Tariff ruling clouds Trump’s piloting of the US economy

The American economy is heading towards a soft landing – a growing economy, minimal unemployment, no recession. Not quite wheels down yet, but the runway is in clear view. Which makes it odd that the passengers are angry with the President-pilot, and he in turn is so angry with his co-pilot, Jay Powell, that he has his legal attack dog, a government lawyer, investigating Powell for criminally adding unnecessary bells and whistles to the aircraft, raising its cost.

Trump has piloted the economy with some skill. Tax cuts and deregulation have revived the animal spirits of investors. He has closed the border that permitted millions to enter the country illegally. He has removed the costly burdens of his predecessor’s green vision of a fossil-free future. He has secured the airport to which the plane is headed for its soft landing by increasing the budget for the military, “persuaded” our Nato allies to do the same, invested in efforts to break China’s hold on key materials, initiated a programme that just might revive our moribund shipping industry, and more.

His co-pilot has been more error-prone. He is distracted by matters unrelated to his primary chore of keeping the plane moving steadily forward, and often has misread the direction in which his navigation charts are pointing, resulting in a hot 3 per cent inflation rate. But he has shown grace under pressure from the pilot who repeatedly demands they risk a crash by setting on the stormy course to negative real interest rates.

But before the pilots can relax, they will have to manoeuvre around three storm clouds — the debt they incurred by borrowing to acquire the plane, the eventual effect of the Supreme Court’s 6-3 decision that the president does not have the power to levy permanent tariffs without congressional approval, and storm clouds gathering over the international airport at which they are aiming their soft landing.

Be kind to those attempting to read the weather charts. We already have learned that revisions reduced last year’s estimate of monthly job creation from 49,000 to 15,000. The course of the nation’s debt and its cost remain beyond the ability of the allegedly nonpartisan Congressional Budget Office to determine. The deficit fell in fiscal year 2025 and in the first four months of FY 2026, compared with the year-earlier periods. That did not prevent the CBO from raising the deficit predictions it made before Trump returned to office, in part by regularly under-shooting economic growth, as it did for last year with 11 months’ data already in — 1.9 per cent vs a likely final count of 2.6 percent.

A similar fog obscures the effect of the Supreme Court’s decision that Trump is not a King, but a mere president subject to Constitutional constraints that require congressional approval of tariffs. The statute on which he based his power to charge tariffs conveys no such power, making the tariffs illegal. Possible refunds of about $130-$175 billion of the $300 billion in tariffs will be available, but not so fast. Sue me, says Trump, promising months of litigation that makes major law firms undoubted winners from this decision.

The president characterised all save the three dissenters as “unpatriotic, disloyal, fools” but promised to “take in more money” using “other very powerful authorities approved by the court” that take “a little bit longer, complicated process”. Meanwhile, there will be a 10 per cent “global tariff”. Estimates are that when the smoke clears, tariffs will be about where they now are. Before dismissing all of this as sound and fury, signifying nothing, note this: The Supreme Court has told a president that the Constitution’s constraints apply to him, and he has accepted that decision.

Then there are the geopolitical flash points. Trump has warned that his armada will do “bad things … traumatic” to Iran if it refuses to abandon its nuclear ambitions, sever ties with terrorist groups, and scale back its ballistic missile programmes. A targeted, surgical strike might topple the regime. A more fulsome assault would result in increases in oil prices, if Iran mines the Strait of Hormuz and destroys some Saudi oil infrastructure. Talk of $100 crude oil can again be heard in the land.

Despite deficits, new rules governing imposition of tariffs, and international turbulence, a soft landing seems the most likely event. Deficits do not seem to be upsetting the crowd most affected by management of the nation’s debt, the so-called bond vigilantes who hold many of the government’s IOUs.

Tariffs that flowed through to higher prices did not seem to deter Americans from continuing to spend, although lower earners are struggling. And some of the promised foreign investment is already flowing into new projects. Global turbulence has not deterred investors from pouring an estimated $500 billion-$600 billion in capital into AI infrastructure this year, contributing to a record increase in the economy’s productivity.

Still, it is best to remain alert, seat belts tightened, until wheels down and the plane of state is safely at the terminal.

irwin@irwinstelzer.com

Irwin Stelzer is a business adviser