First the banner, then the ruling: twenty-four hours of American short circuit

Posted on: 23 February 2026

First the banner, then the ruling: twenty-four hours of American short circuit

Thursday the banner and Friday the 6-3 ruling. A year of record tariffs and an unmoved $901 billion trade deficit. Ninety per cent of the bill picked up by American consumers. But do carry on believing someone else is paying.

On Thursday 19 February 2026, the United States Department of Justice unveiled a large banner bearing Donald Trump's face between the columns of the Robert F. Kennedy Building. "Make America Safe Again," reads the caption beneath the president's portrait rendered in shades of blue. Members of the National Guard walk past it on foot. It is an image that deserves a wall at the Tate Modern, in the section reserved for unintentional art.

Twenty-four hours later, on Friday 20 February, the Supreme Court of the United States declared illegal the tariffs Trump had imposed through the International Emergency Economic Powers Act. Six votes to three. The majority opinion was authored by Chief Justice John Roberts, joined by the three liberal justices and two conservatives appointed by Trump himself: Neil Gorsuch and Amy Coney Barrett. Only Clarence Thomas, Samuel Alito and Brett Kavanaugh dissented. The creature turned on its creator, which works splendidly as a plot twist in Gothic fiction but in American constitutional reality is simply the system doing what it was designed to do.

Roberts wrote a sentence worth framing next to the banner: "We claim no special competence in matters of economics or foreign affairs. We claim only, as we must, the limited role assigned to us by Article III of the Constitution." Translated from legalese into plain English: it is not our job to say whether tariffs are a good idea; it is our job to say the president cannot conjure the power to impose them. The same building where yesterday they hung the portrait today houses the ruling that dismantles the central economic policy of the second term. James Comey, former FBI Director, observed that the banner installers neglected to cover the inscription carved into the side of the building: "Where law ends, tyranny begins." Sometimes reality possesses a sense of humour no screenwriter would dare propose.

But let us set aside the aesthetics and examine the mechanism, because that is where the story becomes genuinely instructive.

Trump chose IEEPA as the legal vehicle for his tariffs not by accident. IEEPA is a 1977 law designed to give the president emergency powers in extraordinary situations: sanctions against hostile states, asset freezes, embargoes. No president in nearly half a century of its existence had ever used it to impose commercial tariffs. The reason is straightforward: the law never mentions the word "tariffs." But IEEPA offered something irresistible for an administration that wanted to act swiftly and without limits: no percentage cap, no time limit, no congressional review. A perfect institutional shortcut. A blank cheque signed in 1977 by a Congress that had not the faintest idea someone would use it to rewrite global trade policy.

Here the pattern that any observer of power systems recognises immediately emerges: whenever an actor concentrates too much operational capacity in a single legal instrument, it creates a catastrophic point of vulnerability. It works as long as nobody challenges the premise. Then the challenge arrives and everything built on that single foundation collapses at once. Not in stages, not gradually: all together. That is precisely what happened on Friday. Over sixty per cent of last year's tariff revenue, roughly $133 billion according to US Customs data, derived from duties imposed under IEEPA. That entire structure is now legally void.

The interesting detail is that the Court applied the same principle it had used against Biden over student loan forgiveness: the "major questions doctrine," the idea that Congress cannot delegate powers of enormous impact without saying so explicitly. If you wish to alter trillions of dollars of economic policy, Congress must authorise it clearly, not through a 1977 law that speaks of "regulating importation" during a national emergency. The pattern is bipartisan, which ought to give pause to anyone reading this through ideological lenses: when the American executive branch attempts to use existing laws for purposes those laws never envisaged, the Court eventually intervenes. It does not matter whether the president is Democrat or Republican. What matters is that the system of checks and balances, the one Madison and Hamilton designed in the eighteenth century precisely to prevent the concentration of power, still functions. For those of us watching from this side of the Atlantic, where executive overreach tends to meet rather less resistance, it is worth noting.

Now comes the part the mainstream commentary struggles to explain and which is the heart of the matter for anyone who must make real economic decisions.

The ruling does not eliminate the tariffs. It compels them through narrower institutional pathways. The administration has already announced it will use other legal authorities: Section 232 of the Trade Expansion Act of 1962, which requires specific Department of Commerce investigations and applies to national security; Section 122 of the Trade Act of 1974, which permits temporary tariffs up to fifteen per cent for balance-of-payments reasons but with a maximum duration of 150 days; Section 301, which requires formal investigations by the US Trade Representative with defined timescales. Each alternative pathway imposes institutional friction. Time, bureaucracy, percentage limits, deadlines, reviews. Precisely the friction that IEEPA allowed the administration to bypass and that the Constitution requires to exist.

