Supreme Court Strikes Down Trump Tariffs, Raising Fears of a Larger U.S. Debt Crisis
An “alternative scenario” pointing to a far more severe national debt emergency is emerging after the Supreme Court of the United States invalidated former President Donald Trump’s tariff measures.
The U.S. Supreme Court has ruled Donald Trump’s tariffs illegal, potentially worsening the national deficit. Experts warn the loss of tariff revenue could push federal debt to 131% of GDP by 2036.
On Friday, the high court determined that the sweeping tariffs imposed during Trump’s first year back in office were unlawful. The ruling followed mounting opposition from small businesses burdened by rising expenses and from many Americans who questioned the overall benefits of the administration’s trade strategy. While the decision dismantles a central element of Trump’s trade policy, it could also intensify the country’s already expanding budget deficit.
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America’s fiscal trajectory is widely regarded as unsustainable. Earlier this month, the Congressional Budget Office projected that federal debt will climb to 120% of GDP by 2036, assuming current policies remain unchanged. However, a combination of additional pressures could drive borrowing even higher than anticipated.
Among those pressures is the uncertain future of tariff-generated income. A Thursday report from the Committee for a Responsible Federal Budget noted that tariff revenues have somewhat eased the severity of the nation’s fiscal outlook. Eliminating that revenue source, the group warned, would create an “alternative scenario” in which the debt burden surpasses CBO expectations.
If the tariffs are not substituted with other revenue measures and certain federal programs are extended or reinstated, the deficit could approach $4 trillion. Under that projection, debt would rise to 131% of GDP by 2036, and additional interest costs would total roughly $820 billion.
The mechanics behind this shift are significant. The CBO’s baseline outlook assumes that substantial tariff revenues introduced by the Trump administration will continue flowing into federal coffers. Yet the legal justification for those collections collapsed in court. Most of the duties were enacted under the International Emergency Economic Powers Act, legislation never previously used to levy tariffs and already deemed unlawful last year by the U.S. Court of International Trade.
Should the administration fail to compensate for the lost income through alternative taxes or spending reductions, the CRFB estimates federal revenue would decline by $1.9 trillion through 2036 — about 0.5% of projected GDP over the next decade. Although policymakers could attempt different trade mechanisms to recreate the tariffs, there is no certainty such actions would withstand legal scrutiny or proceed without disruption.
The immediate fiscal hit could be substantial. Analysis from the University of Pennsylvania’s Penn Wharton Budget Model indicates the government may need to return $175 billion in tariff collections. Longer term, the disappearance of $1.9 trillion in anticipated revenue would not only widen the annual shortfall but also amplify debt through compounding interest.
Without a primary funding stream like tariffs, the federal government would need to borrow more to meet existing commitments. The CRFB’s alternative model factors in the permanent extension of temporary tax measures from Trump’s One Big Beautiful Bill Act and the possible reinstatement of enhanced Affordable Care Act subsidies that expired earlier this year. Combined, these elements could increase deficits by $4.2 trillion over ten years. Escalating interest expenses may then crowd out other essential federal priorities as debt servicing consumes a larger share of the budget.
CRFB analysts cautioned that their alternative projection does not incorporate potential ripple effects on interest rates or economic performance, both of which could further deteriorate the fiscal outlook and push the nation deeper into a debt spiral.
The report also presents a more optimistic path. Under that scenario, lawmakers would allow temporary tax cuts to lapse or fully offset their costs while preserving or legislatively replacing tariff revenues. Together with reforms to stabilize trust funds such as Social Security, this approach could limit debt growth to 111% of GDP by 2036.
For the moment, however, the fiscal outlook continues to worsen. Although removing the tariffs may be welcomed internationally and by many Americans — particularly since up to 90% of tariff costs are reportedly borne by domestic companies and consumers, according to a New York Fed analysis — eliminating them without replacement revenue could produce significant long-term consequences. The risk of a more severe debt crisis may shift from possibility to reality.
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