Trump’s two presidencies

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The recent 6-3 ruling by the US Supreme Court that struck down President Trump’s sweeping tariffs is more than just a legal setback; it is a systemic correction that brings the Two Presidencies Thesis into stark relief. According to this thesis, the US President is granted wide latitude in foreign policy. But, as soon as the policy pendulum swings too far on domestic issues, the system corrects itself through checks and balances.

Trump’s tariffs were designed as disincentives to force manufacturing back to American soil. Also, revenue streams from tariffs were central to his economic messaging about making foreign countries pay their “fair share” toward reducing the US fiscal deficit and national debt.

However, Chief Justice John Roberts, along with five other justices, including Trump appointees, have delivered a somber verdict. President Trump cannot use the International Emergency Economic Powers Act (IEEPA) as a blank check to reshape global trade. The court held that while the US President may regulate imports, he does not have the authority to impose tariffs as, like taxes, they also raise revenue. Analysts have hailed this decision as a reaffirmation of US Congress’s constitutional power of the purse.

Continuous political and economic uncertainty will negatively impact the value of the US dollar, thereby causing ructions within the international financial system. - Dr. Aqdas Afzal

Continuous political and economic uncertainty will negatively impact the value of the US dollar, thereby causing ructions within the international financial system.

The immediate reaction from the White House was predictable. The Trump administration made a quick pivot to the Trade Act of 1974 to impose a 10 percent global tariff. Still, this is not a seamless workaround. Section 122 of this Act is a temporal straitjacket, limiting tariffs to 150 days, unless duly ratified by the Congress.

This regulatory churn will create more problems for many nations. For Pakistan, which negotiated a 19 percent duty under the now-defunct emergency powers, economic policy battles in Washington translate into a commercial migraine in Karachi and Faisalabad. Exporters who had priced their goods based on the previous tariff structure are now left guessing whether the rate will hold at 10 percent or shift again.

The core of this crisis, however, is linked to a $134 billion question. What happens to the tariffs already collected? President Trump had grounded his rationale for imposing tariffs on improving the US fiscal position through increased revenue for debt reduction. For this reason, even though the US Supreme Court has remanded the issue of tariff refunds to lower courts, the administration appears reluctant in refunding already-collected tariffs back to Corporate America. On the other hand, if Corporate America succeeds in reclaiming these billions, the entire fiscal math of the Trump administration will collapse.

In the wake of this ruling, continuous political and economic uncertainty will negatively impact the value of the US dollar, thereby causing ructions within the international financial system. Already, there is evidence of a divergence between the dollar and usual correlations like interest rates. Economists are interpreting this as the market signaling a loss of faith in US policy coherence.

Moreover, for decades, the dollar’s dominance— how widely it is used globally— rested on three pillars of deep capital markets, the rule of law, and policy predictability. Where the Supreme Court’s ruling reinforces the second pillar, the ensuing political fights will definitely weaken the third. Central banks are watching closely. Every episode of institutional friction will accelerate the gradual shift toward local currency settlements and gold reserves.

Interestingly, some analysts suggest this ruling might be a blessing in disguise for Trump ahead of the midterm elections this November. By pushing the pause button on tariffs, the court may inadvertently cool inflation just before voters head to the polls. This, however, overlooks a brewing political storm. The fact that Republican-appointed justices ruled against the administration signals a deep unease within the conservative movement regarding some of Trump’s economic policies.

For Pakistan, there is a twofold takeaway. In the immediate term, though the reduction from 19 percent to 10 percent may appear as a relief to textile and garment sectors, President Trump is in no mood of backing down, not least because of the multiple levers with which he can force different nations to comply.

But the long-term outlook is troubling. The US is Pakistan’s largest single-country export destination. When US economic policy becomes a ping-pong match between the executive and judiciary, Pakistani exporters bear the risk of canceled orders and currency instability.

The US Supreme Court’s ruling has reinforced the Two Presidencies Thesis. But in so doing, it has also reminded the world that American exceptionalism is slowly giving way to erratic economic policies. All said and done, there is a clear message for Pakistan’s policymakers. Diversification in export destinations isn’t just a strategy; it is survival.

The writer completed his doctorate in economics on a Fulbright scholarship. X: @AqdasAfzal 

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