TOKYO — Asia has spent the few days since the Supreme Court struck down Donald Trump’s tariffs bracing for what might come next from the most mercantilist White House in 125 years.
On Friday, the court ruled against the US president’s claim that the International Emergency Economic Powers Act of 1977 (IEEPA) gives him tariff powers. That, on the surface, is great news for Asia. Sure, Trump is already racing Plan B — a universal 15% tariff — into action. But this gambit will be tested anew in the courts and is subject to a 150-day limit.
Asia, of course, has long since adjusted to the idea of a 15% US import tax. While bad for trade, there’s comfort in knowing that the rate is the ceiling for Trump’s efforts to save face. Hence, the broad rally in Asian stock markets on Monday.
“Perhaps the most consequential impact of the Supreme Court’s decision is that it should curtail the threat or use of tariffs as the president’s preferred form of leverage or punishment outside the trade domain—from the threatened tariffs against European countries over their defense of Greenland or against Canada for agreeing to allow the import of electric vehicles from China, to the imposition of tariffs on Brazil for its treatment of former President Jair Bolsonaro,” notes Michael Froman, president of the Council on Foreign Relations. “Trump will need to find another way to express his pique toward other countries.”
On balance, says the former Treasury Department official, “this is a landmark decision by the Supreme Court, a setback for the Trump administration, and a reminder that checks and balances still operate. But in the long run, we are still likely to be living in a global economy defined by higher tariffs than existed prior to the Trump administration.”
Heather Long, the chief economist at Navy Federal Credit Union, adds that “in particular, it will be harder for the White House to impose tariffs without clear justification and due process. Businesses and consumers will get more clarity and lower rates going forward.”
What worries this region, though, is Trump’s Plan C. No one, not even Trump’s inner circle, can say what it might be. But as Trump’s domestic approval ratings drop, US growth slows and the Jeffrey Epstein scandal undoes his legislative prospects, Asia is on edge.
The risk of a caged and desperate US leader lashing out in unpredictable ways could make 2026 an even more chaotic year than 2025.
Make no mistake, Trump World is scouring Section 122 of the US Trade Act of 1974 — and Sections 201, 232, 301 and 338 — to figure out how to keep his trade war going. This is likely to mean a drip, drip, drip of announcements aimed at shocking the global trading system and showing the US political system who’s the boss.
“While not a total surprise,” the Supreme Court decision “signals more of a policy reset than a reversal,” says Bob Schwartz, senior US economist at Oxford Economics. “Other tariff tools remain readily available and are likely to be used aggressively to avoid large-scale refunds.” He adds that Trump’s “swift announcement” of a 15% replacement tariff “underscores that trade uncertainty is not fading — it is merely shifting form.”
Chris Krueger, managing director at TD Cowen Washington Research Group, says that “given Trump’s public ire against previous court rulings and tariff criticisms, we would not be surprised to see a meaningful tariff escalation/response from the White House sooner rather than later.”
Trump may also be trying his luck by expecting “partners” to make good on commitments that he demanded under faulty pretenses. Case in point: the US$550 billion “signing bonus” Trump extracted from Japan in exchange for a 15% tariff. Last week, Prime Minister Sanae Takaichi’s government announced the first $36 billion of possible investments in the US.
Yet Friday’s judicial smackdown should give Tokyo confidence to tell Trump the US-Japan tariff deal is now in flux, at best. This moment, after all, is the Liberal Democratic Party’s opportunity to get out of the abusive relationship it had with Trump 1.0 from 2017 to 2021 to Trump 2.0 today. The same goes for South Korea and the $350 billion bonus Trump World demanded.
There are other wildcards sure to keep Asian leaders up at night. One is that Trump simply ignores the judicial branch of government, daring Supreme Court justices to enforce their ruling. That could relieve the rapidly intensifying pressure on Trump World to refund the hundreds of billions of dollars the US Treasury Department has collected.
JP Morgan economist Michael Feroli expects Treasury Secretary Scott Bessent’s team to be forced to refund as much as $200 billion to US businesses. American states are demanding refunds, too. Illinois Governor JB Pritzker, for example, is seeking $1,700 for every family.
The US Chamber of Commerce was quick to say that businesses that paid tariff money to customs officials should be made whole immediately.
