WASHINGTON (AN) — In a constitutional showdown over the power to tax, the U.S. Supreme Court considered a landmark legal challenge to the executive branch's authority to levy sweeping tariffs.
The outcome of the court's hearing on the arguments in the case on Wednesday could test the stability of the global trading system and compound the institutional crisis at the World Trade Organization, primarily concerning the U.S.'s adherence to international trade law principles and the stability of global trade relations.
The core legal question is whether U.S. President Donald Trump exceeded his authority under the International Emergency Economic Powers Act of 1977 to impose tariffs without specific congressional approval. A ruling that limits presidential power could make the U.S. more predictable in its trade policy, potentially strengthening the role of Congress in trade matters and aligning U.S. actions more closely with the shared governance principles that underpin the multilateral trading system.
WTO member countries are watching the case closely. If the Supreme Court invalidates the tariffs, it could affirm the importance of a transparent, rules-based system, which is a key tenet of WTO. Conversely, a ruling that broadly upholds the president's actions could signal a greater willingness for the U.S. to use unilateral "emergency" measures, a practice that other WTO members have challenged through the dispute settlement process as inconsistent with U.S. obligations.
While U.S. domestic law generally prevails over conflicting WTO agreements within the U.S. legal system, the Supreme Court's decision on the legality of these specific tariffs influences the U.S.'s internal application of trade laws. That could affect the U.S. stance and arguments in future WTO dispute settlement cases where its tariff measures are challenged.
The case also has created significant uncertainty in global markets and for trade partners. A definitive ruling, one way or the other, could either stabilize the current trade environment or throw existing trade deals into question, affecting the predictability the WTO system aims to provide.
The initial tariffs prompted a wave of actual and threatened retaliatory tariffs from other countries, including China, Canada, and the European Union, some of which resulted in their own WTO complaints. The Supreme Court's decision could influence the status of these existing or potential retaliatory measures.
'The core power of Congress'
The case scrutinizes the administration’s unprecedented reliance on IEEPA to levy sweeping duties on nearly half of all imported goods. During oral arguments, conservative justices expressed deep skepticism over the Trump administration’s claim that IEEPA, a law traditionally reserved for sanctions, grants the president the power to impose taxes, which the U.S. Constitution explicitly reserves for Congress.
Chief Justice John Roberts asked why U.S. President Donald Trump believed he had the authority to impose tariffs under IEEPA, a law that has never been used for that purpose since it was enacted almost half a century ago.
Tariffs amount to taxation which has "always been the core power of Congress," Roberts said. "To have the president's foreign affairs power trump that basic power for Congress seems to me to kind of neutralize between the two powers, the executive power and the legislative power."
Associate Justice Neil Gorsuch, in particular, worried about granting "limitless power" to the executive branch and invoked the "major questions doctrine," which requires Congress to clearly delegate authority on issues of vast economic significance.
Neal Katyal, the lawyer representing the challengers during the court's more than two and a half hours of questioning, concisely framed the legal distinction at the heart of the case: "Embargoes stop the shipment, tariffs start the tax bill."
Trump and other administration officials have repeatedly boasted about the revenue raised by the tariffs. However, Solicitor General D. John Sauer, arguing for the Trump administration, insisted they are "regulatory tariffs, they are not revenue-raising tariffs. The fact that they raise revenue is only incidental. The tariffs would be most effective, so to speak, if no person ever paid them."
Among the liberal justices raising doubts about the administration's arguments, Associate Justice Sonia Sotomayor said she could not grasp the logic. "It’s a congressional power, not a presidential power, to tax," she said. "And you want to say tariffs are not taxes, but that’s exactly what they are."
The high-stakes legal battle puts the immediate future of tariffs covering more than 29% of all U.S. imports, valued at over $300 billion in goods, at risk. To date, these specific import taxes, justified under the emergency law, have generated nearly $89 billion in revenue for the U.S. Treasury.
'Unprecedented' policy uncertainty
The average U.S. tariff rate has soared to 20.1% following the latest duties which took effect around Aug. 7. That massive leap, which makes the average rate the highest since the early 1910s and far exceeds the 2.4% rate at the president's inauguration, fundamentally undermines the core most-favored-nation principle of WTO, which mandates equal trade treatment among member nations.
The resulting escalating trade war has forced WTO to sharply downgrade its global economic forecast. The organization recently forecast that global goods trade growth will slow sharply to just 0.5% in 2026, down significantly from an earlier estimate of 1.8%.
WTO Director-General Ngozi Okonjo-Iweala attributed the temporary resilience of trade volume this year to companies "frontloading imports" ahead of the new duties, a positive effect expected to fade into 2026.
She specifically warned that the "unprecedented" policy uncertainty linked to the unilateral tariff measures is now slowing future growth, although she noted the global system remains partially stable because the "rest of the world is trading with itself" due to restrained retaliatory responses from WTO nations.
The institutional crisis at WTO, a global organization in Geneva independent of the U.N. system, is further compounded by the ongoing paralysis of its appellate body, which has been non-operational since 2019 due to the U.S. blocking new appointments.
That deliberate action effectively removes the possibility of globally enforceable dispute resolution, allowing nations to flout trade rules without direct penalty. Experts concerned about WTO falling into irrelevance have been urging non-litigious, collective action.
A key proposal being advanced is the immediate convening of a trade policy review to ensure complete transparency of all new tariffs, retaliatory measures, and bilateral deals across the system.
The uncertainty of the Supreme Court ruling, which is expected by mid-2026, also casts a deep shadow over global supply chains. The impact is highly inconsistent across partners: while the E.U. saw its tariff exposure jump to roughly 60% of exports, the successful legal challenge of IEEPA would largely eliminate these specific duties.
Conversely, China continues to face a prohibitive effective trade-weighted rate of over 40% from both pre-existing tariffs and the new duties. Meanwhile, partners in specific trade agreements, such as Mexico and Canada, have largely side-stepped the new duties due to the insulating effect of the U.S.-Mexico-Canada Agreement.
