CNN
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A US federal court’s ruling Wednesday against President Donald Trump’s authority to levy some of his most sweeping tariffs may have also dealt a serious blow to the president’s entire economic agenda.
Trump’s core economic policy has been his historic tariffs, but the administration has described its aggressive trade actions as just one leg of a three-legged stool. Built on tariffs, spending cuts and tax cuts, Trump’s economic agenda relies on all three components to stand strong.
But a three-judge panel at the US Court of International Trade blocked Trump’s global tariffs, which he imposed citing emergency economic powers. Those trade actions include the “Liberation Day” reciprocal tariffs, 10% universal tariffs and the tariffs aimed at preventing fentanyl from entering the United States.
The three-legged economic stool just lost a leg, at least for now. Without trade, Trump’s whole economic policy plan could come crashing down.
Historic tariffs have persuaded dozens of US trading partners to come to the table to make deals with Trump. In theory, those trade deals could open up foreign markets to more US goods, benefitting US manufacturers and farmers.
Revenue from Trump’s tariffs, meanwhile, could, at least in part, help pay for Trump and congressional Republicans’ massively expensive tax cuts, that could boost economic growth and add certainty to the markets by raising the debt ceiling. Trump’s deregulation and spending cuts, particularly via the Department of Government Efficiency, could also reduce the government’s costs and negate some of the impact of the tax cuts on the surging federal debt.
Because of its fragile construction, Trump’s plan to usher in a new economic Golden Age has plenty of naysayers, including most mainstream economists, who argue that the administration lacks the discipline, authority and political support to make it happen. The on-again, off-again trade policy, legal battles over DOGE and intraparty standoffs on the “Big, Beautiful Bill” serve as evidence.
Elon Musk, one of Trump’s biggest financial backers who was the public face of Trump’s DOGE team, criticized the bill this week, saying the legislation’s massive additions to America’s debt effectively undermined the cost-cutting group’s efforts. Now, with the potential for no tariff component to Trump’s agenda, Republican deficit hawks in Congress may not support Trump’s tax cuts. Many were already extremely nervous about the bill’s nearly $4 trillion price tag – even with around $1 trillion in unpopular cuts to Medicaid.
“Increased revenues from tariffs (approximately $150 billion per year) could have helped offset some of the deficit from the reconciliation package,” Aniket Shah, head of sustainability and transition strategy at Jefferies, wrote in a note to clients Wednesday.
With the legal outcome now uncertain, Shah said, Trump and Republicans may be forced to settle for reduced tax cuts or increased spending cuts to advance the House-approved bill through the reconciliation process with the Senate.
There are more questions than answers at this point. The Trump administration has appealed the ruling, which may ultimately get overturned.
“It does raise questions about how the administration will respond and how this affects, if at all, the tax package going through Congress,” noted Keith Lerner, co-chief investment officer at Truist Advisory Services.
Even as the appeal makes its way through the legal system – perhaps to the Supreme Court – Wednesday’s ruling could undermine Trump’s much-sought trade deals with foreign partners.
Those deals have been sparsely announced, even with just over a month to go in the three-month pause of Trump’s “reciprocal tariffs.” The administration has announced frameworks of deals with only the UK and China.
“We believe one reason bilateral negotiations had stalled was that US trading partners may have anticipated this outcome,” said Shah. “Will they now view trade negotiations as a matter to be resolved by the courts, or will they re-engage with the US on trade policy?”
The setback for Trump’s agenda, however, may be temporary. For businesses, the court’s ruling provides little certainty – particularly because of the administration’s appeal.
“If anything, the ruling supercharges the uncertainty already facing businesses and consumers, because it’s the first hint of a possibility that … tariffs could be eliminated entirely,” said the Yale Budget Lab’s Ernie Tedeschi. “But even if they were, the Administration could try to raise tariffs using other authorities. The potential outcomes just got much more uncertain in both directions — lower or higher tariffs.”
The administration may have alternate pathways to imposing its tariffs and avoid legal scrutiny. That could include using Section 232 of the Trade Expansion Act, which was unaffected by the court’s ruling. Trump has levied 25% tariffs on steel, aluminum, autos and auto parts using Section 232 authority.
“It’s not over,” said Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics. “You give a kind of Whac-a-Mole flavor to this whole story.”
