Leading economists are breathing a sigh of relief after a federal court struck down President Donald Trump’s “Liberation Day” tariffs on Wednesday.
What Happened: Economists and legal experts at The Cato Institute, a libertarian think-tank, have come out in support of the ruling by the U.S. Court of International Trade, with a three-judge bench unanimously stating that Trump's use of the International Emergency Economic Powers Act (IEEPA) to justify tariffs overstepped constitutional limits.
The institute’s Chair of Constitutional Studies, Ilya Somin, who was one of the co-counsels for the plaintiffs in the case, said “It's great to see the court ruled unanimously against this power grab,” while adding that the decision makes it clear that “the President was wrong to claim a virtually unlimited power to impose tariffs.”
Somin, a professor at the Antonin Scalia Law School at George Mason University, noted in a column in Reason magazine that two of the three judges on the panel, Judges Timothy Reif and Jane Restani, were appointed by Republican presidents Ronald Reagan and Donald Trump, respectively.
Economists and legal experts at Cato hailed the decision as a necessary check on executive authority and a much-needed lifeline for import-reliant industries in the country.
The institute’s Vice President of General Economics, Scott Lincicome, described the ruling as a “huge and immediate relief” for 1,000s of American businesses, that were faced with “potentially crippling new costs” as a result of the tariffs, through “no fault of their own.”
Linciome argues that this gives America’s foreign trade partners more leverage to re-negotiate the trade agreements that the “Trump administration broke.” He also hopes that the ruling stands on appeal, so that “we can put this costly and embarrassing episode behind us,” he says.
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Other economists have since weighed in on the ruling, including Justin Wolfers, a professor at the University of Michigan, and a prominent critic of Trump’s tariffs.
Wolfers said most of Trump's tariffs were ruled illegal “because they were based on nonsense,” calling the court's decision the second-best possible off-ramp for the U.S. economy. The best outcome, he said, would be if Congress reclaimed the tariff authority granted to it by the Constitution.
Why It Matters: The ruling has led to a rally in U.S. stock futures, with the Dow rallying over 400 points. Stocks that are most exposed to foreign trade, such as retailers, witnessed a spike in after-hours trading following the verdict.
This comes in response to the aggressive tariffs imposed by Trump nearly two months ago, aimed at correcting the nation’s expanding trade deficit, which he referred to as “our declaration of economic independence.”
The markets witnessed a steep selloff soon after Trump’s so-called “Liberation Day,” wiping out $5 trillion in market capitalization within two days.
The administration’s subsequent back-and-forth on the tariffs has resulted in 2025 fast becoming the year of “extreme market uncertainty,” with no clarity still in sight.
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