VOS Selections is not a company most people know. It is a small, New York-based wine importer and its claim to fame is that it was one of the plaintiffs against the legality of the Trump Administration’s tariffs imposed under the International Emergency Economic Powers Act (IEEPA) of 1977. The case went to the Supreme Court, which ruled in the plaintiffs’ favour last week. These tariffs, better known as Liberation Day tariffs, announced with fanfare in a Rose Garden ceremony in April last year, as well as the tariffs imposed on Canada and Mexico for allegedly not doing enough about fentanyl shipments into the United States, are now illegal. Donald Trump’s ‘most beautiful word in the dictionary’ has a sting.

This was a landmark decision that undermines the authority that Trump claimed for his presidency in pursuing coercive trade policies. The tariffs affected account for about three quarters of the $1.5 trillion of revenues the administration was expecting over a decade. It will result in a flurry of probably long-lasting court cases for refunds of the roughly $130-140 billion raised so far. It will lead to significant uncertainty regarding trade policy as the administration seeks other ways of sustaining the tariff regime and exercising leverage over other nations. And, it might, by underlining the checks and balances that act as guardrails in the US political system, also have broader political implications for the government’s policies and programmes, and whether those opposed to them will be emboldened to bring legal challenges.

To be clear, this is not the end of tariffs. Rather, it was about the ability of the president to levy tariffs, which are, after all, taxes, under the specific authority vested in and by the IEEPA. The Supreme Court decision asserted the separation of powers, specifically that tariffs are the constitutional prerogative of Congress. Some of that authority can be delegated to the executive, as provided for under acts such as the Trade Act 1974 and the Trade Expansion Act 1962, but subject to due process and the conditions laid down in legislation. While the IEEPA does empower the president to levy financial sanctions, regulate transactions, and confiscate property, for example, on parties deemed an unusual and extraordinary threat outside the United States, there is no provision for or mention of tariffs. It was this point that the Supreme Court sought to underline.

What happens next? President Trump was immediately out of the traps to announce that, with effect from this week, a new global 15 per cent tariff will be levied under Section 122 of the Trade Act (originally announced at 10 per cent the day before). Under the law, the president can act for 150 days, strictly speaking, against countries with persistent trade imbalances with America. But, after this period, Congressional approval would be required. This would not apply to Canada and Mexico under their three-way free trade agreement with the US.

This process would then run into the summer, and come to a head just a short time before the mid-term Congressional elections, in which, current polling indicates, the Democrats have a clear advantage. To avoid political trouble, then, the government might use the intervening period to try and find more permanent answers to the Supreme Court ruling. It could do this, as it does now for steel, aluminium and semiconductors, for example, under Section 232 of the Trade Expansion Act, in which trade restraints are permitted pursuant to investigations in the interests of national security. It could also use Section 301 of the Trade Act to authorise action to counter discriminatory trade practices, which it does currently, for example, with regard to China. These and other trade law provisions are open to the government in what is likely to be a new push to keep the tariff and trade agenda going.

The economic effects of the ruling for the United States are equivocal. Strictly speaking, removing or lowering tariffs is a good thing in the sense that it is a tax cut for firms that pay tariffs, or consumers to whom the cost can be passed on. By the same token the government will be ruing a potential loss of revenues.

However, tariffs do not really have a perceptible or enduring impact on inflation: they only influence the pattern of trade, and not the trade balance as such, while the GDP and employment effects in a $30 trillion economy are marginal. In any event, the new 15 per cent tariff, and ways in which it might eventually be substituted, almost certainly mean some, if not full, restoration of the pre-ruling tariff level. The overall impact, therefore, on the US economy may not be meaningful. Maybe trade policy uncertainty will restrain business spending. Foreign firms, attracted to invest in America as a way of avoiding IEEPA tariffs, may pull out or won’t arrive – but both these caveats are a bit of a stretch.

The new 15 per cent tariff rate could lead to a modest short-term reduction in the overall effective tariff rate compared with the situation under IEEPA, but exactly how modest that is depends on the provisions of current trade agreements and sector exemptions.

For a while at least, the big winners as far as the new tariff regime is concerned will be those countries for whom IEEPA tariff levels were previously over 15 per cent and as high as 25-40 per cent. This would include a large number of Asian countries, including Laos, Myanmar, Singapore, Vietnam, Malaysia and the Philippines. China will be a beneficiary, too, unless Trump chooses to tariff the country in additional ways. The UK and EU situations are relatively less affected, but 15 per cent would represent a notable change.

The historic ruling by the Supreme Court – perhaps the most significant counter to the executive since the New Deal – has two important implications that go way beyond the use of tariffs for trade policy. It removes the government’s capacity to use coercive tariff leverage in the pursuit of foreign policy, as Trump has already done with regard to Canada, India and Brazil, for example, and has threatened to do with the EU over Greenland. He is not now without such capacity, but can only do so as provided by Congress. Or he will have to find alternative forms of leverage.

Moreover, by restraining Trump’s political freedom to act, regardless of congressional legislation or opinion in this important policy area, the Supreme Court has underlined the separation of powers, emphasised that tax authority resides solely with Congress, and possibly laid down a marker, especially if the Supreme Court justices are ignored or insulted, for future contentious actions by the executive that might be unconstitutional or illegal.