trillion national debt without a second thought. Our balance of payments is effectively zero. This has not always been true — if you want to understand why Congress had to invent the Trade Act as a whole, you should read Three Days in Camp David to understand that President Richard Nixon very nearly broke the entire American economy.
Even permitting a 150-day grace period, the Trump administration still knows it has to look at other statutes.
Most reliable for the White House is Section 232 of the Trade Expansion Act of 1962, which permits the president to impose tariffs per the recommendation of the commerce secretary “if an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security.” Section 232 has already established a legally sound basis for Trump’s steel and aluminum tariffs for eight years now, but its legal rationale is almost the inverse of how Trump 2.0 has prioritized tariffs. Whereas Trump used his IEEPA tariffs to exempt critical industries such as pharmaceuticals and smartphones while penalizing imports of crass consumer goods, Section 232 is intended specifically for the most important industries for national security.
Trump’s second backstop is Section 301, which has indeed also already proven robust when specifically used against Chinese imports in response to the Communist Party’s proven history of unfair trade practices. However, Section 301 was written to allow the president to negotiate a trade dispute, not to impose a permanent tax on American importers.
If Trump really wants to break the glass in case of emergency, he could theoretically dust off Section 338 of the Smoot-Hawley Tariff Act. This may allow the president to impose up to 50% tariffs against nations that discriminate against American exports in favor of our adversaries. Though the overall Smoot-Hawley tariffs drove the U.S. economy into the Great Depression, Section 338 has never actually been used. It’s unclear whether it passes legal muster.
Trump can have some of his tariffs, but if he wants to keep his sweeping, worldwide regime, he’ll need Congress, just as the Constitution intended.
If the goal of trade policy is to reshore critical sectors such as pharmaceuticals or to specifically punish the known offenses of the CCP, Trump does have the tools to unilaterally do that because he’s already done it once to great success. Trump’s first-term trade deals were indeed extraordinary successes, with the United States-Mexico-Canada Agreement successfully expanding our North American Trade, isolating the Chinese, and elevating continental labor and environmental standards that made American manufacturing more competitive with our neighbors.
A GOLDILOCKS FIRST YEAR FOR TRUMP 2.0
But Trump’s obsession with his tariffs has always relied on economic fallacies and half-truths. Yes, tariff revenue does reduce the deficit, but it reduces the federal budget deficit, which actually matters, and not the trade deficit, which does not. American companies and consumers, not foreigners, are paying the price, and if Trump’s real goal is mercantilism, it’s a proven failure. American manufacturing lost over 80,000 jobs last year, and our 2025 trade deficit was the third-highest in history.
The Supreme Court gave Trump the biggest gift he could have asked for: It overturned the tariffs after he used them to negotiate new trade deals, and in not mandating that he refund the Americans who paid for them, the court is letting the Treasury off the hook for, likely, the majority of the reimbursements that it could have owed. Continuing to resuscitate the tariffs instead of doubling down on 1.9% wage growth or 4.9% productivity growth would exemplify the oldest fallacy in the book: sunk cost.
