A FIXED IDEA

Fixed Idea (idée fixe) 

‘A firmly held, irrational idea or belief that is maintained despite evidence to the contrary. It may take the form of delusion and become an obsession.’

APA Dictionary of Psychology.

One need not have a degree in psychology to conclude that President Trump suffers from a severe obsession with tariffs as an instrument of foreign policy to achieve a variety of international economic or other objectives. In the weeks since my last blog, he backed off his threat to impose tariffs on all countries trading with Iran. Then he threatened the EU with 25% tariffs when a number of EU members objected to his threat to invade Greenland. He backed off these tariffs, as well as the invasion, but his threat forced the EU Parliament to postpone ratification of the EU-US trade agreement that was concluded last summer. He subsequently threatened Canada with unspecified tariffs when he did not like a speech by Canada’s premier.

Thus, it was not surprising that when the US Supreme Court announced on February 20, 2026 that his International Economic Emergency Powers Act (IEEPA) tariffs were unconstitutional, he responded the same day with a new Executive order slapping 10% tariffs on all imports to take effect on February 24, 2026. Many, including myself, had predicted he would do this. His delusion prevents him from changing his beliefs in tariffs despite the evidence that his 2025 tariffs failed to improve the 2025 US trade deficit. The day before the Supreme Court announcement, the US Department of Commerce announced that the US trade deficit in 2025 had increased to a record of $1.3 trillion.

The Executive order imposing the new tariffs—probably prepared in anticipation of the Supreme Court announcement, conveniently failed to refer to the increase in the trade deficit in 2025 and only referred to the deficits in 2024 and earlier years of the Biden administration.

The authority under which the new tariffs were imposed is section 122 of the Trade Act of 1974 (19 USC #2132). It empowers the US President to impose temporary import surcharges of up to 15% or quotas, up to 150 days to address “large and serious” balance of payments deficits or fundamental international payments issues. They can be extended by a specific act of Congress. The authority had never been used before.

The White House staff probably did not originally tell Trump that he could raise tariffs by up to 15% under this Act. When he found out, he announced the following day on Truth Social that the tariffs would be raised by 15% not 10%. Thus, is policy made in Washington these days.

These developments have a variety of domestic and foreign economic implications:

Domestically, since the Supreme Court decision did not address the question as to whether the constitutionally illegal tariffs had to be repaid, we have already witnessed an avalanche of court actions by various importing firms seeking repayments—all of which the US Treasury has vowed to oppose.  The new tariffs are also likely to be challenged in the courts, ending up in the Supreme Court, as it is not at all clear what ‘large and balance of payments deficits’ are. The language in the Act may force the Supreme Court to delve into economic analysis which in its recent decision it wisely avoided. It is also unclear what will happen to the tariffs after the five months called for by the Act are over. Will Congress extend them? What if it does not and Trump tries to continue them? More litigation, more uncertainty.

Internationally, the new tariffs have implications for the agreements the US has signed with a number of countries. Specifically, if the tariff surcharges are set at 15 % questions are raised about the US deals with the UK and Australia which had set maximum tariffs at 10%. The EU had planned to finalize the previously delayed passage of the US trade agreement in the EU parliament on February 24, the very day the new tariffs are to be imposed. The Executive order appears to exclude de minimis tariffs also excluded in the US-EC agreement as well as a number of other tariffs on vegetables and trucks that had been reduced earlier. I suspect more delays may be in store until the implications of the new US actions are fully clarified.

Some pundits have asserted that history will mark the Supreme Court decision to declare the IEEPA tariffs unconstitutional as the turning point stopping Trump’s efforts to extend the powers of the Executive beyond the bounds of the US Constitution. It is too early to tell.

No matter what happens on other issues, the legacy of the Trump administration’s trade policy on the US and the global economy will be disastrous in at least the following ways:

-         In the short run tariffs are likely to cost the US consumer around $1000 per annum in increased cost of consumer goods.

-         Tariffs’ negative impact on the US GDP is likely to be small, perhaps as little as  0.1% - 0.2% of GDP since the trade sector is small relative to the whole economy, despite what Trump says. But given a 2025 US GDP of $31.49 trillion, this is still a large number-- $30-60 billion.

-         The longer term impact on the US and the global economy is more pernicious: it causes uncertainty which is bad for business, and for investment which needs policy continuity and stability.

-         The policy undermines the MFN principle which, with all its exemptions and compromises, has proven critical for the expansion of trade and the reduction of global poverty in the last fifty years.

In the meantime, stay tuned. Perhaps the US Congress, despite its traditional  protectionist tendencies, will wake up and, with the support of the US Supreme Court, will exert its power in ways written in the US Constitution that will limit the capacity of the US Executive from harming the US and indirectly, the global economy.