The Journal. - Trump's Tariffs Are Illegal. He's Got a Plan B.

Episode Date: February 20, 2026

In a 6-3 decision, the Supreme Court ruled that President Trump’s global tariffs are illegal. It is the first time the Supreme Court has definitively struck down one of Trump’s second-term policies, saying the president went too far in enacting his most sweeping tariffs without clear authorization from Congress. WSJ’s Gavin Bade unpacks the ruling and discusses Trump’s next steps. Ryan Knutson hosts. Further Listening: - Trump's Tariffs Force a New Era in Global Trade - How Tariffs Could End Italian Pasta in the U.S. - The Tariff Trade Off: Jobs vs. Higher Prices Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

A big day for trade reporters, huh? Yes, one of many, but maybe this is the biggest one so far. Today, the Supreme Court ruled that the majority of President Trump's tariffs are illegal. Our colleague Gavin Bade has been following Trump's tariffs since the get-go. He has used emergency economic authority under a novel use of an emergency law to institute most of his tariffs, and today the Supreme Court said that he overstepped his bounds, that this should be a congressional authority, and that most of his tariffs were illegal.

So raises a lot of questions for both the administration and, you know, the law firms here in Washington. Right. And for the U.S. economy, quite frankly. Yes, absolutely. You know, there are many, many answers that still, you know, in the hours after this decision are still unknown. But what we know now is that he overstepped his bounds in instituting a lot of these levies.

and is going to have to go back to the drawing board on many of them. Trump has justified the bulk of his tariff policy using a 1977 law called the International Emergency Economic Powers Act, known as AEPA. When you see him threatening tariffs at the drop of a hat, this is the legal authority he's using because it's the most flexible, and it allows him to just instantaneously, with a presidential proclamation, change the tariff code. The Supreme Court today said, you can't do that. That is not an appropriate use of this law. you're going to have to come up with another legal justification for these tariffs. How big of a setback is this for Trump's economic agenda?

I think it's a big setback, so he's going to have to, you know, recalibrate his approach to economic diplomacy here. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Friday, February 20th. Coming up on the show, the Supreme Court says Trump's global terror. tariffs are illegal, but Trump is not backing down. We're a little over a year into Trump's second term and a little bit less than a year since

Liberation Day last April when he really announced most of these sweeping tariffs. How have these tariffs actually performed? What impact have they had on the economy, as far as we can tell so far? Well, first and foremost, I think they've brought in a lot of money to the Treasury, right? At last count, you know, tariffs as a whole have brought in about $250 billion, most of that has been through the IEPA tariffs. You've also forced up costs for a lot of American businesses, right, and for American consumers. A lot of factory owners saying I used to get a widget that I use in my factory. I used to get it for less money.

Now I have to pass those costs on to consumers. Meanwhile, the tariffs don't seem to have created a big incentive for companies to bring manufacturing back to the U.S. According to the Department of Labor, the U.S. lost over 100,000 manufacturing jobs. last year. And then there's the trade deficit, the difference between how much the U.S. buys from other countries versus how much it sells to other countries. Shrinking the trade deficit has been something Trump has been really focused on, but it actually increased in 2025. There's a couple reasons for this. One is that many companies were anticipating the tariffs and trying to front-run them. So you'll remember that Trump in April on Liberation Day said,

we're going to put all these tariffs in place. And then after a bunch of stock market upheaval, bond market upheaval, he paused them for a long time. And so when he paused those tariffs, a lot of companies tried to bring in as much as they could fill their warehouses so they wouldn't have to pay tariffs in the future. That really ballooned the trade deficit in a few months of 2025. Then after the tariffs got in place, you saw that trade deficit narrow a little bit, but you still saw more than us importing less. What happened instead is that we just switched to the places that we were importing from. U.S. businesses switched to other countries

with lower tariffs, or they'd been part of new trade deals. So we had very high tariffs on China for a number of months last year. Our imports from China dropped, but our imports from India, from Southeast Asia, from other nations actually grew. Despite the mixed economic record, tariffs have played a big role in Trump's foreign policy. Trump has used this tariff authority

to threaten other nations over our country, a variety of issues, right? It could be a trade issue. It could be something like, I want control of Greenland, so I'm going to threaten tariffs on the European Union. Every one of those cases, he was using this legal authority under the International Emergency Economic Powers Act. He used it because it allowed him to impose tariffs very, very quickly and really at the drop of a hat whenever he wanted to. So in other words, it's not just the economy that hinges on this. It's so many other aspects of Trump's foreign policy that hinge on it. his ability to use tariffs as a bludgeon.

