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Reprinted with permission from the Oct. 7, 2025, edition of The Legal Intelligencer © 2025 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

The legal battle over tariffs

When President Donald Trump stated that a judicial rollback of his sweeping tariff program would be “1929 all over again, a GREAT DEPRESSION,” he placed a legal ruling at the center of a dramatic macroeconomic forecast.

The litigation, V.O.S. Selections v. Trump, combines three cases brought by importers and states challenging the legality of sweeping tariffs that the administration imposed under a national emergency declaration relying on the International Emergency Economic Powers Act (IEEPA) to impose broad, long-duration tariffs on a large share of U.S. imports. The U.S. Court of Appeals for the Federal Circuit recently held that IEEPA does not authorize the tariff program and affirmed lower-court rulings setting aspects of the program aside, a decision that has now been taken to the Supreme Court for resolution.

The court’s published opinion and subsequent procedural history make plain that the dispute is principally about constitutional and statutory allocation of tariff power, rather than an automatic trigger for economic collapse. The Federal Circuit opinion striking down the IEEPA basis for the tariffs summarizes the legal holdings and the remedies at stake.

Constitutional questions

In the V.O.S. Selections case, the plaintiffs argue that the executive branch overstepped its authority: that IEEPA does not confer power to impose broad import taxes, that such tariff-setting is constitutionally reserved to Congress, and that the administration’s invocation of emergency powers for trade policy implicates the “major questions” doctrine (i.e., that issues of vast economic and political significance require explicit legislative backing).

In May 2025, the U.S. Court of International Trade struck down the tariffs; the administration appealed.

Sitting en banc, the Federal Circuit recently affirmed that decision, holding that the president had exceeded his IEEPA authority and that Congress, not the executive, holds primary power over tariffs.

However, the appeals court delayed vacating the tariffs immediately, giving time for the Trump administration to seek relief or appeal to the Supreme Court. The Supreme Court is scheduled to hear arguments on Nov. 5, 2025, according to the court’s docket.

Economic warnings from the administration

In advancing his statements about “Great Depression”-level risk, Trump and his lawyers have claimed that undoing the tariffs would oblige the U.S. government to refund hundreds of billions of dollars in previously collected tariff revenue and would disrupt planned investment flows, threaten federal programs and pose economic harm.

The administration has warned of “financial ruin” and an inability to “pay back” the sums if the court intervenes.

Thus, the dispute is both legal and political: Trump frames the relief sought by the courts not as a mere judicial correction, but as a major disruption to the country’s economic foundations.

Evaluating the economic claim

While the administration’s warnings are vivid, it is far from clear that a judicial annulment (or rollback) of the tariff regime would lead to anything resembling a Great Depression.

To evaluate the core economic claim—that a court-ordered rollback and potential refunding of previously collected duties could collapse the U.S. economy into a depression—requires three linked steps: an accounting of the fiscal and trade magnitudes that would be reversed; a specification of plausible transmission channels from that reversal to aggregate demand and financial stability; and a set of numerical scenarios that map those channels into likely macroeconomic outcomes.

On the facts, the tariff program has become an economically significant source of revenue in 2025; trackers assembled by independent analysts place tariff receipts in the low-hundreds of billions of dollars so far this year. The Peterson Institute and other independent analysts have reported cumulative tariff receipts in the ballpark of $120–$170 billion through mid-2025.

These levels are economically meaningful but remain modest relative to the overall size of the U.S. economy.

Channels of potential impact

Understanding impact requires anchoring to the right macro aggregates. The United States’ nominal GDP in mid-2025 is roughly $30.5 trillion at an annualized rate, and total exports of goods and services are on the order of $3.2 trillion per year. These aggregates provide the scaling needed to judge whether reversing tariff collections or creating short-term trade disruption is of a size that can plausibly replicate the systemic cascade of the early 1930s. The Bureau of Economic Analysis and related data repositories report the GDP and trade magnitudes that I use here for scale.

Economically, the channels by which a judicial rollback could depress output are familiar:

• Direct fiscal pressure: mandated refunds of previously collected tariffs, which could force either higher borrowing, reduced spending or tax offsets.
• Uncertainty: policy and legal uncertainty that dampens business investment and hiring.
• Trade retaliation: deterioration in international trade relationships or retaliatory measures that reduce exports.
• Financial stress: second-round financial amplification if the liquidity and solvency positions of banks or highly leveraged firms are impaired.

Each channel has a different likelihood and intensity. Refund liability, for instance, depends on the court’s remedy (full retroactive refunds with interest, limited refunds, or administrative offsets) and on the political capacity of Congress and the Treasury to manage any large, one-time shortfall.

Scenario testing

Legal practice and precedent often constrain full, immediate, systemic refunds; courts and administrations frequently phase remedies or limit retroactivity when abrupt restitution would create enormous fiscal or administrative disruption. Thus, the worst-case fiscal scenario that assumes instantaneous, full repayment to all importers is legally conceivable but not mechanically inevitable. The appellate opinion and commentary around the case indicate the courts are weighing these remedial questions as well as the underlying statutory interpretation.

