Original Title: (The US Supreme Court's tariff ruling is imminent, Trump frequently warns, does he sense he will lose?)

Original Author: Long Yue, Wall Street Watch

The fate of the Trump administration's signature tariff policy hangs on a critical ruling by the US Supreme Court. Although senior officials in the US government are trying to downplay the potential legal defeat, President Trump’s increasingly anxious remarks, combined with widespread predictions from the market and analysts, point to a clearer possibility: the government may lose this lawsuit, and the subsequent remedial measures are far more complicated than officials have depicted.

The ruling expected to be announced in January next year centers on determining whether the government has the authority to impose broadly based 'reciprocal tariffs' under the International Emergency Economic Powers Act (IEEPA). Recently, Trump has made fierce statements on social media, claiming that 'evil, America-hating forces are fighting us in the Supreme Court,' and urging the justices to 'do the right thing for America.' This rare expression is interpreted by the market as a deep concern about the possibility of his policies being overturned.

On November 6 of this year, Trump also told reporters that if he loses this lawsuit in the Supreme Court, it would be a 'devastating blow to our country.' Trump said if that were the case, 'we would have to come up with a second plan.'

In contrast to Trump's anxiety, cabinet members have shown a posture of 'confidence.' Treasury Secretary Bacente warned on Tuesday, December 16, that overturning tariffs would 'harm national security,' as 'economic security is national security.' However, he also stated that the government has 'many other ways to increase fiscal revenue.'

The risk of losing is approaching: an anxious president and a 'calm' cabinet.

Currently, the market does not have high confidence in the Trump administration winning the tariff lawsuit. According to a report released by Goldman Sachs on December 16, based on questions posed by the justices during the oral arguments in November, the Supreme Court is 'very likely' to rule that most of the tariffs imposed by the government this year are illegal early next year. This view is also reflected in the general expectations of the prediction markets.

The two core cases currently being heard by the Supreme Court are (Learning Resources Inc. v. Trump) and (V.O.S. Selections Inc. v. Trump), which challenge the core issue of whether the president has overstepped constitutional boundaries by using IEEPA to exercise the exclusive congressional power of taxation.

Faced with looming risks of losing, the public statements within the White House show a clear temperature difference. Trump's remarks are full of urgency, while officials represented by Treasury Secretary Bacente are trying to convey a message that even in the worst-case scenario, the government still has backup plans.

Bacente emphasized national security while also acknowledging alternative options, suggesting the government is preparing for a possible loss. However, this public calm stance sharply contrasts with his claims in court documents that overturning tariffs would trigger a 'fiscal disaster.'

Plan B is not easy: alternatives face numerous legal hurdles

Although government officials claim they can easily pivot to other trade regulations to rebuild the tariff system, legal experts and analysts point out that this path is fraught with thorns. According to Politico, any alternative will face new legal and political obstacles, and the process is far from smooth.

The two main legal tools the government may resort to have significant limitations:

(Trade Act of 1974) Section 122: This provision authorizes the president to impose tariffs of up to 15% to address a 'serious international balance of payments deficit.' This could temporarily replace the current 10% baseline tariff, but the problem is: first, the tariff must be 'non-discriminatory,' which contradicts the Trump administration's practice of making exemption deals with specific countries; second, it is only effective for 150 days unless extended by Congress, which is nearly impossible in the current political environment.

(Tariff Act of 1930) Section 338: This provision allows the president to impose tariffs of up to 50% on countries that discriminate against U.S. trade. However, this statute has never been used since its enactment, and its legal issues have not been tested in court. A key controversy is whether the president must first conduct an investigation by the U.S. International Trade Commission (ITC) before taking action. If an investigation is required, it would take a significant amount of time, preventing immediate tariff alternatives.

Law professor Timothy Meyer told Politico that while the U.S. International Trade Court generally respects the executive branch when interpreting tariff laws, every step to activate these alternatives could trigger new lawsuits.

Goldman Sachs predicts: Tariff rates may decline, and the road to refunds in the hundreds of billions will be long.

For investors, the most direct impact is the change in tariff costs. Goldman Sachs's report predicts that if the IEEPA tariffs are overturned, the risk will 'lean toward lower tariff rates.'

Analyst Alec Phillips pointed out that even if the government turns to Section 122 as a temporary measure, its 15% tax rate cap means that the higher tariffs currently imposed on certain trading partners (like India, with rates as high as 50%) would need to be reduced. Furthermore, imposing higher tariffs on specific countries under Section 301 requires a time-consuming and complex investigation, making it impractical to investigate all trading partners.

Goldman Sachs expects that by the end of 2026, the effective tariff rate in the U.S. will decrease by about 2 percentage points from the current level.

Moreover, a loss would also trigger massive tariff refund issues. Goldman Sachs estimates that the government has collected about $130 billion in tariffs through IEEPA, and is still increasing at a rate of about $20 billion per month. Companies like Costco have filed lawsuits to ensure they receive refunds. However, the refund process could be very lengthy, requiring subsequent legal action. According to Politico, the government is accelerating the deposit of tariff revenue into the U.S. Treasury, seen as an attempt to increase the difficulty for companies to obtain refunds.

A dual test of political and diplomatic credibility.

A legal defeat would bring serious political and diplomatic consequences for the Trump administration.

On the diplomatic front, many 'trade agreements' reached under the threat of IEEPA tariffs are not legally binding. Once the tariff foundation is shaken, foreign governments may demand renegotiation, retracting previous concessions, which will test the government's negotiation capabilities and credibility.

Domestically, the credibility of high-ranking government officials will be undermined. Several officials, including Bacente, have claimed in court documents that overturning tariffs would lead the U.S. into 'domestic and international turmoil.' If such scenarios do not occur after a loss, they will face accusations of misleading the court and the public. At the same time, this will put Republican lawmakers in an awkward position before the 2026 midterm elections, forcing them to make a tough choice between supporting a tariff policy that polls show is extremely unpopular (with about two-thirds of Americans opposed) and alienating Trump.

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