On September 9, the Supreme Court agreed to hear challenges to Trump's tariff regime. Two lower courts already ruled the tariffs illegal. The stakes: $750 billion to $1 trillion in potential refunds if the Supreme Court agrees. That money flows directly to U.S. companies that paid these import taxes at the docks - importers, manufacturers, retailers who wrote the checks to Treasury. The potential implications of a decision or indecision is profound.

Current Economic Backdrop

August CPI: 2.9%, up from 2.7% in July. Core inflation: 3.1%. The Fed will most likely cut 25 basis points next week - markets price it at 89-96% probability.

The jobs revision just delivered a record: minus 911,000 positions from April 2024 to March 2025. June showed a loss of 13,000 jobs - first decline since December 2020.

Restaurant inflation holds at 3.9%. Full-service runs 4.6%, limited-service 3.2%. Beef prices hit all-time highs at $11.88 per pound. Coffee surged 60% year-over-year.

All of this matters - but not as much as nine justices in black robes.

The Trillion-Dollar Constitutional Question

The Supreme Court will hear oral arguments in November on whether Trump exceeded his authority under the International Emergency Economic Powers Act. The tariffs cover 70% of U.S. imports. Rates range from 10% baseline to 50% on Brazil and India, with 25% penalties on Canada, China, and Mexico.

Treasury has collected $159 billion through July 2025. The Court could rule immediately after November arguments, though June 2026 remains possible. If tariffs continue through June, we're talking about $1 trillion in potential refunds.

Two federal courts said Trump overstepped, now The Supreme Court is getting ready to weigh in.

The Court's Political Math

Pure judicial philosophy suggests 7-2 or 8-1 against the tariffs. Originalists wouldn’t normally favor the executive grabbing the ‘power of the purse’, but party loyalty changes the math. Conservative justices face pressure to support a Republican president's signature policy. Still, at 46% chance of the court fully upholding the tariffs, our modeling suggests a nuanced outcome that nets out to a similar place as the betting markets - but for different reasons. 

What Betting Markets Are Missing

Prediction markets show 46% chance tariffs remain, 54% they're invalidated. But the real distribution is messier:

• Tariffs clearly invalidated: 25%

• Tariffs clearly remain: 20%

• Remand with guidance: 20%

• Remand without guidance: 10%

• Partial invalidation: 15%

• Procedural punt: 10%

That's 55% chance of ambiguity lasting 18-36 months. A remand adds years. We could be litigating this in 2029.

Kalshi's journey from 31% to 46% reflects traders slowly grasping this mess. Markets price binary outcomes. Reality offers extended confusion.

The smart money isn't betting on outcomes - it's betting on uncertainty.

Economic Scenarios

Scenario A: Tariffs Invalidated (25% probability)

$750 billion to $1 trillion flows back to importers and manufacturers. Import costs drop 10-50% overnight. The Fed just cut rates into this stimulus. Result: inflation reignites, dollar tanks, deficit explodes by $200 billion annually.

Scenario B: Tariffs Remain (20% probability)

Status quo. Tariffs stay. Inflation grinds higher at 3-4% annually. Business planning proceeds normally (new normal). Economic growth continues its current path toward general malaise.

Scenario C: The Mess (55% probability)

The Court remands to lower courts. Or invalidates some tariffs but not others. Or rules prospectively only.

Result: 18-36 months of litigation hell. Nobody knows what tariffs apply to what products. Investment stalls. Maybe China tariffs survive on national security grounds while "reciprocal" tariffs die. That's $400-500 billion in refunds but not the full trillion.

Risks of Unwinding Import Taxes

Treasury has every reason to panic. They just pushed through tax cuts without meaningful spending reductions. DOGE grabbed headlines but delivered little that moved the deficit needle.

The budget reconciliation bill already blew a hole in the deficit. Now subtract $200 billion annually in tariff revenue. The math gets ugly fast.

The debt explosion makes U.S. bonds less attractive just when Treasury needs to issue more. Fed cuts won't help if bond buyers demand higher yields for fiscal risk. Long-term rates could rise even as the Fed cuts short rates.

The toxic combination: massive fiscal stimulus from refunds, reduced revenue, exploding deficits, and rising long-term rates despite Fed easing.

Business Survival Guide

The 55% probability of extended ambiguity demands preparation:

• Model three scenarios minimum, not two

• Don't book potential refunds until received 

• Maintain supply chain flexibility even at higher cost

• Price as if tariffs stay forever

• Order inventory now - litigation could stretch to 2029

Importers face salvation or bankruptcy. Domestic producers face sudden competition or extended protection. Nobody knows which.

The Bottom Line

Three numbers matter:

• 46%: Chance tariffs survive

• 55%: Chance of extended ambiguity

• $1 trillion: What's at stake

The economy's biggest variable isn't inflation or employment. It's nine justices deciding if the president can tax imports without congressional authorization.

The irony: If the Court invalidates the tariffs, Trump gets the economic stimulus his administration wants through other means. If the Court upholds them, it preserves revenue but cements inflation above target.

It's not binary. It's a mess.

And the mess is the most likely outcome.

Data: BLS CPI/PPI August 2025, Polymarket/Kalshi September 2025, U.S. District Court for S.D.N.Y and Federal Circuit decisions 2024-2025