President Donald Trump’s latest legal setback on tariffs increases uncertainty for American importers while delaying the economic dividends Commerce Secretary Howard Lutnick predicted the administration would generate.
The U.S. appeals court ruling late on August 29, saying that most of Trump’s tariffs are illegal, add a layer of complexity while questioning the president’s authority to impose taxes on companies to incentivize them to produce or source what they need at home.
The judges let the levies stay in place while the case proceeds, threatening to freeze corporate investment decisions until the cost of tariffs are clearer.
“We know that these tariffs are staying in place until mid-October at least, and then Trump is likely to take them to the Supreme Court,” Jennifer McKeown, chief global economist with Capital Economics, said on Bloomberg Television on September 1. “So there could be a very long delay still before we actually know what’s happening.”
Such timing poses not just growth headwinds but also possible political challenges for Trump, who has favored speed over substance in trade deal-making and promised that the investment pledges he extracts in negotiations will lead to a manufacturing renaissance. Financial markets in Asia and Europe on September 1 appeared to shrug off the ruling while trading in the U.S. was closed for the Labor Day holiday.
“For any company doing business with the U.S., this means that no structural corporate decisions will be made now,” said Carsten Brzeski, ING’s global head of macro. “While markets seem to have grown numb to everything related to trade, the court ruling will bring back uncertainty.”
Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, said in a statement after the ruling that “the ongoing instability threatens economic growth and will ultimately, and most certainly, result in higher prices for goods and services to be paid by American consumers.”
‘Power’ Economy
In March, Lutnick laid out a scenario under which Trump’s trade policies would translate into investments that would spur construction beginning around now.
“Starting in the third quarter, you start to feel some Donald Trump and the fourth quarter you will feel the power of Donald Trump’s economy,” he told Bloomberg Television.
That initial sense of confidence has diminished as the tariff rollout turned out rockier than expected, and trade deals with economies such as the European Union, Japan and South Korea were vague, unenforceable frameworks rather than comprehensive accords that offer predictability.
In the meantime, the U.S. economy has yet to exude the vigor Lutnick described almost six months ago.
An Institute for Supply Management report due September 2 is expected to show U.S. manufacturing has been in retrenchment for six straight months. A report September 5 will probably show employers reluctant to take on workers during August, and the unemployment rate probably ticked up to an almost four-year high.
Simon Evenett, a professor of geopolitics and strategy with IMD Business School, said some firms have decided to produce more in the U.S. But for those stuck in wait-and-see mode, the case is likely to “push approvals to the third quarter of 2026,” he added.
A U.S. economy that limps into next year could undercut Republicans’ arguments that protectionism is working, as well as jeopardize the party’s chances in midterm congressional elections in November 2026.
Sluggish growth could also exacerbate the nation’s budget challenges that Trump said his tariffs would help fix. Among the upsides of the levies so far has been the windfall of revenue pouring into the Treasury via payments by importers.
According to the Committee for a Responsible Federal Budget, a Supreme Court decision that upholds the lower-court ruling means that 71% of the projected revenue impact from Trump tariff policies rolled out this year “would vanish.”
“Based on our previous estimates, such a ruling would mean the revenue impact would fall from $2.8 trillion down to just $800 billion on a conventional basis through fiscal year 2034,” according to CRFB, a centrist fiscal watchdog group.
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