The upcoming judicial battles could significantly impact investors, as potential suspension or disruption of the current tariff policy, and the resulting legal uncertainty affecting the administration’s leverage, could further impact market conditions.

IEEPA in Action

The administration has thus far relied on the International Emergency Economic Powers Act (IEEPA) to implement the president’s tariff policies. Unlike other tariff statutes, the IEEPA allows Trump, after identifying a national emergency, to bypass time-consuming and procedural hurdles normally required before adopting new tariff policies. In this case, Trump claims that trade imbalances and risk to supply chains constitute a national emergency.

Under the IEEPA, a national emergency is “any unusual and extraordinary threat to the national security, foreign policy, or economy of the US” that emerges substantially from outside the country. Upcoming legal challenges will test the president’s declaration that longstanding trade imbalances qualify as a national emergency, but federal judges may not have the stomach to jump down that rabbit hole.

While such matters may be litigated, they’re unlikely to succeed as a line of attack. Federal courts are generally reluctant to scrutinize the details and basis of a president’s national-security and foreign-policy judgment. These are considered political and policy decisions outside the judiciary’s expertise.

However, the use, scope, and duration of the tariffs are fair game. The word “tariff” doesn’t appear in the IEEPA and the Trump administration is relying on general language that allows the regulation of imports as one of the tools to address the declared national emergency. At the same time, Congress has passed laws specifically addressing tariff authority, including the Trade Expansion Act of 1962 and Trade Act of 1974. The IEEPA was passed in 1977 and has never been used to impose tariffs on imported products.

Presidential Precedent

So, can the president impose tariffs under the IEEPA? About 50 years ago, President Richard Nixon imposed import duties under the Trading with the Enemy Act—the predecessor to the current IEEPA. A federal appeals court upheld Nixon’s tariff authority but noted such power is limited and must be reasonably tailored to the declared national emergency. This precedent suggests that a tariff could be a legitimate means of regulating imports in response to the declared emergency.

Nevertheless, the IEEPA was among several laws enacted to address worries that the White House had acquired excessive power over trade and tariff regulations. The National Emergencies Act of 1976 and the IEEPA of 1977 were enacted to curb presidential power—not expand it. Congress, not the president, has the explicit constitutional tariff and taxing power. The president can only act through delegated powers granted by Congress.

Contingency Plans

The mere filing of credible lawsuits could have meaningful political effects. If judicial uncertainty over the viability of the new tariff policy becomes an issue, foreign governments may drag their feet in resolving trade issues with the Trump administration. A judicial defeat for the administration’s reliance on the IEEPA would diminish the president’s bargaining power, and that could have serious ramifications for Trump working his art of the deal. The administration would likely appeal any court setbacks and consider relying on other statutory provisions for tariff policies, but the timing and trajectory of the current policy would likely be adjusted.

Typically, cases that the Supreme Court (SCOTUS) agrees to review in the spring are scheduled for hearings in the term that begins in October. However, due to the significant impact of the president’s tariff policy, these cases might be expedited and heard sooner. It wouldn’t be surprising if multiple cases land in courts before Memorial Day, with Supreme Court appeals potentially moving forward by early summer. SCOTUS would probably call for expedited briefing, but given the political fluidity and policy volatility of the situation, the timing for resolution is highly speculative.

Reconciliation Reckoning

Growing concerns about Trump’s far-reaching tariffs are colliding at a critical juncture to advance his broader agenda, particularly in the closely divided House. With Trump’s backing, Speaker of the House Mike Johnson (R-LA) overcame a major hurdle to advance the Senate-amended budget-reconciliation resolution, narrowly securing a 216-214 victory in the House. Johnson and Trump once again managed to drag 15-20 reluctant conservatives over the finish line, despite their opposition to the Senate approach.

The reasoning behind the opposition to the Senate version is reflected in Budget Chairman Jodey Arrington’s (R-TX) observation that the Senate response was disappointing, “creating $5.8 trillion in new costs and a mere $4 billion in enforceable cuts.” Arrington also suggested that the Senate version sets a dangerous precedent by “direct scoring tax policy without including enforceable offsets.”²

Rather than working out an agreement with the House on reconciliation, the Senate, under Majority Leader John Thune (R-SD), left the House’s instructions to its committees intact and then inserted their own, very different instructions. Thus, the Senate’s budget resolution calls for Senate committees to come up with a minimum of $4 billion in spending cuts, while House committees have instructions for at least $1.5 trillion in cuts.

The direct scoring that Arrington referred to is the Senate’s use of a current policy baseline, which assumes no cost for extending about $3.8-4 trillion in tax provisions from the 2017 Tax Cuts and Jobs Act that are set to expire at the end of this year. The Senate resolution then provides for at least $1.5 trillion more in tax cuts. The House, on the other hand, uses the conventional baseline based on current law and provides instructions for $4.5 trillion in tax breaks. Another major difference is that the Senate instructs the Finance Committee to increase the debt limit by $5 trillion, while the House Ways and Means Committee is instructed to provide a $4 trillion increase.

House and Senate Republican leaders have decided to move forward with this approach to a budget resolution, intending to resolve differences between the two chambers later. They aim to craft one of the most challenging pieces of legislation ever, encompassing significant tax cuts, substantial spending cuts, and a possible debt-limit increase, along with defense, energy, and immigration policy. The challenge is considerable, as members from all walks of the Republican Conference have voiced concern over the House-Senate compromise budget resolution. The tension between House and Senate Republicans only adds to the uncertainty, underscoring the high stakes of this legislative effort and the delicate balance of trust that Johnson, Thune, and Trump are asking from Capitol Hill Republicans.

The Road Ahead

Republicans in the House and Senate have been united in supporting the Trump agenda for the past 80 days. However, resistance to Trump’s trade authority is emerging on Capitol Hill. Democrats, along with some Republicans, are seeking to slow down Trump’s encroachment through legislation that curbs or limits his tariff orders. We don’t give this effort much chance of passage, but we’ll continue to watch this space as unease grows over the current tariff strategy among the Republican rank-and-file.

While the world waits and recalibrates to Trump’s approach to trade, pressure is mounting on Capitol Hill to move Trump’s domestic agenda forward and provide more clarity on the timing, size, and scope of tax cuts as well as budget cuts and action on the debt ceiling. Thune and Johnson continue to successfully steer the Senate and House through the arduous budget-reconciliation process and are keeping to the schedule they laid out earlier this year. Despite this, they’re leaving the most difficult discussions and decisions for May and June, which means we may be well into the summer before we see a final vote on a reconciliation bill.