President Donald Trump is facing what a Nobel Prize-winning economist calls a “self-inflicted disaster” for the economy.
A federal appeals court ruled on Friday that most of Trump’s tariffs were imposed unlawfully, supporting an earlier decision by the Court of International Trade.
The ruling doesn’t ban tariffs themselves, but it said Trump’s approach—using the 1977 International Emergency Economic Powers Act (IEEPA) to declare an “economic emergency” and set tariffs without Congress’s approval—broke the law.
“One crucial thing to understand is that Trump is facing a completely self-inflicted disaster here,” Paul Krugman, who won the Nobel Prize in Economic Sciences in 2008, wrote in a blog post.
“He probably could have gotten Republicans in Congress to vote for insane trade policy. But he was impatient and wanted to start ruling as a dictator right away.”
Why It Matters
The decision makes it harder for Trump to fully change decades of U.S. trade policy. He still has other legal tools, like parts of the 1974 Trade Act, but those are narrower and limit how fast and strongly a president can act. Trump’s tariff policy, which was unpredictable, shook global markets, strained relations with allies and trading partners, and raised concerns about higher prices and slower economic growth.
At the same time, tariffs are central to Trump’s trade plan. He has used them to pressure the European Union, Japan, and others into deals he calls favorable. He also says tariffs have brought tens of billions of dollars into the U.S. Treasury to help cover the tax cuts he signed into law on July 4.
What to Know
Krugman said Trump weakened his own legal case for emergency tariffs by claiming the economy was strong while at the same time declaring an “economic emergency” to justify the tariffs.
After the ruling, Trump posted on Truth Social: “ALL TARIFFS ARE STILL IN EFFECT! Today a Highly Partisan Appeals Court incorrectly said that our Tariffs should be removed, but they know the United States of America will win in the end. If these Tariffs ever went away, it would be a total disaster for the Country. It would make us financially weak, and we have to be strong.”
Krugman criticized Trump’s comments, noting that the economy was stable just before tariffs began on April 1.
In the first quarter of 2025, the U.S. economy shrank slightly, with GDP falling at an annual rate of 0.3 to 0.5 percent, according to McKinsey & Company and the Bureau of Economic Analysis. This followed 2.4 percent growth at the end of 2024.
Since then, the economy has recovered. GDP grew at an annual rate of 3.3 percent between April and June, according to the Bureau of Economic Analysis.
If the tariffs are ultimately overturned, the government might have to refund some import taxes already collected—a possible big hit to federal revenue. Revenue from tariffs reached $142 billion by July, more than double last year’s total at the same time. The Justice Department said removing the tariffs could lead to “financial ruin” for the U.S.
Trump has suggested appealing the ruling to the Supreme Court. He wrote on Truth Social: “Now, with the help of the United States Supreme Court, we will use them to the benefit of our Nation, and Make America Rich, Strong, and Powerful Again! Thank you for your attention to this matter.”
Krugman said the Supreme Court might side with Trump, but it’s also possible even the justices could draw a line.
“I have no idea what happens next. The Supreme Court is utterly craven, and may well rule that Trump gets to do whatever he wants. But maybe even they will balk,” he wrote.
What People Are Saying
Krugman explained: “[J]ust saying ‘I am the Tariff Man, and here are my tariffs’ isn’t OK. True, the International Economic Emergency Powers Act gives the president substantial room to set tariffs during an economic emergency. But Trump himself keeps saying that the economy is booming without inflation, and any claims to the contrary are fake news. So how can things both be terrific and an emergency calling for drastic action?”
Jeffrey Schwab, director of litigation at the Liberty Justice Center, said the ruling shows Trump doesn’t have unlimited power to impose tariffs: “This decision protects American businesses and consumers from the uncertainty and harm caused by these unlawful tariffs.”
Trump’s Truth Social post also said: “The U.S.A. will no longer tolerate enormous Trade Deficits and unfair Tariffs and Non Tariff Trade Barriers imposed by other Countries, friend or foe, that undermine our Manufacturers, Farmers, and everyone else. If allowed to stand, this Decision would literally destroy the United States of America. At the start of this Labor Day weekend, we should all remember that TARIFFS are the best tool to help our Workers, and support Companies that produce great MADE IN AMERICA products. For many years, Tariffs were allowed to be used against us by our uncaring and unwise Politicians.”
What Happens Next
The ruling won’t take effect until October 14, as the Trump administration is expected to appeal to the highest court.
