Trade War Chaos Explodes on the Fake Emergency Detour

For six months straight, manufacturing has been receding, according to the Institute for Supply Management. What I find most revealing in today’s ISM report about this period of manufacturing recession are the comments that tell a tale on tariffs that confirms the cost of chaos, itself. That chaos just got a huge jolt over the Labor Day weekend when a US federal court voted 7-4 to declare most of the Trump Tariffs illegal on the basis that his emergency is a “fake emergency.”

To me, the faked emergency was obvious from the start because we’ve had the trade situation that we started all of this new trade war mess off in for decades. Trump may not have liked our trade relations; many people may not have thought we had fair trade; but it certainly wasn’t an emergency since even Trump didn’t solve it during his entire first four years and we were doing better before all of this than we are now.

How much of an “emergency” could it have been if it wasn’t worth completely solving back then? Our trade relations have, however, become much more like an emergency as a result of the trade wars. Trump’s emergency claim was obviously nothing but a hyuge power grab to take the tariff power he covets away from congress. I’m surprised the court was not unanimous in declaring the present situation a non-emergency.

Now we have what has, for the moment anyway, been determined by a large majority decision on the court as months of illegal, extraordinarily costly tariff pressure applied by this president throughout the world(!) slammed into reverse with nations and businesses all over the world, but especially in the US, having to correct back the other way. What an economic disaster due to presidential pride and overreach. The fallout will be with us for years … like the global Covid lockdowns in Trump’s first term, and the benefit to the US will, as Trump’s Treasury Secretary just said, be global disgrace for the US.

One of the most telling comments about the chaos created by Trump’s on-and-off-and-on-and-on-again tariffs was a description of the current business environment as "much worse than the Great Recession." Some business leaders would rather have to figure out how to navigate all of that disaster again than try to beat a way through the brush and swamps created by different tariffs everywhere going on and off on a daily basis.

The Institute for Supply Management (ISM) survey on Tuesday also showed some manufacturers complaining that the sweeping import duties were making it difficult to manufacture goods in the United States.

That is the exact opposite of Trump’s stated tariff goal, which was to make businesses want to do business here. Tariffs on average are now the highest they have been in an entire century because Trump sought to raise taxes astronomically on Americans by claiming that foreigners would pay for all of it and getting American’s to buy into that.

Now his tariffs have not only been turned back off as an unconstitutional power grab, but the court has indicated the US government will have to pay all of that back, which gave Treasuries a jolt today and sent stocks back down. Imagine what increasing government funding enough to pay for the current enormous deficits under Big Beautiful Bill plus to make up for the lost ongoing revenue Trump was counting on in Big Beautiful Bill from tariffs PLUS to immediately pay back the tax revenue already wrongly collected from Americans will do to Treasury auctions. It won’t be pretty!

For now, however, the court has said the government can continue until the appeal process works through its inevitable higher levels, but that will only make the return even harder down the road if the Supreme Court doesn’t decide quickly, unless it decides in favor of Trump. Trump may also take an alternative route, as I pointed out in the weekend Deeper Dive and try to strong-arm his slim congressional majority into passing his tariffs the proper way.

In the meantime, this really leaves businesses with no idea as to how to operate or what will happen with their expenses or whether to pass along the cost of tariffs to consumers or try to hold out a little longer on the hope that this will all fade away like a bad dream, thanks to the Labor Day court decision. Naturally, when businesses have no idea how to plan, they slow down. Recession.

Today’s ISM report also contained a surprise.. If you really believed that the Trump Tariff wars were bringing business back to the USA, the ISM had a different take:

That was reinforced by government data showing spending on the construction of factories dropped in July and was down 6.7% from a year ago. A U.S. appeals court ruled last Friday that most of Trump's tariffs were illegal, adding more uncertainty for businesses.

If that decline in factory construction is true, that’s a big failure (so far anyway) of Trump’s prime objective from all of this madness. Even though we’ve heard some stories of companies like Apple promising to build new factories here, we’ve not seen much follow-through; and we have no way of knowing if that kind of promise under extreme tariff duress is just a dodge to avoid the tariffs since Trump has promised to hold the tariffs off if companies make such promises. You put a gun in someone’s mouth, and say, “Talk,” they’re going to say something.

Apple and others may figure they can play it out long enough to wait out the present administration, calculating it would be cheaper to look like they’re trying to build a factory here than to pay the enormous tariffs on most of their sales in the next few years. According to ISM, on net, the amount of factory construction has plummeted.

The failure to deliver on the promise of bringing business back to America out of the ashes of all of this chaos only makes all the comments about the chaos that were registered in the report prior to this weekend’s Trump Tariff turnover all the more poignant:

• "I continue to see the broad economy generally and the manufacturing sector in particular as in a holding pattern until tariff-related uncertainty recedes," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets….

• Some makers of transportation equipment said conditions were worse than the 2007-09 recession, adding "there is absolutely no activity" and "this is 100 percent attributable to current tariff policy and the uncertainty it has created." Some viewed the conditions as consistent with "stagflation…."

• Some electrical equipment, appliances and components producers complained that "'made in the USA' has become even more difficult due to tariffs on many components…." Others reported that because of the lack of "stability in trade and economics, capital expenditures spending and hiring are frozen…."

