If you believe President Trump, the US economy is on the verge of collapse. That’s because a federal appeals court invalidated most of Trump’s import tariffs on Aug. 29, an outcome Trump said would be disastrous.
“There is no substitute for the tariffs and deals that President Trump has made,” the Trump administration said in an Aug. 11 filing with the appeals court. “If the United States were forced to unwind these historic agreements, the president believes that a forced dissolution to these agreements could lead to a 1929-style result. In such a scenario, people would be forced from their homes, millions of jobs would be eliminated [and] hard-working Americans would lose their savings. The economic consequences would be ruinous.”
The court did rescind the tariffs, saying that Trump’s use of a 1977 law to impose tariffs due to a national “emergency” is invalid. The ruling could very well lead to the unwinding of agreements involving hundreds of billions of dollars’ worth of import taxes, as Trump warns. Yet stocks remain close to record highs, and economists expect solid job numbers in the next employment report.
Almost nobody is predicting a recession, let alone a 1929-style depression.
Trump obviously uses hyperbole to justify controversial policies such as tariffs and to argue against the courts or anybody else trying to overturn them. That’s why nobody takes his warning of an economic depression seriously. But the legal setback is clearly an adverse outcome for Trump himself, and his vehement defense of the need for tariffs shows that Trump will continue his quest to micromanage trade and other key elements of the economy.
What President Trump sees coming: A Salvation Army soup kitchen in 1934. (Staff/Mirrorpix/Getty Images) ·Mirrorpix via Getty Images
For one thing, Trump is far from beaten. The appeals court invalidated most of the tariffs Trump has imposed this year, accounting for nearly 80% of the new tariff revenue flowing to the government. But the court also left them in place until Oct. 14, anticipating that the Supreme Court would take up one final appeal.
The Supreme Court could do a number of things. It could decline to take the case, letting the appeals ruling stand. It could take the case on a fast-track basis and rule quickly. It could also take the case as a routine part of its docket and leave the tariffs in place until it issues a ruling, which might not be until next summer.
“If the Supreme Court agrees to review the case, this could leave the tariffs in place until as late as June 2026,” Goldman Sachs explained in a Sept. 1 analysis.
Trump’s lawyers will doubtless continue to press the case that undoing his emergency tariffs will be economically ruinous. That’s silly on its face, given that the economy was doing fine before Trump imposed any tariffs. Going back to the status quo ante can hardly be disastrous.
But there will be a cost to undoing the tariffs, and the longer those tariffs are in place, the higher the cost will be. That’s because the government will have to refund all the money it has collected on Trump’s emergency tariffs, which would be unprecedented. Investing firm Raymond James warned in a Sept. 1 research note that coming up with that refund money all at once could force the government to flood the market with Treasury securities, pushing up interest rates and stressing financial markets in other untested ways.
Trump also seems certain to exploit every other means of imposing tariffs, which means some tariffs will remain in effect regardless. A small portion of the tariffs he has imposed this year have been “sectoral” tariffs on specific products, such as steel, aluminum, cars, and car parts. Those aren’t affected by the recent court ruling. All told, there are at least five laws Trump can invoke to justify tariffs that are unrelated to the emergency basis now deemed illegal.
Imposing tariffs based on those other laws is more complicated and takes longer. The other types of tariffs can also face legal challenges. But Trump’s determination to rewire trade via tariffs suggests he will use every tool he can, which could prolong the experimentation phase of his trade war and keep businesses guessing for months — or years — on what the end state is likely to look like.
In the Atlantic, David Frum argues that “creating a huge mess is a consistent Trump method.” As he has done with deportations, National Guard deployments, federal firings, agency defundings, and other issues, Trump frequently acts at the extreme limits of presidential power, then argues after the fact that chaos will erupt if anybody overturns his actions.
He’s using the same playbook with his emergency tariffs, claiming that once the government has begun collecting billions of dollars in additional import taxes, stopping that flow of revenue would be too damaging to risk it.
The far bigger risk is that Trump retains the ability to levy taxes on businesses and consumers for any reason he chooses. Trump’s own worry about losing that power tells us how much he values wielding it.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
