President Donald Trump is facing what a Nobel Prize-winning economist called 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 does not ban tariffs entirely, but it found that Trump’s approach—using the 1977 International Emergency Economic Powers Act (IEEPA) to declare an “economic emergency” and set tariff rates 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 extreme trade policies. But he was impatient and wanted to act like a dictator right away.”
Why It Matters
This decision makes it harder for Trump to completely change decades of U.S. trade policy. He can still use other legal tools, like parts of the 1974 Trade Act, but these options are more limited and slower to act. His tariff strategy—with sudden, unpredictable changes—has worried global markets, hurt relations with U.S. allies and trade partners, and raised concerns about higher prices for consumers and slower economic growth.
At the same time, tariffs have been central to Trump’s trade plan. He used them to pressure countries like the European Union and Japan into what he calls favorable trade deals, while also saying tariffs brought tens of billions of dollars into the U.S. Treasury to help pay for the tax cuts he signed on July 4.
What To Know
Krugman said Trump hurt his own legal case by saying the economy was strong while also claiming an “economic emergency” to justify tariffs.
Trump responded on Truth Social after the ruling, saying, “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 post, noting that the economy was stable just before tariffs started 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%, according to McKinsey & Company and the Bureau of Economic Analysis. This came after 2.4% growth at the end of 2024.
Since then, the economy has bounced back, with GDP growing at an annual rate of 3.3% between April and June, according to the Bureau of Economic Analysis.
If the tariffs are ultimately overturned, the government may have to refund some of the import taxes already collected, which could be a major hit to federal revenue. Revenue from tariffs totaled $142 billion by July, more than double the amount at the same time last year. The Justice Department argued that removing the tariffs could cause “financial ruin” for the U.S.
Trump has signaled he plans to appeal 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 added there’s also a chance even they could push back.
“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,” Krugman 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 room to set tariffs during an economic emergency. But Trump keeps saying the economy is doing great, so how can there be an emergency needing drastic action?”
Jeffrey Schwab, director of litigation at the Liberty Justice Center, said the ruling shows Trump does not have unlimited power to set tariffs alone: “This decision protects American businesses and consumers from the uncertainty and harm caused by these unlawful tariffs.”
Trump added on Truth Social: “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.”
He continued: “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 will not take effect until October 14, as the Trump administration is expected to appeal to the Supreme Court.