• Manufacturers of computer and electronic products said "tariffs continue to wreak havoc on planning and scheduling activities," adding that "plans to bring production back into (the) U.S. are impacted by higher material costs, making it more difficult to justify the return."

• Food, beverage and tobacco products manufacturers warned that everything made of organic sugar was "about to get significantly more expensive" because of a 50% tariff on imports from Brazil and the U.S. Department of Agriculture's elimination of the specialty sugar quota….

• ISM Manufacturing Business Survey Committee Chair Susan Spence said that for every positive comment about new orders there were "2.5 comments expressing concern about near-term demand, primarily driven by tariff costs and uncertainty."

While tariffs have been slow to pass through as higher prices, again the reason noted in the report is the very reason I said they would be slow, at first, to pass through:

Businesses are still selling merchandise accumulated before the import duties kicked in…. But inventories were drawn down in the second quarter and companies have warned tariffs are raising their costs, which economists expect will eventually be passed on to consumers.

As I noted in the weekend Deeper Dive, this kind of major overthrow of massive amounts government work is what you get with a president who wants to rule like a king in order to avoid congress’s more deliberative process, slow and deliberate being a safety feature the founding fathers always saw as important. Their goal was not to speed up political decisions, but to make sure they were not rash.

Rash decisions get thrown out left and right by courts and cause all kinds of chaos because they are rushed through and not well thought out just like we’ve seen with DOGE rehires after the firings turned out to be detrimental to the things government needed to get done. That’s in the news again today, with Team Trump saying they are going to hire back a good number of their IRS fires so that the job can continue to get done. They might have wanted to figure out what could really be cut before turning the decision over to high-schoolers with names like “Big Balls.” They need people who think with something else.

Imagine the needless (if the recent court decision stands) chaos this has created for all of our trading partners all over the world if they engaged enormous amounts of their government talent and their energy to hammer out tariff deals only to find out that the king never had the authority to be forcing such deals in the first place. Imagine their anger to find that it was all for nothing!

Imagine all the needless actual damage to businesses all over the world that held off or altered plans based on how they thought the map was going to change, possible engage in hirings and firing accordingly … if it all turns out to be for nothing. Talk about the US making itself look like the most temperamental and unreliable trading partner in world history. Fortunes have been spent already in redrawing trade maps for supply chains, cancelling contracts, starting new contracts, in some cases building new facilities. What a fiasco if it turns out the Supreme Court agrees that Trump never had the constitutional authority to do any of this!

We could be reeling in years of economic damage equal to that caused by the ill-conceived Covid lockdowns in Trump’s final year of his first term … and all for nothing!

It is unclear exactly where the case goes from here. The Trump administration could quickly appeal the ruling to the Supreme Court, or it could allow the trade court to revisit the matter and potentially narrow the injunction against his tariffs.

“Our trading partners must be dazed and confused,” Wendy Cutler, a senior vice-president at the Asia Society Policy Institute and veteran US trade negotiator, wrote in a post on LinkedIn. “Many of them entered into framework deals with us and some are still negotiating.”

Trillions of dollars of global trade are embroiled in the case, which was filed by Democratic-led states and a group of small businesses. A final ruling against Trump’s tariffs would upend his trade deals and force the government to contend with demands for hundreds of billions of dollars in refunds on levies already paid….

Friday’s ruling by the US Court of Appeal for the Federal Circuit held that Trump was wrong to issue tariffs under IEEPA, a federal law that the panel concluded was never intended to be used in such a manner. Indeed, the court noted that the law does not mention tariffs “or any of its synonyms”.

“Once again, a court has ruled that the president cannot invent a fake economic emergency to justify billions of dollars in tariffs….”

What a Trumped-up mess! And it may even be, that having been strong-armed into all of this by “strong-man” leadership, our trading partners, which have created their own retaliatory tariffs in the legitimate legislative way may just decide to keep theirs all in place now that they have them in play. Hopefully not, but who knows?

Hours before Friday’s ruling dropped, Trump cabinet officials told the appeal court that striking down the president’s tariffs would seriously harm US foreign policy, with Treasury Secretary Scott Bessent saying it would lead to “dangerous diplomatic embarrassment” and undermine trade talks.

Indeed, it would because it would show the world our government is utterly inept, and it would call into question the legitimacy of many other things the president has done under the rubric of “emergency” powers. It would be massive! And the egg on the face would be all yours, Bessent, and the rest of your team’s for doing this to us and not being prudent in understanding the limits on the powers accorded to you and those reserved clearly for others. But we’ll see what Trump’s Supreme Court says, having already said he can do anything he wants on a criminal level and not be held guilty so long as it is done as an official act of the president. With that precedent, who knows where they will go in extrapolating new higher powers and protections for this president?

On Friday night after the court move, Trump posted on social media that if the tariffs went away, “it would be a total disaster for the Country”.

Yes, your disaster because, if your tariffs ever go away, it will be because you faked an emergency and so never had the legitimate power to do any of this. It will be a disaster that we all get to live through. We all get to bear the enormous economic costs already created.

In the meantime, the uncertainty as to whether the president even has the powers he’s claimed will likely make all nations that are still in deliberation with the US put their negotiations on hold. Why spend more energy going down this road if the president is operating completely outside the constitution to where his threats will all be overruled?

What a colossal mess.

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