Bessent points to China’s rare earths restrictions to justify Trump tariffs as Supreme Court to hear arguments about emergency powers

Treasury Secretary Scott Bessent defended President Trump's use of the International Emergency Economic Powers Act (IEEPA) for imposing tariffs, ahead of a Supreme Court hearing challenging their legality. While lower courts have ruled against Trump, Bessent cited rare earths and fentanyl as justified uses, arguing the trade deficit also warrants IEEPA. Critics highlight arbitrary tariff applications, and JPMorgan experts estimate a 70-80% chance the Supreme Court will rule against the administration. Such a ruling would force the administration to return significant tariff revenue and resort to less flexible, narrower measures, fragmenting its trade strategy which heavily relies on IEEPA.

Analysis

Treasury Secretary Scott Bessent defended President Trump's use of the International Emergency Economic Powers Act (IEEPA) for imposing tariffs, just days before the Supreme Court hears arguments challenging this authority. Lower courts have already ruled against the administration regarding the use of IEEPA for "reciprocal tariffs" and those tied to the fentanyl trade. Bessent cited China's rare earths export curbs and the fentanyl crisis as examples of justified IEEPA application, arguing the trade deficit also warrants its use.

While former USTR Emily Kilcrease suggests a "decent chance" the Supreme Court could side with the President due to IEEPA's broad powers, JPMorgan experts surveyed estimate a 70-80% probability of a ruling against the administration. This decision is critical as tariffs are a cornerstone of Trump's economic agenda and foreign policy, generating significant revenue. An adverse ruling would necessitate the return of substantial collected tariff revenue.

JPMorgan notes that over 80% of announced tariffs rely on IEEPA, highlighting the significant impact of a potential adverse ruling. While other legal avenues exist for levying duties, these lack the speed, scale, and flexibility of IEEPA and would not fully recover lost revenue. The firm concludes that a loss of IEEPA tariffs would "fragment" the administration's trade strategy, forcing it to pursue "narrower, more contested measures."

Key Decisions for Investors

• Monitor the Supreme Court's line of questioning this Wednesday for early indications of how justices may rule, as this will significantly impact future trade policy.
• Assess portfolio exposure to industries and companies heavily reliant on supply chains affected by tariffs imposed under IEEPA, given the high probability of an adverse ruling.
• Evaluate the potential for increased trade policy fragmentation and less predictable tariff measures if the administration is forced to use alternative, less flexible legal avenues for duties.
• Consider the implications for federal revenue and fiscal policy should a ruling against the administration necessitate the return of substantial collected tariff funds.