THE recent US Supreme Court decision striking down the use of emergency powers to impose sweeping tariffs is being reported as a legal setback for president Donald Trump. That is a narrow reading. The ruling is about who controls the allocation of economic resources in a modern capitalist democracy — an individual executive or representative institutions?
Tariffs are often presented as instruments of trade policy. In economic substance, they are taxes. They redistribute income across sectors, alter relative prices, reshape supply chains, and determine which industries expand and which contract. In other words, they are tools for reallocating national income. The power to impose tariffs is therefore not merely a trade prerogative; it is a fiscal and developmental authority.
The constitutional friction at the heart of this ruling lies in the delegation of powers — specifically, the extent to which Congress can cede its Article I, Section 8 authority to ‘lay and collect Taxes, Duties, Imposts and Excises’ to the executive branch. While past decades witnessed an expansive interpretation of statutes such as the Trade Expansion Act and the International Emergency Economic Powers Act, the Court has now signalled a return to non-delegation principles. By stripping away the ‘emergency’ veneer from routine protectionism, the Supreme Court has effectively mandated that any durable tariff must be enacted by Congress, not imposed by the stroke of a pen in the White House.
The Court’s decision therefore reaffirms a foundational principle of constitutional political economy: the power to tax belongs to the legislature because taxation determines the distribution of economic burdens and benefits across society. By ruling that emergency legislation cannot be used to unilaterally impose tariffs, the SC has drawn a line between rule-based economic governance and discretionary executive control. This distinction lies at the heart of the difference between institutional capitalism and personalised economic regimes.
In systems where major economic decisions are taken through predictable procedures, investors respond to policy rather than to personalities. The cost of capital is lower, long-term contracts are credible, and the private sector can plan beyond the electoral cycle. Where such decisions depend on the will of a single authority, uncertainty becomes a structural feature of the economy. Investment shortens its horizon, rent-seeking increases, and economic outcomes become tied to political loyalty rather than productivity.
This uncertainty is not an abstract concept. It appears as a measurable risk premium in international commerce. For a manufacturer in a developing democracy, an executive-driven tariff regime creates regime uncertainty: a sudden 25 per cent shift in a price floor can vaporise thin profit margins overnight. The result is higher hedging costs, more expensive trade insurance, and a systematic discouragement of long-term foreign direct investment. When policy is negotiated and transparent, firms can organise production around comparative advantage. When it is personalised, they must price in the volatility of an individual decision-maker, pushing the economy toward short-term, extractive activity rather than sustained industrial growth.
The attempt to justify tariffs under IEEPA reflects a broader global trend — the growing use of exceptional authority to achieve routine economic objectives. Trade deficits, deindustrialisation, and supply-chain vulnerability are real concerns. But when ‘emergency’ becomes a permanent instrument of economic management, institutional checks begin to erode.
The SC’s ruling raises the transaction cost of such unilateralism. Any future administration seeking large-scale tariff action must now build a legislative coalition. That process is slower and politically more complex, but it performs a crucial economic function: it converts discretionary policy into negotiated policy. Markets, firms, and trading partners can anticipate negotiated policy. They cannot anticipate personal decrees. For the global economy, this matters enormously.
The policy response following the ruling also reveals the continuing attraction of emergency-based trade authority. Proposals to impose a uniform tariff under IEEPA — a statute designed for short-term crisis management — underscore the constitutional issue at stake. Under IEEPA (50 USC §1702), after declaring a national emergency, the president may regulate international economic transactions and, as currently discussed in the policy arena, impose a tariff of up to 10 per cent for a period that is inherently temporary, commonly framed around a 150-day horizon. This time-bound character is crucial: it reflects the law’s design as an instrument for immediate stabilisation rather than for the durable reallocation of national income. A tariff regime that must periodically seek renewal through emergency justification is therefore structurally different from one enacted through Congress.
Over the past decade, one of the greatest sources of uncertainty in international trade has been the sudden imposition of tariffs through executive action. Supply chains were reconfigured not only because of comparative advantage but also because of political risk. The decision signals that the world’s largest economy is not entirely governed by executive discretion. That restores predictability to global commerce. For countries like Bangladesh, the implications are significant.
Export-orientated economies depend not only on market access but also on policy stability in destination markets. When trade policy can change overnight through emergency declarations, smaller economies face a risk premium that has nothing to do with their competitiveness. A rule-based process reduces that uncertainty. It does not guarantee free trade, but it makes trade policy more transparent and therefore more manageable. There is also a lesson here for developing democracies.
Economic governance through personalised authority often appears efficient. Decisions are faster, opposition can be bypassed, and policies can be announced with dramatic effect. But the long-term cost is institutional fragility. When economic power is concentrated in the executive, access to that power becomes the primary route to wealth. Patronage replaces productivity as the organising principle of the economy.
This is why the Court’s reminder that the architecture of capitalism is institutional before it is ideological is so important. It functions as a guardrail against crony capitalism. In a personalised system, the most valuable asset a firm can possess is not an innovative product but proximity to power. Competition shifts from markets to political access. By dispersing the authority to reallocate national income across multiple branches of government, the ruling helps ensure that economic success remains tied to productivity and demand rather than political fealty.
This is why the decision is not simply about tariffs. It is about whether economic policy in a major capitalist democracy will be conducted through procedures or through proclamations.
The broader irony is that protectionism itself does not disappear with this ruling. Tariffs can still be imposed through established trade laws. What changes is the method. Protectionism must now pass through democratic bargaining rather than executive declaration.
That shift — from unilateral discretion to institutional negotiation — is economically more important than the tariff rates themselves. In a world where strongman models of economic governance are gaining visibility, the decision sends a counter-signal: even in periods of political polarisation, institutional constraints can still shape economic policy.
For countries struggling to build credible economic systems, that may be the most important message. Sustainable development does not depend only on what policies are adopted. It depends on how those policies are made.
Dr Abdullah A Dewan is professor emeritus of economics at Eastern Michigan University, USA, and a former physicist and nuclear engineer at BAEC.