“Over the past year, the Chamber has been working with small and midsize businesses around the country that have seen significant cost increases and supply chain disruptions as a result of these tariffs,” notes Neil Bradley, the Chamber’s executive vice president and chief policy officer. “Swift refunds of the impermissible tariffs will be meaningful for the more than 200,000 small business importers in this country and will help support stronger economic growth this year.”
Economist Diane Swonk at KPMG notes that “unfortunately, I’d say curb your enthusiasm, although I understand the desire for relief. The reality is that the administration has been anticipating this and has warned that they will pull other levers to quickly reinstate any tariffs ruled illegal.”
Other risks involve Trump resorting to policies he’s long espoused. Might he move to weaken the US dollar? Trump World has long angled for a “Mar-a-Lago accord” akin to the 1985 “Plaza Accord.”
The attacks on the Federal Reserve are part of the same fever dream. Trump’s threats to fire Fed Chair Jerome Powell and other Fed officials are all part of an effort to weaken the dollar via lower interest rates.
It’s worth noting, too, the argument that the Trump family is making on the sidelines of his White House. A company partly owned by the president, World Liberty Financial, has been marketing a cryptocurrency alternative to the dollar called USD1. This “upgraded” currency would involve a stablecoin that tracks the dollar.
Really, who knows what Trump World is doing here? Trump officials have indeed talked about devaluing the dollar or canceling portions of US government debt held by adversaries spelled China. In other words, to default on the national debt.
Doubling down on a failing trade war is also quite the own goal. Despite all Trump’s efforts to rein in China, its trade deficit expanded to a record $1.2 trillion in 2025.
Nor has Trump brought manufacturing “roaring back” to America as he claimed. Between April and December, the US lost at least 72,000 manufacturing jobs.
Thanks to globalization, the US has been shedding manufacturing jobs for decades, notes Harvard economist Gordon Hanson. “But,” he says, “the tariffs haven’t helped.” The “continuing effects of the China trade, and the fact that the US has not done a lot of the things you need to do to restore manufacturing prowess.”
There’s no doubt that Trump’s tariffs have been a “shock to the world trading system,” says Yale University economist Stephen Roach. “While they have shifted the mix of our trade deficits away from highly tariffed nations like China, they have not reduced the overall trade deficit that weighs on US manufacturers and workers.”
Unwinding America’s linkages with Europe, Mexico and Canada would only divert their trade flows elsewhere and reduce the efficiency and security dividends that have long benefited America, Roach notes.
Predictably, in a fit of anger, Trump upped the ante on his counter to the ruling, citing a “thorough, detailed and complete review” of the SCOTUS ruling as justification for imposing a new temporary global tariff.
Unfortunately, the court said none of the above in its 170 pages of opinions. “Still,” Roach says, “the narrow finding that IEEPA-based tariffs are unconstitutional sends an important message to the American body politic, and for that matter, to the rest of the world.” He argues that US policies “must be value-based, not personalized by the vindictive and uninformed whims of a wannabe autocrat. SCOTUS drove that point home by standing up for the rule of law.”
The other question this moment raises for US competitiveness is what now? For a decade-plus now, Chinese leader Xi Jinping has been investing trillions in dominating the future of electric vehicles, renewable energy, aerospace, artificial intelligence, biotechnology, green infrastructure and robotics. Team Trump has no stated plan to build economic muscle by raising America’s game in chips, infrastructure and climate change.
In fact, Trump may be doing the exact opposite. At a moment when China’s largest electric vehicle maker, BYD, is shocking the industry with an ultrafast battery-charging system, Trump World is debating whether EVs are too “woke” for America while working to restore the primacy of catalytic-converter technology.
To date, Trump has largely relied on tax cuts, fiscal pump priming and lower Fed interest rates to stabilize the economy. The Supreme Court’s tariff ruling has economists even more stressed about the US government debt load racing toward $39 trillion.
“Tariffs had been functioning as a shadow tax that helped fund spending without explicitly raising taxes,” says Mark Malek, chief investment officer at Siebert Financial. “Remove that and the deficit widens, borrowing rises and historically that is the type of development that leans on the bond market and pressures yields higher.”
This could soon become Asia’s problem, as this region is home to the two largest holders of US Treasuries. And lots of export-oriented economies that are directly on the frontlines of the next wave of Trump tariff turmoil.
Follow William Pesek on X at @WilliamPesek