The first is that there is no ‘national emergency’ that gives the US president licence to impose tariffs. And the second is that the US Administration overstepped the mark by imposing such punitive global tariffs that the significant tax revenues represent a foray into the arena of revenue generation; something that is dictated by Congress, not the lone actions of the president.

Many analysts argued before the tariffs were announced, in fact even before Trump won the election, that across-the-board tariffs would be deemed illegal. That has now happened. But they could still go ahead should the Supreme Court, for instance, deem them to be ‘legal’ should the Administration challenge the decision. That’s something that may well happen given the make-up of the Supreme Court is biased in a Republican direction.

Steven Barrow, Head of Standard Bank G10 Strategy, said the ‘legality’ of the tariffs would fall down on Trump’s claim that the US is facing a national emergency. There was certainly no emergency in the wider economy before Trump imposed tariffs, with inflation just above the Fed’s 2% target and the unemployment rate below the Fed’s definition of full employment.

Instead, the Administration used the argument that the US is running a large and persistent goods trade deficit. At USD1.2tr the goods deficit is undoubtedly large, but there is a surplus on services and if we look at the proportion of GDP taken up by the current account deficit it is around 3.8%. That’s less than the near 4% level from 2022 and above the low point of near 6% in 2016.

Another point is that the Administration claimed at one stage that the tariffs could pull in around USD600bn per year in revenues. While that figure is hotly disputed there is still something very unsettling about the fact that the President can push through one of the largest tax hikes in history without any need for Congressional agreement. It would be hard to envisage such a thing happening in any other country, or at least any other developed country. In fact, the US Constitution says that matters of tax should be down to Congress, not the president and, that too, suggests that what the Administration has done is illegal.

Of course, Steven Barrow doesn’t know how all this will end. Whether the US Administration will go as far as the Supreme Court to get it reversed, or whether it will simply comply with the ruling and seek other ways to punish countries it deems to be treating the country unfairly. This uncertainty creates even more complications when it comes to trying to judge the likely course of the US dollar. For what it is worth, we see three main implications.

The first, which relates to the short-term (meaning coming weeks and possibly months), is that the US dollar may meander sideways as traders and investors pull in their horns to avoid excessive exposure on either the bull or bear side for the dollar until the fog of tariffs finally lifts.

A second impact could be seen over the longer-term and this one is negative for the US dollar. It relates to the fact that the outlawing of US policy decisions by the courts only serves to sow more frustration and confusion about policymaking. Of course, other governments around the world are not absolved from legal challenges to policy. Germany’s Constitutional Court, for instance, has often been controversially involved in contentious policy decisions. But Steven Barrow senses that the US is on another level altogether, and a level that will sap faith in US policymaking and, hence, the value of the US dollar.

The third point is that, while a successful legal challenge to blanket tariffs may aid the US economy and lower inflation risk, the US dollar could still be undermined by speculation that, if the US can’t improve its trade balance through tariffs, it might seek adjustment through active dollar depreciation. Indeed, many seem to be arguing that devaluation is already a part of the strategy. “We are not sure about that but, if the tariff weapon is ripped away by the courts, the prospect of US dollar weaponisation may only increase”, said Steven Barrow.