President Donald Trump is facing a “self-inflicted disaster” on the economy, a Nobel Prize-winning economist has said.
A federal appeals court ruled on Friday that most of Trump’s tariffs were imposed unlawfully, upholding an earlier decision by the Court of International Trade.
The ruling does not outlaw tariffs themselves, but found that Trump’s method—using the 1977 International Emergency Economic Powers Act (IEEPA) to declare an “economic emergency” and unilaterally setting tariff rates without congressional approval—violated the law.
“One crucial thing to understand is that Trump is facing a completely self-inflicted disaster here,” Paul Krugman, who received 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 complicates Trump’s ambition to fully upend decades of U.S. trade policy. He has other legal tools at his disposal, such as provisions in the 1974 Trade Act, but those authorities are narrower and limit how quickly and severely a president can act. Trump’s tariff policy—rolled out with little predictability—has rattled global markets, strained ties with U.S. allies and trading partners, and fueled concerns of higher consumer prices and slower economic growth.
At the same time, the levies have been central to Trump’s trade strategy. He has used them to pressure the European Union, Japan and others into what he touts as favorable trade deals, while boasting that tariffs have funneled tens of billions of dollars into the U.S. Treasury to offset the sweeping tax cuts he signed into law on July 4.
What To Know
Krugman said that Trump undermined his own legal case for emergency tariffs by insisting the economy was strong while simultaneously declaring an “economic emergency” to justify them.
Trump reiterated that there could be an economic emergency if tariffs are not imposed in a Truth Social post after the ruling, saying in part, “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 mocked Trump for his comments, adding that economic conditions were stable in the country just before tariffs were imposed 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 percent to 0.5 percent, according to McKinsey & Company and the Bureau of Economic Analysis. That came after 2.4 percent growth at the end of 2024.
Since then, the economy has rebounded. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 3.3 percent between April and June.
The government could face financial consequences if the tariffs are ultimately overturned. In that situation, the government may be required to refund some of the import taxes already collected — a potentially heavy hit to federal revenue.
Revenue from tariffs totaled $142 billion by July, more than double the amount at the same point last year. The Justice Department argued in court filings this month that eliminating the levies could lead to “financial ruin” for the United States.
Trump has signaled a Supreme Court appeal to the ruling.
“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,” he wrote in a Truth Social post.
Krugman said the Supreme Court may side with Trump, though he said there’s a chance even the justices might 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,” Krugman wrote.
What People Are Saying
Krugman wrote in his blog post: “[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, um, economic emergency. But Trump himself keeps saying that the economy is in wonderful shape, 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 on his own: “This decision protects American businesses and consumers from the uncertainty and harm caused by these unlawful tariffs.”
Trump’s Truth Social post added: “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 widely expected to appeal the case to the highest court.
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