The result is a paradox worth understanding: the administration will probably achieve similar tariffs, but more slowly, with less flexibility to change them at will and with greater scope for legal challenge on each one. This is exactly what American constitutional design produces when it works: it does not block the political objective; it forces it through institutional channels. It slows rather than stops. And in economics, speed is everything: every month of uncertainty is a month in which businesses cannot determine which tariff structure to use for planning investments, supply chains and contracts. For UK exporters navigating post-Brexit trade arrangements, this adds yet another layer of unpredictability to an already volatile landscape.

But the most devastating datum in this entire story is not legal. It is empirical. It emerged the day before the ruling, almost inaudibly, buried beneath the noise of the banner and the anticipation of the Court's decision. The American trade deficit in 2025 was $901.5 billion. Virtually unchanged from $903.5 billion in 2024. A reduction of 0.2 per cent. Two billion out of nine hundred.

Let us repeat that because it matters: an entire year of the most aggressive tariffs since 1930, duties that at certain points reached 145 per cent on Chinese goods, an average rate that leapt from 2.6 to 13 per cent and the trade deficit did not move. Indeed, the deficit on goods alone rose to $1.24 trillion, an all-time record. Imports from China fell 32 per cent, yes, but those from Taiwan doubled and those from Vietnam rose 44 per cent. The water did not vanish from the river; it found another course.

This is the datum that empirically falsifies the entire premise of Trumpian tariff policy. The thesis was: high tariffs reduce the trade deficit. The experiment was conducted under the most extreme conditions possible, with the highest tariffs in a century. The result is: no, they do not. Because the trade deficit is a macroeconomic function, not a commercial one. It depends on the relationship between national saving and investment. As long as Americans save less than they invest, they will import more than they export, regardless of how many tariffs they impose. Any serious economist has known this for thirty years. But politics does not operate on the basis of what economists know; it operates on the basis of what voters feel.

And here we arrive at you, spectators of this match. Because the thing nobody tells you, in the enthusiastic or indignant coverage depending on the grandstand, is that in this story you are the pawns. The Federal Reserve Bank of New York published a study last week analysing data through November 2025: ninety per cent of the tariff costs were borne by American businesses and consumers. Not by China, not by Europe, not by Mexico. By Americans. Ninety-four per cent in the first eight months, eighty-six per cent in November. The Kiel Institute in Germany reaches 96 per cent. The Tax Foundation, a nonpartisan think tank, calculates that tariffs cost $1,000 per household in 2025 and will cost $1,300 in 2026: the largest tax increase since 1993. And what was the benefit? The tax cut from the "One Big Beautiful Bill" returns approximately $1,000. The tariffs take away $1,300. The net balance for the average American family is negative.

In practice, the American government taxed its own citizens through tariffs, collected $287 billion in 2025, nearly triple the previous year and now the Supreme Court says the greater part of that collection was illegal. Businesses that paid may claim refunds. The process will be lengthy and expensive; the administration will do everything possible to make it maximally complex. Meanwhile, furniture prices rose 3.8 per cent, dishes and cutlery 5 per cent and Procter & Gamble raised the price of nappies.

The White House economic adviser Kevin Hassett responded to the New York Fed study by calling it "the worst paper in the history of the Federal Reserve system" and requesting the researchers be "disciplined." When political power demands the punishment of researchers who publish inconvenient data, that is not an economic signal: it is an institutional one. And it is not a good one.

The supreme irony, the one no screenwriter would have the nerve to write, is that Congress has now theoretically reclaimed its constitutional power over tariffs. The Constitution clearly states that the power to impose duties belongs to the legislature. The Court has reaffirmed that principle. But Congress will do virtually nothing, because imposing tariffs through recorded votes means assuming direct political responsibility for taxing imports. And no parliamentarian wants their name on legislation that raises the price of nappies. IEEPA was convenient for them too: the president did the unpopular thing while Congress washed its hands. Now that the shortcut is closed, watch how many rush to use the front door. The answer is: almost nobody.

Think carefully the next time you hear someone say that "tariffs protect American workers" or that "other countries are paying." They are not. Americans are. The Federal Reserve data says so. The Tax Foundation says so. The Kiel Institute says so. The Harvard Business School Tariff Tracker says so. Everyone who has examined the numbers instead of listening to rallies says so. And the trade deficit, the one that was supposed to shrink, remained precisely where it was: $901 billion. A monument to the distance between political narrative and economic reality.

The banner at the Department of Justice will remain hanging. The Supreme Court ruling will remain valid. The tariffs will probably be reimposed under other legal authorities, with more friction and less discretion. And Americans will continue paying the bill, with or without the president's portrait on federal buildings. The only difference is that now, at least, you know exactly how the game works. If you choose to carry on believing that someone else is paying on your behalf, that is your prerogative. But do not say you were not told.