Tariffs, and Trump’s entire economic agenda, were just thrown into chaos: analysis

U.S. President Donald Trump is seen Wednesday, May 28, 2025, in the Oval Office of the White House in Washington. (AP Photo/Evan Vucci)

A U.S. federal court’s ruling late 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 U.S. Court of International Trade blocked Trump’s global tariffs, which he imposed citing emergency economic powers. Those trade actions include the “Liberation Day” tariffs, 10 per cent 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. The court, in its ruling, noted Trump has alternate, if imperfect, tools at his disposal to impose tariffs — tools that multiple White House officials told CNN they are considering and that economists widely expect the administration to make use of in the coming days. The Trump administration has appealed and plans to take the case all the way to the Supreme Court if need be, even as it hopes for an emergency stay, the officials said.

There is no sense that the court ruling will lead the administration to change course. Between appeals and alternatives, Trump will probably double-down on his trade efforts, according to allies inside and outside the White House. “The courts are a pretty obvious foil across the board and we haven’t backed down on anything else so far,” one official said.

But the historically massive scope of Trump’s tariff policy was nevertheless thrown into doubt by the court’s ruling. And uncertainty surrounding the tariffs, Trump’s whole economic policy plan could come crashing down.

Trump’s tariffs have persuaded dozens of U.S. trading partners to come to the table to make deals. In theory, those trade deals could open up foreign markets to more U.S. goods, benefitting U.S. manufacturers and farmers.

White House officials expressed significant concern about what the ruling means for the administration’s ongoing bilateral talks, including two agreements that two senior White House advisers said were close to being announced as soon as this week. Officials started making calls to counterparts Wednesday night to emphasize that, in their minds, nothing had changed and that process and urgency should be maintained.

But trading partners may want to hang back to assess the situation before resuming negotiations.

“It’s clear they don’t want to lose any momentum, but it’s not exactly obvious why everyone wouldn’t take a beat to figure out what this all means,” one diplomat involved in his country’s talks told CNN.

One former senior administration was blunter about the impact of the decision.

“This blows a hole in their entire strategy at the absolute worst time,” the former official told CNN.

Tariff revenue is key to Trump’s plan

Revenue from Trump’s tariffs, meanwhile, could, at least in part, help pay for Trump’s and congressional Republicans’ massively expensive tax cuts, which could boost economic growth and add certainty for financial 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 US$4 trillion price tag — 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.

“Let’s not forget that one justification behind current trade tensions was not only the U.S. trade balance deficit but also the search for additional government revenues,” said Inga Fechner, senior economist at ING, in a note to clients. “The lack of which would further fuel the current debt (un-)sustainability debate.”

Alternate strategies

There are more questions than answers at this point.

“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.

White House National Economic Council Director Kevin Hassett said Wednesday on Fox Business News that the administration is so confident it will win the appeal that it is not pursuing alternative measures for now. But if need be, “there are three or four other ways to do it,” he said.

“There are different approaches that would take a couple of months to put these in place and using procedures that have been approved in the past,” he added.

The administration’s alternate pathways to imposing its tariffs and avoid legal scrutiny could include using Section 232 of the Trade Expansion Act, which was unaffected by the court’s ruling. Trump has levied 25 per cent tariffs on steel, aluminum, autos and auto parts using Section 232 authority. Trump has also threatened lumber, pharmaceutical and semiconductor tariffs under Section 232.

Among the other options for the Trump administration are imposing tariffs under Sections 122 and 301 of the Trade Expansion Act, policies that are far more limited than the emergency powers Trump claimed — illegally, according to Wednesday’s court ruling — gave him the ability to impose sweeping tariffs on almost every good imported to the United States.

Trump could somewhat easily replace his 10 per cent universal tariff with something similar under his Section 122 authority, according to Goldman Sachs Managing Director Alec Phillips. Those tariffs require no investigations, so they could be imposed fairly quickly. However, they can be implemented for a maximum of 150 days.

Section 301 allows the president to conduct investigations on trading partners and impose tariffs at the conclusion of the probe. But Phillips notes that could take some time to implement.

“Regardless of the outcome, the ruling is likely to shift the focus toward tariffs imposed under other trade laws and acts, such as Section 232 and Section 301,” Fechner said. “These statutes require more extensive investigations but ultimately still allow the president to act unilaterally.”

More uncertainty

Even as the administration scrambles to adjust its trade policy and as its 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 sparse, 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 U.K. 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.”

As this administration has proven, the only consistency in its trade policy is the president’s ability to keep America’s trading partners on their toes.

“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.”

Analysis by David Goldman, Phil Mattingly and Matt Egan, CNN