Three very important tariff-related stories loom over the US economy this month.
The first is that, after a few weeks of relative quiet, President Donald Trump is once again threatening to raise tariffs on a whole raft of other nations. According to the New York Times, “Trump has threatened 25 trading partners with punishing levies on Aug. 1,” including major importers to the United States such as Mexico, Japan, and the European Union.
During Trump’s brief time back in office, he raised the average effective tariff rate — the average of what all countries must pay to import goods into the US — from 2.5 percent to 16.6 percent, increasing US tariffs nearly sevenfold. If Trump’s new tariffs take effect — an uncertain proposition, because Trump’s trade policy has been so erratic — the average tariff rate will rise to 20.6 percent. That’s the highest rate since 1910.
The second story is that, after a brief period when the stock market and the broader US economy seemed to stabilize, inflation rose in June from 2.4 percent to 2.7 percent. Beforehand, US inflation had declined fairly steadily since 2022, when it spiked due to the aftereffects of the Covid-19 pandemic. Products that are particularly exposed to the tariffs, such as furniture and appliances, saw the highest price hikes in June.
The delay between Trump’s decision to impose high import taxes in the spring, and the onset of induced inflation in June, was widely predicted. After Trump’s election, many US companies went on a buying spree, overstocking their inventories with foreign goods in anticipation of Trump’s trade war. But those expanded inventories are now starting to run out, and inflation is expected to keep rising.
Both of these stories, moreover, are hitting at a terrible time for Trump — at least if he wants his trade war to continue. On July 31, one day before the new round of tariffs are supposed to take effect, a federal appeals court will hear oral arguments on whether Trump’s tariffs are illegal and should be struck down. The judges of the United States Court of Appeals for the Federal Circuit, in other words, will hear these arguments while they are surrounded with headlines about an escalating trade war and the harm it is imposing on the US economy.
The plaintiffs’ legal arguments in this case, known as V.O.S. Selections v. Trump, are quite strong. So strong, in fact, that a bipartisan panel of three judges struck down the tariffs in May — that decision is currently on hold while the Federal Circuit considers the case.
The Federal Circuit’s hearing is largely an exhibition game before this case reaches the Supreme Court. Ultimately, the fate of the tariffs will almost certainly be decided by the justices, with their Republican supermajority that has thus far shown extraordinary loyalty to Trump. But that doesn’t mean that the Federal Circuit’s decision is irrelevant.
At the very least, the Federal Circuit is likely to determine just how fast the justices will need to weigh in on V.O.S. Selections, and whether the Supreme Court can make this case disappear without having to produce an opinion explaining why.
If the Federal Circuit upholds the tariffs, the Supreme Court could potentially end any legal threats to Trump’s trade war by simply refusing to hear V.O.S. Selections. Conversely, if the Federal Circuit issues a broad injunction blocking the tariffs, the justices will need to decide very quickly whether to halt that injunction or the tariffs will go away, at least temporarily.
The legal arguments against Trump’s tariffs, explained
Trump relied on a federal law known as the International Emergency Economic Powers Act of 1977 (IEEPA) when he imposed the tariffs that are now before the Federal Circuit. These tariffs include a broad range of import taxes that Trump claims are necessary to combat trade deficits — meaning that Americans buy more goods from many countries than they sell. They also include additional tariffs targeting Canada, Mexico, and China, which Trump claims will somehow help prevent illegal activity such as fentanyl trafficking.
The IEEPA permits the president to “regulate…transactions involving, any property in which any foreign country or a national thereof has any interest,” but this power “may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared.”
The plaintiffs challenging these tariffs raise several statutory arguments. Among other things, they argue that a statute giving Trump the power to “regulate” trade does not permit him to impose import taxes. They claim that the Canada, Mexico, and China tariffs don’t actually do anything to “deal with” fentanyl. And they argue that trade deficits, which have “been a consistent feature of the U.S. economy since the mid-1970s” are common and ordinary – not “unusual and extraordinary” as the IEEPA requires.
