When did trade deficits become a national emergency?

If your answer is “April 2, 2025,” then congratulations—you might just qualify to be a White House economic advisor under the Trump 2.0 administration.

That was the day President Trump—channeling the ghost of Smoot-Hawley—declared America’s trade imbalance a “national emergency” under the 1977 International Emergency Economic Powers Act (IEEPA), and slapped a 10% universal tariff on nearly all imports. Countries running a surplus against the U.S.? They got hit even harder.

But this week, that economic wrecking ball swung backward into The Very Donald who launched it.

The Court Smacks POTUS in the Mouth

Yesterday, the U.S. Court of International Trade in Manhattan ruled that Trump’s sweeping tariffs violated the Constitution and the very law he invoked. According to the ruling, the IEEPA doesn’t grant the president “unbounded tariff authority.” Why? Because only Congress has the power to regulate trade. Imagine that—a court reading the Constitution.

To be clear, this wasn’t some slap-on-the-wrist decision. It blocked nearly all of the tariffs imposed under the April declaration—yes, the ones that rattled markets, sparked inflation fears, and sent multinational supply chains into convulsions.

My good friend and Editor of the 5 Bullets, Dave Gonigam, posted on our Slack channel that “the 3-judge panel includes a Trump appointee, a Reagan appointee, and an Obama appointee.”

Give Dave huge kudos: his 5 Bullets edition on May 9th is titled, “Unconstitutional.”

First, the 3-judge panel makeup means this wasn’t “lawfare.” Second, the Supreme Court will likely rule similarly if the decision reaches that level. And finally, this RINO Congress better get up off its ass and do something with the majority it has or the Trump 47 Administration is kaput.

Tariffs on steel, aluminum, and autos from previous statutes? Still intact.

The catch-all 10% tax on everything else? Dead, at least for now.

The Economic Wreckage (Before the Ruling)

Let’s recap the economic fallout of the Tariff Tantrum.

Markets plunged in April. Trillions of dollars in equity value were wiped out in a matter of days. Consumer prices rose, particularly for goods such as electronics, automobiles, and household appliances. Projections warned of a 6% decline in GDP and a 5% reduction in wages over the long term. A typical middle-class household faced a $22,000 lifetime loss. Inflation expectations surged. Recession alarms started ringing again.

In short: “America First” looked suspiciously like “America Finished.”

The Market Rebound (After the Ruling)

And then came the relief rally.

Following the court’s ruling, the Dow, SPX, and Nasdaq futures all popped. Traders exhaled. Even industrials—those supposedly “protected” by tariffs—joined the rally.

The message? Markets aren’t buying the protectionist Kool-Aid anymore. Investors want stability, not artificial barriers. They’d rather deal with China than deal with The Donald’s executive orders.

What Was Trump Thinking?

According to the Trump administration, the trade deficit was an existential threat to American security. Never mind fentanyl, China’s missile buildup, or TikTok harvesting your toddler’s data—imports from Canada and Germany were the real danger.

And to be honest, I don’t blame him. With the current mode of operation, America’s middle class has been hollowed out, and Ross Perot’s famous “sucking sound of America’s jobs” leaving for other countries has become a reality. Something has to be done. Tariffs curtail consumption. America’s consumption, at 68% of GDP, is among the highest in the world. So he tried to get Americans to stop buying so much, especially from abroad.

Trump tried to use IEEPA as justification because it allows the president to act in times of “unusual and extraordinary threats” from abroad. But the court pointed out the obvious: trade deficits are neither unusual nor sudden. They've been around since Reagan. Declaring trade deficits a “national emergency” is confusing paper cuts with a gaping bullet hole.

As the court bluntly stated:

We do not read IEEPA to delegate an unbounded tariff authority to the President.

Translation: Nice try, but you’re President, not Emperor.

Who Fought Back?

This wasn’t just an abstract legal battle. The suit was brought by a coalition of small businesses and several U.S. states, led by Oregon Attorney General Dan Rayfield, who summed it up like this:

President Trump’s extensive tariffs were illegal, reckless, and economically damaging… They drove up prices and placed an undue burden on American families.

Economist Eswar Prasad added the cherry on top:

The ruling makes it clear that the broad tariffs imposed unilaterally by Trump represent an overreach of executive power.

What Happens Now?

Naturally, the Trump administration is appealing. They’ve already signaled this could go all the way to the Supreme Court. So we may not have seen the end of the tariff saga just yet.

However, the real takeaway is that this ruling serves as a constitutional check on executive overreach. It restores the balance of trade policy to Congress. Whether Useless Mike Johnson and his comatose Congress do anything about it is another question entirely.

What This Means for Investors

In the short term, the legal win is bullish. It removes uncertainty (for now) and restores some global trading confidence. Further along, if The Donald succeeds on appeal, the tariff shock may return—brace for renewed volatility. In the long term, however, this ruling, depending on how Congress reacts and the Supreme Court's response, may establish new limits on presidential power over trade. That’s bullish for checks and balances… and maybe for your portfolio, if you’re still invested in the broader markets, such as the Nasdaq.

Wrap Up

Trump’s tariffs may have been pitched as a patriotic defense of the homeland, but they came wrapped in a legal theory so shaky it couldn’t survive contact with a 1970s statute. The markets got whiplash, businesses got crushed, and now a court has officially called it what it is: executive overreach dressed in a very patriotic red, white, and blue.

The rule of law has just benched Tariff Man. And the market applauded.