Could the Supreme Court Decision on Tariffs Trigger a Stock Market Correction? Here's What Could Happen

Market Rally Faces New Risks as Supreme Court Weighs Tariff Authority

Is a market crash coming if the Supreme Court invalidates Trump’s tariff powers? The question is increasingly urgent. The S&P 500 has climbed 17% this year despite economic headwinds, but a high court ruling against the administration’s tariff authority could upend that trajectory — not through depression fears, but through a more concrete fiscal mechanism.

The core issue: President Trump justified most tariffs using the International Emergency Economic Powers Act (IEEPA), a 1977 statute that never explicitly grants tariff-setting authority. The Court of International Trade struck down these tariffs as illegal in May; the U.S. Court of Appeals upheld that decision in August. When the Supreme Court heard arguments in November, multiple justices signaled skepticism about the tariffs’ legal foundation. A ruling could arrive within weeks.

The Real Risk: Unexpected Government Borrowing, Not Economic Collapse

While President Trump warned of a “Great Depression” scenario if courts reject his tariff authority, the actual threat to stock performance operates differently.

Approximately $90 billion in revenue was collected under IEEPA tariffs in fiscal 2025, according to U.S. Customs and Border Protection. Major corporations, including Costco Wholesale, have filed lawsuits or claims demanding reimbursement if the Supreme Court deems these tariffs unauthorized. Should the court rule against the administration, the government would face an unanticipated $90 billion obligation it never budgeted for.

The Treasury would address this gap by issuing additional Treasury bonds. However, bond investors concerned about mounting federal debt — the very problem tariffs were meant to solve — would demand higher yields to compensate for increased risk. When Treasury yields rise, stocks typically suffer, as investors find government bonds more attractive relative to equities. The S&P 500 could experience a sharp decline in such a scenario.

The Disconnect Between Tariff Rhetoric and Economic Reality

The Trump administration has downplayed the economic costs of tariffs. Treasury Secretary Scott Bessent claimed tariffs aren’t taxes, contradicting both major dictionaries and mainstream economic analysis. He also argued tariffs would strengthen labor and manufacturing — a narrative undermined by recent data.

Since tariffs began in earnest this year:

• Hiring has slowed to a pace unseen outside pandemic periods
• Unemployment reached 4.4% in October, the highest in four years
• U.S. manufacturing has contracted for nine consecutive months
• Consumer sentiment fell to 57.6 (annualized average), the lowest on record
• Inflation accelerated every month following the baseline tariff implementation in April

The Treasury Secretary simultaneously claimed that court rejection of tariffs would hurt Americans — yet the economic data suggests the opposite. Consumer spending drives roughly two-thirds of GDP; improved sentiment and reduced pricing pressures would likely benefit the economy and, by extension, equities.

Long-Term Perspective for Investors

A stock market decline triggered by Supreme Court action would not validate depression warnings. Instead, it would reflect a technical fiscal reality: unexpected borrowing costs rising as confidence in U.S. fiscal management wavers. This is distinct from fundamental economic deterioration.

Over the past 30 years, the S&P 500 has delivered approximately 10.4% annualized returns. Historical patterns suggest similar long-term performance will persist regardless of short-term tariff rulings. Investors focused on multi-year horizons should view any market volatility surrounding the Supreme Court decision as a tactical fluctuation rather than a structural economic crisis.