Absolutely. I mean, he and his team would say, you know, we've used tariffs to not only get trade deals with other nations, right? There was one sign with Indonesia yesterday. And then he's also said, ah, I used tariffs to prevent wars, you know, whether or not that is true in every case. Tariffs are hammer and every single international issue is a nail to Trump. He's used them for just about everything. The law Trump used to justify most of his tariffs, Aipa, doesn't specifically mention the word tariff. But it gives the president broad power over foreign imports during emergencies. The Trump administration cited the trade deficit and the fentanyl epidemic as emergencies under the law.

And they said, well, if you read the IEPA statute, it allows you to regulate imports. It allows you to issue licensing fees. And so although it doesn't say tariff in particular, well, you know, it allows us to do all these other things that should allow us to use tariffs as well. The Supreme Court said not exactly correct. In a 6 to 3 vote, the Supreme Court said that interpretation was wrong. There are plenty of laws that give the President explicit power to impose tariffs, but not this one. You can regulate imports, you can put on licensing fees, you can even have an all-out blockade of certain imports and, you know, limit them completely, but it does not say tariff. And so that's, you know, the Supreme Court got hung up on that, you know, pretty important distinction there.

and they said, you can't, you know, if it doesn't say that, we can't write it into the statute completely. Chief Justice John Roberts also wrote in the majority opinion that the power to impose tariffs, the type of tax, rests squarely with Congress. If Congress was going to give away that authority to the executive branch, it would have had to state it very explicitly. And they said this is just not the case. They did not explicitly give away tariffing authority to the executive branch with this law. If they were to do that, it would have to be clear as day. It wouldn't be that they, oh, they didn't write in tariff, but they meant tariff.

It wouldn't be an oblique mention. And does that leave any of Trump's tariffs intact? Yes, absolutely. When you think about the tariffs on specific industries, the tariffs on steel and aluminum products, for instance, on cars and car parts, on trucks, on lumber, all of these things were promulgated under what's called Section 232. it's a much more often used, much more durable and familiar statute. All of those are going to stay in place. So, you know, the tariffs on steel and aluminum and products made out of them, those are still in place.

The ones on cars and trucks, still in place, lumber, etc. And there are a number of other investigations that are still being worked through by the Trump administration under this law. So none of those are going away. The three justices that dissented in today's ruling were Clarence Thomas, Samuel Alito, and Brett Kavanaugh. Kavanaugh, who has been very deferential to presidential powers, saying, well, I think they should have this authority.

It's under emergency authorities. Kavanaugh wrote in his dissent that, quote, tariffs are a traditional and common tool to regulate importation, end quote. He said Aipa allows the president to impose tariffs more efficiently. Basically, he has a more expansive view of what the executive branch should be able to do with economic powers. So not entirely surprising that the justices who dissent to, decided to do that in this case. A few hours after the court's ruling,

Trump slammed the decision at a press conference. The Supreme Court's ruling on tariffs is deeply disappointing. And I'm ashamed of certain members of the court, absolutely ashamed for not having the courage to do what's right for our country. Then, Trump laid out his new plan for how to keep the tariffs in place.

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the Supreme Court has ruled that these tariffs are illegal. So what happens to all the tariff money that's already been collected? So this is a big open question. The majority opinion does not explicitly address the issue of refunds, right? Typically in a smaller tariff case, if the government, you know,

take some tariff money from a company and then it's, you know, ruled that it was improper to do so, there's a whole process that you go through with customs to get that tariff money back. Those processes are probably not adequate for just this scale for hundreds of billions of dollars of tariff revenue that's come in. Gavin says that a more likely scenario, though it's still unclear, is that the government could set up some kind of online portal

where companies can submit a claim for a refund. By not addressing the question directly, the Supreme Court effectively punted the issue back to a lower court. Is it possible that this lower court might just say, you know what, water under the bridge. We're not going to make anybody repay this stuff, but it's just illegal going forward. I would be surprised if that were the case

just because there's obvious material harm that these companies can show and there have been thousands of claims already filed in court by these companies they've preemptively gone and filed in federal court and said if this decision comes down I want to just lodge my claim for a refund now because I've been materially harmed by this

and a lot of companies raise their prices as a result of these tariffs and pass those costs onto consumers So if they end up getting a refund for those tariffs, I suspect they're not going to pass that on the consumers. So it could end up being a pretty nice payday for corporate America. Exactly. Really, it could be a pretty big windfall for a lot of firms

because if you think about it, they have adjusted their pricing to react to these tariffs. And now, oh, if we get all that tariff money back, they probably won't adjust their prices downward. The Trump administration knew it was possible the Supreme Court could rule this way. So it's been working on a backup plan. Here's Trump during his press conference today.

