A tiny French wine importer just dismantled the core of Donald Trump's trade policy — and the Supreme Court agreed with them. That's the story here, and it's far bigger than it sounds.
When the Supreme Court struck down most of the tariffs the Trump administration had imposed under the International Economic Powers Act, it wasn't just about wine. It was a fundamental reassertion of how the US government is supposed to function. The court ruled that the power to tax belongs to Congress alone under Article I of the Constitution — and they never delegated that power to the executive through vague laws about national emergencies.
The Legal Victory That Started in a Wine Cellar
The unlikely champion of constitutional limits on trade policy was a small, largely unknown wine importer called VOS Selections. They along with a few other small firms took their case all the way to the Supreme Court because they didn't agree that the president had the right to tax their French Chardonnay just because he declared a national emergency.
Their argument was simple: the administration was using the wrong tool for the job. The legal basis for most tariffs rested on the International Emergency Economic Powers Act — a law designed in the 1970s to allow a president to freeze bank accounts of rogue states or stop people from shipping high-tech weaponry to terrorists. It was never meant to be a general taxing authority that bypasses Congress.
The word "tariff" doesn't even appear in that law.
During oral arguments, justices raised a hypothetical that should give pause to even the most ardent tariff supporter. What's to stop a future Democratic administration from declaring a climate emergency and slapping massive taxes on every gas-powered vehicle or diesel truck that crosses the border?
You can't just find a mouse hole in a 50-year-old statute and shove a ten-ton tariff elephant into it.
The court's conservative majority applied what they call the major questions doctrine — based on an idea famously described by the late Justice Scalia: Congress does not hide elephants in mouse holes. The idea is that if Congress had actually intended to give the president power to unilaterally tax Americans to the tune of hundreds of billions of dollars, they wouldn't have hidden that power out of sight in an unrelated law about national emergencies.
Critics might note that this ruling creates some tension with other recent conservative victories — including those striking down President Obama's Clean Power Plan and President Biden's student loan forgiveness. In those cases, the same majority argued you can't use vague old laws to push through massive policies that Congress never voted for.
The Economic Results Were Equally Unimpressive
While legal battles played out in Washington, actual economic data started showing results — and they were not what the administration promised.
Despite a year of aggressive protectionism, the US trade deficit actually hit a fresh record high of $1.2 trillion last year. If you look at the list of the top 10 exporters to the US since the election, you'll notice it has barely changed. slapping a tax on an iPhone doesn't magically make a factory appear in the Midwest overnight. Moving big factories takes years, if not decades.
Most businesses aren't willing to spend $30 billion on a new plant when the rules of the road are being changed by a tweet once a week. Instead of a manufacturing boom, the constantly fluctuating tariffs mostly created a boom in business uncertainty. Firms have been hesitant to hire or invest because they know the economic rationale for a new project might vanish long before completion.
You might think that a multi-billion dollar trade policy like this would be taken down by a huge firm like Apple or Walmart. But the David who actually slew the Goliath of Trump's trade policy was VOS Selections — a tiny wine importer.
One massive driver of the record trade deficit was the AI boom. To build infrastructure for the ongoing AI revolution, US firms had to import a record $3.4 trillion worth of computer parts and equipment. Since most of these high-tech components weren't hit by the initial tariffs, no import duty was charged.
We also saw a massive stockpiling effect. Fearing that the tariff man was about to close the gates, American businesses rushed to import as much as they could in early 2025 to get ahead of any new taxes. The administration claimed a small victory when the deficit appeared to dip slightly later in the year, but economists pointed out this wasn't because the tariffs were working — it was simply the result of firms drawing down massive inventories they'd accumulated in anticipation of the new duties.
The Dollar Weakness Paradox
Now here's where the story gets interesting. Wall Street consensus says tariffs are supposed to be dollar positive. The logic is that tariffs lower demand for imports, which means fewer dollars are being swapped for foreign currencies like the yen or euro. With less supply of dollars sloshing around abroad, the value of the greenback should go up.
But a funny thing happened on the way to the trade war. Since implementation of these tariffs, the dollar hasn't soared. It's actually weakened significantly, falling by roughly 10% over the last year. This decline makes imported goods even more expensive than the tariffs alone — it now takes more dollars to buy the same Japanese machine parts or European wine.
For US savers, this has been particularly painful. They've effectively seen their global wealth decline by double digits over the last year just by holding the world's reserve currency.
This led a number of analysts to wonder if the famous dollar smile theory is finally broken. The idea was famously put forth by economist Steven Jen during his time at Morgan Stanley. He argued that the dollar thrives in two extreme scenarios: it rises when the US economy is booming as investors want to move their money where the action is, and it also rises when the world is in a crisis as everyone rushes to the safety of US treasuries.
We saw this happen in the global financial crisis. But investors are now worried that if the US is deliberately causing economic problems, its safe haven status no longer makes sense. Investors might avoid the dollar in difficult times if they feel the US government is busy bricking institutions that historically made it a safe haven.
The Administration's Plan B
The White House response was predictable. President Trump held a press conference where he described the justices as fools, lap dogs, and unpatriotic. He even claimed the court had been swayed by foreign interests — a wild allegation to make against the highest court in the land. He singled out some of his own appointees, calling justices Amy Coney Barrett and Neil Gorsuch an embarrassment to their families for having the audacity to read the Constitution literally.
Investors correctly assumed that the tariff man would do exactly what he ended up doing once the verdict was announced: start rebuilding his wall using different albeit fiddlier legislation.
Within hours of the Supreme Court ruling, Trump signed a new proclamation to bypass the court's decision. He pivoted away from the now illegal IEPA and instead invoked Section 122 of the Trade Act of 1974 — another obscure, never-before-used provision that allows a president to impose temporary surcharges of up to 15% to address large and serious balance of payment deficits.
Initially, the White House announced a global 10% tariff under this new authority. But by Saturday morning, Trump had clearly had time to sit with his anger, and he tweeted out that he was hiking the rate to the maximum allowable 15% effective immediately.
There are a few fussy details with Plan B that might make it less effective than the original IEPA tariffs were. The biggest issue is the 150-day time limit. Unlike previous tariffs, Section 122 tariffs expire after 150 days — meaning in late July, which is a bit before midterm elections. To keep the taxes going beyond 5 months, the president would have to get a vote of approval from Congress — the very body he's been trying to bypass up until now.
Then there's the problem of the 15% hard cap. Section 122 has a legal ceiling of 15%, which means the administration can no longer use the 25% or 50% punishment tariffs they'd previously used to lash out at specific countries like China, Canada, or Brazil. The law is designed for across-the-board stable tariffs, not the kind of bilateral deal-making and targeted tariffs that the administration prefers.
To keep the rest of his agenda alive, Trump confirmed that sector-specific tariffs like those on steel and aluminum would remain in full force because they were authorized under different statutory authorities.
Bottom Line
The Supreme Court's ruling was a victory for constitutional limits on executive power — but it's also a reminder that sticking to the Constitution is a safety feature for everyone. It ensures that the person you don't like who will inevitably be elected in the future can't use these same shortcuts to do things you find even more objectionable.
Whether you're a fan of Trump's trade policy or not, the court's ruling exposes two uncomfortable truths: protectionism produced record deficits rather than independence, and the dollar weakened instead of strengthened. The administration now has weaker tools with shorter timelines and lower ceilings — and they're running out of time before an election.