Majority ruled six to three to dismantle core Trump policy
The U.S. Supreme Court has struck down President Donald Trump’s sweeping “Liberation Day” global tariffs, abruptly dismantling a core pillar of his second-term economic strategy.
The decision centered on whether the administration could use the International Emergency Economic Powers Act (IEEPA) to impose across-the-board tariffs of at least 10 per cent - and up to 50 per cent - for some countries on imports from nearly all major trading partners. Lower courts had previously ruled that IEEPA did not authorize such broad, revenue-oriented duties and that the approach raised serious concerns.
The law that underpins those import duties “does not authorize the President to impose tariffs,” the majority ruled, according to CNBC.
Chief Justice John Roberts said Trump "asserts the extraordinary power to unilaterally impose tariffs of unlimited amount, duration and scope," but that "in light of the breadth, history, and constitutional context of that asserted authority, he must identify clear congressional authorization to exercise it."
This ruling forces an abrupt reset of US trade policy and removes - at least temporarily - hundreds of billions of dollars in expected tariff revenue that had been partially earmarked to offset tax cuts and fund Trump’s proposed “tariff dividend” for households.
The decision also marks a dramatic twist in a US-Canada trade war that began shortly after Trump took office last January and that has plunged the Canadian economy into crisis.
Trump's move to impose levies on Canadian imports sparked fears of mass layoffs and a sharp economic downturn north of the border.
Sources familiar with the matter report Trump called Friday's ruling "a disgrace", according to Reuters.
However, the ruling does not impact the legality of tariffs targeting specific industries under Section 232 of the Trade Expansion Act, which have affected multiple Canadian sectors like automotive and steel.
The ruling notably comes after US tariff rates were a key factor impacting institutional investors this year, according to a new report by WTW.
For long-term allocators, a short-term relief rally in equities - especially in tariff-sensitive sectors like industrials and consumer goods - could follow a ruling against the tariffs. However, the full effects of tariffs have not yet shown up because fluctuations in tariff levels have complicated firms' pricing and investment decisions, while adding a risk premium to US assets.
Market reaction
The most visible market response occurred in New York as US stocks rose following the decision, with retailers and manufacturers most affected by increasing import and production expenses posting the strongest gains. The S&P 500 climbed 0.3 per cent, while the Nasdaq Composite advanced 0.5%. Amazon, one of the "Magnificent Seven" tech giants, saw its shares rise roughly 2 per cent after the ruling, and industrial heavyweight Caterpillar turned around earlier losses to trade nearly 1% higher.
While Canadian markets had less direct exposure to the now-overturned tariff structure, the positive implications carry over across the border. TSX-listed industrials, railways, manufacturers, and logistics companies with ties to global and US trade flows are positioned to gain from diminished policy uncertainty. Consumer-oriented businesses that rely on imported finished products or components may experience modest cost relief compared to a scenario where sweeping US tariffs had stayed in effect and been extended or broadened further.
Candace Laing, CEO and president of the Canadian Chamber of Commerce, emphasized that this was a legal decision rather than a fundamental shift in US trade policy, as reported by Reuters.
"Canada should prepare for new, blunter mechanisms to be used to reassert trade pressure, potentially with broader and more disruptive effects," she said in a statement.
Laing observed that businesses were rapidly taking steps to protect themselves against future disruptions, pointing out that Canadian firms were strengthening independent relationships with Mexico to avoid over-reliance on a single trading partner.
Refund uncertainty
Separately, a group of more than 800 small businesses operating under the name "We Pay the Tariffs" praised the Supreme Court decision as a major win for small companies that have shouldered billions of dollars in tariff costs, according to Reuters. The coalition urged the Trump administration to create a swift, streamlined, and automatic refund system.
"Small businesses cannot afford to wait months or years while bureaucratic delays play out, nor can they afford expensive litigation just to recover money that was unlawfully collected from them in the first place. These businesses need their money back now," the group's executive director Dan Anthony said.
Yet, in his dissent, Justice Brett Kavanaugh highlighted that the court failed to address the thorny issue of repaying tariffs already collected, as noted by the Toronto Star. He pointed out that the court offered no guidance on whether or how the government should return the billions taken from importers.
US Representative Brendan Boyle, the senior Democrat on the House Budget Committee, argued that Trump's tariffs damaged the US economy and harmed American workers, per Reuters. He described the ruling as a win for every American household facing inflated prices due to Trump's tariff policies and predicted that Trump would attempt to achieve the same goals through different means, driven by what Boyle characterized as "unhinged economic sabotage."
Tariff threat still looms
Plan sponsors should also be aware that this ruling may not put tariff policy to rest permanently.
Notably, Trump has previously indicated he would explore alternative approaches if the court ruled against him, telling reporters he would need a backup plan, according to Reuters.
Treasury Secretary Scott Bessent and other officials stated that the US would pursue other legal grounds to preserve as many of Trump's tariffs as possible. These alternatives include a law allowing tariffs on imports deemed threats to national security, as well as provisions enabling retaliatory measures, including tariffs, against trading partners found by the US Trade Representative to have engaged in unfair trade practices against American exporters.
Additional reporting by Josh Welsh