So we can use other of the statutes, other of the tariff authorities, which have also been confirmed and are fully allowed. Trump said the U.S. would impose a new 10% across-the-board tariff, leaning on a different section of U.S. trade law, section 122. That allows for tariffs up to 15% for up to 150 days, And that laws to address persistent trade imbalances. So the type of trade deficit issues that Trump doesn't like, he could instantly put these tariffs in place under Section 122,

up to 15%, up to 150 days. That is what is going to happen in the short term, is just to reconstitute some of these tariffs. Just put that in really quickly. And then in those 150 days, you use that time to issue new tariff investigations under more lasting legal authorities. more lasting legal authorities, like Section 301 of U.S. trade law.

That section lets the president use tariffs to address discriminatory practices from other countries. Trump said that's what his administration would use to justify additional tariffs now. And we're also initiating several Section 301 and other investigations to protect our country from unfair trading practices of other countries and companies. The Trump administration used this justification for tariffs on China during Trump's first term. There was never any real legal jeopardy for that because it's such a well-established portion of trade law. It just takes a lot longer. Trump said existing laws will allow him to keep his entire tariff regime in place.

It could just be a bit more complicated to implement. It's a little bit longer process. I thought I'd make things simple, but they didn't let us do that. Why not just go to Congress? which is right now controlled by Republicans in the House and Senate, to pass a law that gives the president all the power he wants. Ideally, I think they would love to pass a law that gave them the Aipe of tariff authority explicitly. I don't think you can see that pass Congress right now, though.

Because a lot of Republicans are pretty wary of these tariff policies. Yeah, even if Republicans aren't willing to pop their head up and say that they don't like the tariffs, a lot of them do not. A lot of their constituents are being hurt by this. Remember, we saw both chambers of Congress have separately taken votes against at least some of Trump's tariffs, right? Just a couple of weeks ago, the House voted a disapproval resolution on Trump's IEPA tariffs on Canada. And that was, you know, a Republican-controlled House. So there's not a lot of appetite in Congress to go and

legislate these things, especially in election year when, you know, your opponent's going to be able to hit you over the head for increasing prices to consumers if you voted for those tariffs. So, yeah, it's a theoretical option, but probably not a practical one. If there's skepticism in Congress, if tariffs are not having much impact on the trade deficit, if there are studies saying that it's raising prices for businesses and consumers, and now the Supreme Court says the way it's been implemented is illegal, why not just back away from this tariff policy entirely? I think in a way they've been doing that in fits and starts already, right?

We've seen in the last few months Trump has really carved a lot of holes, a lot of exemptions in these Aipa tariffs. You know, when he enters into a new trade agreement with another nation, he often will exempt many of their products from tariffs, right? Just yesterday, we signed a trade deal with Indonesia. A lot of their farm goods like, you know, coconut oil, palm oil, those will be able to come in under duty-free, no tariffs under this new deal. So they've already been pushing those back a little bit.

But I don't think that you'll see them just throw up their hands and say, we're not doing tariffs anymore, right? They're going to reinstitute most of these. tariffs, they want the revenue from it, they want to have the political symbolism of sticking up for U.S. manufacturers and U.S. workers. But I do think you'll find that they're not going to be quite as aggressive as they were before. And yeah, there may be a few more holes in this tariff regime as they try to reconstitute it. Even if Trump is able to reimpose all of his tariffs, it's unlikely that his new justification will give him as much power as Aipa did.

Using AIPA for tariffs was really a silver bullet for the Trump administration. It allowed them to impose these things out of a drop of a hat. It allowed them really unilateral authority over access to the U.S. market, which is just such a prized thing for every country in the world, right? And so I'm going to be very interested to see not just how they react economically, but how do they react to having their power constrained in a very big way? How do they react to an outside institution saying, you can't do that? Your power is actually constrained.

I think it's going to be very interesting, and I don't think it will make them recede. I'll just be interested to see how they do that. That's all for today. Friday, February 20th. The journal is a co-production of Spotify and the Wall Street Journal. The show is made by Catherine Brewer, Victoria Dominguez, Pia Gagari, Isabella Jopal, Sophie Codner, Matt Kwong, Colin McNulty, Jessica Mendoza, Annie Minnuff,

Laura Morris, Enrique Perez de La Rosa, Sarah Platt, Alan Rodriguez Espinosa, Heather Rogers, Pierce Singey, Jivica Verma, Lisa Wang, Catherine Whalen, Tatiana Zamiz, and me, Ryan Knutson. Our engineers are Griffin Tanner, Nathan Singapok, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Peter Leonard, Billy Libby, Nathan Singapok,

So Wiley, and Blue Dot Sessions. Fact-checking this week by Mary Mathis. Thanks for listening. See you Monday.