Officials Say Overturning IEEPA Tariffs Would Inflict “Unnecessary Economic Pain” While Economists See Potential for Stability and Growth

The U.S. Treasury Department is warning of widespread financial and economic fallout if the Supreme Court strikes down President Donald Trump’s tariff powers under the International Emergency Economic Powers Act (IEEPA) — a case that could redefine the limits of executive authority in U.S. trade policy.

In an interview with Yahoo Finance, Joe Lavorgna, Counselor to the Treasury Secretary, cautioned that undoing the tariffs would “damage financial markets, confidence, and investment momentum” that have underpinned record equity valuations and robust capital inflows into the U.S.

“To the extent that the policy would be reversed or watered down, that would damage financial markets,” Lavorgna said. “You’ve seen record-high equity markets, record-low credit spreads… It would damage confidence. The economic system — capitalism — works on confidence.”

Lavorgna’s remarks reflect growing anxiety within the administration that a legal rebuke could undermine one of Trump’s cornerstone economic policies: broad, unilateral tariffs imposed on national security grounds to bolster domestic manufacturing and reduce trade deficits.

The Legal Challenge: Defining the Limits of Presidential Power

At issue before the Supreme Court is whether the IEEPA, a Cold War-era statute designed to let presidents impose economic sanctions in national emergencies, can be used to levy blanket tariffs on foreign goods — a power typically reserved for Congress.

Chief Justice John Roberts challenged the government’s position during oral arguments, suggesting that tariffs, regardless of intent, are effectively taxes on Americans, and thus part of Congress’s “core power of the purse.” Three conservative justices expressed skepticism over the administration’s broad interpretation of executive authority.

If the Court rules against Trump, the decision could invalidate the IEEPA-based tariffs currently applied to a range of imports — from consumer goods to industrial inputs — and potentially force the White House to refund or rebate over $85 billion in collected tariffs, according to estimates from EY-Parthenon economist Gregory Daco.

Economic Implications: Confidence vs. Clarity

Economists are divided on whether dismantling the tariffs would hurt or help the U.S. economy. Daco said a full reversal could cut the GDP drag from tariffs by nearly 60%, from an estimated 1% to around 0.4%, offering a tailwind to growth.

“The real catalyst for restoring confidence lies in the permanence and clarity of the policy shift,” Daco said. “Without that, businesses will remain cautious, trade flows will stay disrupted, and the potential gains will be considerably diminished.”

Luke Tilley, chief economist at Wilmington Trust, echoed that uncertainty itself is the biggest risk. “A reversal of the IEEPA tariffs would have profound implications for the outlook,” he said. “Businesses are already hesitant to invest, and this ruling could either free them or deepen that hesitation depending on how clear the Court’s guidance is.”

The U.S. collected $225 billion in tariffs over the past year — $145 billion more than the year before — providing the Treasury with short-term fiscal support but adding cost pressures across industries. Economists warn that rolling back tariffs abruptly could trigger temporary market dislocation even if long-term fundamentals improve.

Political Reactions and Contingency Plans

While Treasury officials prepare contingency plans to reimpose tariffs under other authorities — including Section 232 (national security) and Section 301 (trade retaliation) — the political divide remains stark.

Democratic Senator Elizabeth Warren called the tariff policies “disastrous,” blaming them for higher consumer costs and supply chain inefficiencies. Meanwhile, Julie Su, former acting Labor Secretary, argued that the real damage has already been done:

“Damage to financial markets, the job market, and the economy — not to mention our stature on the world stage — has been caused by [Trump], not by a court finally willing to rein in his reckless abuse of power.”

Trump administration officials, however, maintain that a court loss would jeopardize economic stability, foreign investment confidence, and ongoing industrial reshoring efforts.

Adding to the uncertainty is the ongoing government shutdown, now entering its 38th day — the longest in U.S. history. The Congressional Budget Office (CBO) estimates growth could fall two percentage points this quarter if the impasse continues, compounding the risks of a disruptive court decision.

Outlook: Market Volatility and Policy Uncertainty Loom Large

As the Supreme Court deliberates, financial markets face a precarious mix of policy uncertainty, tariff risk, and fiscal paralysis. A ruling against Trump could reset U.S. trade policy for decades, forcing Congress to reassert control over tariff authority — a move that could be seen either as restoring constitutional balance or undercutting executive flexibility in a volatile global economy.

For investors, the next several weeks will be critical. The outcome could influence U.S. trade dynamics, inflation trends, and global risk sentiment, particularly if the administration moves to reinstate tariffs through alternative channels.

Regardless of the verdict, economists agree that the episode underscores the central tension of Trump-era economic policy — balancing assertive nationalism with market confidence in an increasingly interconnected world.