All of these are plausible statutory arguments — the last argument is particularly strong — and the plaintiffs’ case against these tariffs should be a slam dunk under something known as the “major questions doctrine.” This doctrine, which was recently invented by the Supreme Court’s Republican majority, requires Congress to “speak clearly” before it can give the executive branch the power to make decisions of “vast ‘economic and political significance.’”
According to the Budget Lab at Yale, Trump’s tariffs will cost Americans “the equivalent of an average per household income loss of $2,800 in 2025,” and they will reduce employment by 641,000 jobs. So they are clearly a matter of great economic and political significance. Under the major questions doctrine, that means that any uncertainty about how to read the IEEPA must be resolved against Trump.
The strongest argument for the tariffs, meanwhile, is not legal but political. Republicans control six of the nine seats on the Supreme Court, and the major questions doctrine is brand new — it has never been used against any president who isn’t named “Joe Biden.” So it is far from clear whether the Republican justices, who held last year that Trump is allowed to use the powers of the presidency to commit crimes, will actually apply this new constraint on executive power to a president of their party.
(Trump’s lawyers, for what it is worth, do make legal arguments against applying the major questions doctrine in V.O.S. Selections. Their primary argument is that the doctrine doesn’t apply to policy decisions made directly by the president himself, an argument that at least three federal appeals courts have previously rejected.)
The Federal Circuit, however, is a highly specialized court that primarily deals with patent law. Patents aren’t a particularly polarizing topic — or, at least, they aren’t a topic that tends to divide Democrats from Republicans — so Federal Circuit judges tend to be more technocratic than the highly vetted political operatives who are typically appointed to the Supreme Court. For this reason, partisan politics are likely to play less of a role in the Federal Circuit’s deliberations over V.O.S. Selections than they will when this case reaches the justices.
There are also many prominent voices within the Republican Party that oppose the tariffs. The lead attorney representing many of the plaintiffs is Michael McConnell, a prominent conservative legal scholar who spent seven years as a federal appellate judge after he was appointed by President George W. Bush. At a recent conference hosted by the Federalist Society, a highly influential bar association for right-wing lawyers, several speakers criticized the tariffs.
So, even in a Supreme Court that is typically in the tank for Donald Trump, there is a very real chance that these tariffs could fall.
The Federal Circuit is likely to determine when the justices have to decide this case
Realistically, the Federal Circuit is unlikely to have the final word on the tariffs. If the appeals court blocks the tariffs, Trump’s lawyers will race to the Supreme Court seeking a stay of that decision. That said, the Federal Circuit’s decision is likely to decide how quickly the justices must take up this case, and whether they need to explain their ultimate decision to support or oppose the tariffs.
Broadly speaking, the Federal Circuit could decide this case in one of three ways:
First, the appeals court could strike down the tariffs and issue an injunction prohibiting the Trump administration from enforcing them. If that happens, Trump will ask the Supreme Court to block that injunction on its “shadow docket,” a mix of emergency motions and other matters that the justices decide on an expedited basis.
In this scenario, we are likely to know whether the justices support the tariffs or not within a few weeks of the Federal Circuit’s decision.
At the other end of the spectrum, the Federal Circuit might uphold the tariffs. If that happens, the plaintiffs will ask the Supreme Court to review the case on its merits docket, but that process can take more than a year to resolve. And the Court may refuse to hear the case, which would mean that the tariffs will remain in effect and the justices will likely never have to explain why they sided with Trump.
A third option is that the Federal Circuit could rule against the tariffs, but not issue an immediate injunction blocking them. If that happens, the Supreme Court is still likely to take up the case, but it will do so on its merits docket rather than on the fast-moving shadow docket. We will likely have to wait months or longer before the justices show their cards — and the tariffs will likely remain in place during that entire wait.
So, while the July 31 hearing is unlikely to reveal whether the tariffs will survive or not, it is still a significant milestone in this case. At the very least, the Federal Circuit’s decision is likely to decide whether the justices can quietly make this challenge to the tariffs go away without having to explain themselves.
