The Legal and Strategic Risks of Trump’s Tariff Policy and Its Impact on Global Trade Alliances

The legal challenges to President Trump’s 2025 tariff regime have reached a critical juncture, with courts increasingly scrutinizing the administration’s use of the International Emergency Economic Powers Act (IEEPA) to justify sweeping trade measures. A recent ruling by the U.S. Court of International Trade declared these tariffs unconstitutional, arguing that IEEPA does not explicitly authorize tariffs and that trade deficits do not constitute an “unusual and extraordinary threat” under the law [1]. This decision, if upheld by the Supreme Court, could invalidate tariffs as high as 50% on China, Mexico, and Canada, fundamentally undermining the administration’s ability to leverage unilateral trade policies as a diplomatic tool [5].

The legal vulnerability of these tariffs hinges on the major questions doctrine, which requires Congress to be explicit when granting the president broad authority over economic policy. Critics argue that IEEPA, a 1977 law designed for national security emergencies, was misapplied to address trade imbalances—a domain traditionally reserved for Congress [1]. The Trump administration, however, has hinted at shifting to other statutes, such as Section 301 of the Trade Act of 1974, which allows retaliatory tariffs against unfair practices [6]. This pivot could preserve some tariff tools but would likely face renewed legal scrutiny, creating regulatory uncertainty for businesses and investors.

Geopolitical risks are already materializing. Brazil, for instance, has announced retaliatory tariffs on U.S. goods, while China has escalated symmetric tariff hikes, pushing bilateral rates to 125% [3]. The European Union has proposed removing tariffs on U.S. industrial goods to pressure the administration to lift duties on European cars [3]. These retaliatory measures threaten to fracture U.S. trade alliances, particularly with countries like Japan and South Korea, which have seen capital flows destabilized by tariff uncertainty [2]. For investors, this volatility raises questions about the durability of U.S.-centric trade equities, especially in sectors like manufacturing and agriculture, which are disproportionately exposed to trade wars [4].

Emerging markets face a dual threat. Countries like Vietnam and Taiwan, which rely heavily on U.S. imports, are grappling with supply chain disruptions and reduced export demand [6]. Meanwhile, capital flows to these markets have become increasingly fickle, with investors wary of retaliatory measures and regulatory shifts. A 2025 analysis by J.P. Morgan notes that U.S. tariffs have already depressed global trade flows by 4–9%, with emerging markets bearing the brunt of the slowdown [2]. If the Supreme Court invalidates the tariffs, it could create a short-term reprieve for these economies but also introduce new uncertainties as countries recalibrate trade strategies [5].

For investors, the lesson is clear: exposure to trade-dependent sectors and regions requires a re-evaluation. The legal and geopolitical risks of Trump’s tariff policy are not abstract—they are reshaping global supply chains, eroding U.S. trade leverage, and creating asymmetric vulnerabilities. While the administration may attempt to rebrand its approach under alternative statutes, the broader trend toward fragmented trade alliances and retaliatory measures suggests a prolonged period of instability. Investors should prioritize diversification and hedging strategies, particularly in sectors like technology and services, which are less susceptible to tariff-driven disruptions [2].

Source:
[1] The Supreme Court and Trump's tariffs: an explainer [https://www.scotusblog.com/2025/08/the-supreme-court-and-trumps-tariffs-an-explainer/]
[2] US Tariffs: What's the Impact? | J.P. Morgan Global Research [https://www.jpmorgan.com/insights/global-research/current-events/us-tariffs]
[3] Trump tariffs live updates: Brazil moves to retaliate against Trump tariffs [https://finance.yahoo.com/news/live/trump-tariffs-live-updates-brazil-moves-to-retaliate-against-trump-tariffs-de-minimis-exemption-ends-200619795.html]
[4] The Impact of Trump's Tariffs: A Comprehensive Analysis [https://www.claconnect.com/en/resources/articles/25/the-impact-of-trumps-tariffs-a-comprehensive-analysis]
[5] What the Court's Ruling on Trump's Tariffs Means for U.S. Trade Policy [https://www.csis.org/analysis/what-courts-ruling-trumps-tariffs-means-us-trade-policy-and-economy]
[6] Who gets compensated if Trump's tariffs are ruled illegal? [https://www.piie.com/blogs/realtime-economics/2025/who-gets-compensated-if-trumps-tariffs-are-ruled-illegal]