To make the economic logic concrete, I construct a small family of transparent scenarios. Each scenario begins with an illustrative numeric assumption about potential refund liability and trade shock magnitudes, and then translates those assumptions into percent-of-GDP effects using standard scaling and conservative multiplier assumptions.

For the refund exposure, I use a round illustrative figure of $150 billion in cumulative tariff collections that might plausibly be the subject of refund claims; this figure sits comfortably within the range reported by independent trackers of tariff revenue in 2025.

For trade, I use total exports roughly equal to $3.23 trillion per year, consistent with recent BEA and Census data, and I consider export declines of 5%, 10% and 20% as illustrative points spanning a mild to a severe retaliation or trade-disruption outcome. I also adopt a conservative fiscal multiplier for an abrupt government spending cut or consolidation equal to 0.5, acknowledging that multiplier estimates vary with monetary policy stance and slack in the economy, but that 0.5 is a defensible middle value for illustrative comparative statics.

The data sources for tariff receipts, GDP, and exports are cited above so readers can substitute alternative numeric assumptions and recalibrate the scenarios.

Results of the analysis

Working through the arithmetic in full transparency shows why the “Great Depression” analogy is likely overstated. If the government were required to refund $150 billion immediately, that sum equals about 0.49% of nominal GDP in a $30.5 trillion economy.

If the fiscal response required to fund those refunds took the form of contemporary spending cuts that transmit with a fiscal multiplier of 0.5, the direct GDP contraction from the fiscal channel would be about 0.25–0.30% (technically about 0.246% under the assumptions above).

If, simultaneously, trade retaliation or a severe deterioration in exports were to reduce exports by 5%, the direct hit from lost exports on aggregate demand would be roughly 0.53% of GDP; if exports fell by 10% the hit would be roughly 1.06% of GDP; and in a severe 20% collapse the hit would be about 2.12%.

Adding the fiscal contraction to these export losses yields aggregate declines in the range of roughly 0.78% of GDP for the mild trade shock, 1.31% for the moderate shock, and 2.37% for the severe shock. Those percentage moves correspond to meaningful but not Depression-scale contractions; they are the order of single-digit percentage point swings in GDP, not the 25–30% falls in output associated with the U.S. Great Depression or the persistence of a multi-year collapse.

The calculations behind these scenario numbers are reproduced here so the reader can follow the unit arithmetic: refund $150B ÷ GDP ~$30.5T = 0.49% (refund as percent of GDP); refund effect assuming multiplier 0.5 ≈ 0.25%; export loss = exports × decline (for example, $3.23T × 0.10 = $323B) and that divided by GDP yields the export-loss percent of GDP; summing yields the total direct percent effect.

Empirically grounded fiscal, trade and macroeconomic models that incorporate substitution effects, exchange rate adjustment, and monetary offset typically produce similar orders of magnitude in calibrated stress tests. For transparency, academic and policy groups have produced comparable long-run estimates of the cost of the tariff program: some trade-model based work projects persistent long-run GDP and wage losses measured in several percentage points under a sustained tariff regime, but those are long-run welfare losses, not single-quarter collapse scenarios.

Offsetting benefits

A fuller appraisal must also acknowledge that undoing tariffs yields offsetting, and sometimes positive, macroeconomic effects. Removing tariffs lowers input costs for U.S. manufacturers that use imported components, reduces consumer prices for imported goods, and alleviates domestic resource misallocation created by protection. In other words, while refunds and transitional uncertainty impose downside risk in the near term, the elimination of tariff-induced distortions enhances productivity and real incomes over time.

Moreover, exchange rate movements and inventory adjustments can attenuate short-run trade shocks. Historical analogies are instructive in their complexity: while the Smoot–Hawley tariffs of 1930 are often invoked as a cautionary tale about protectionist escalation, the global contraction of the early 1930s was the product of a cascade of banking failures, monetary policy failures, and preexisting economic weaknesses that far exceed the mechanics of a legal repeal of tariff measures.

Contemporary institutions—an independent central bank with more policy tools, deeper and more diversified financial markets, and stronger international liquidity arrangements—alter the propagation of a trade shock relative to the early 20th century. The modern fiscal and monetary toolkit, therefore, makes a 1929-style collapse from a single policy reversal implausible absent other, concurrent systemic failures.

Policy implications

That said, a judicial rollback is not costless and has genuine political economy consequences. Large, abrupt refund orders would create short-term fiscal headaches and logistical complexity; confidence effects may delay investment and hiring; and tense trade relations could temporarily reduce exports. Those effects are real, and they justify careful legal structuring of remedies and calibrated fiscal responses from policymakers.

Still, distinguishing a substantial slowdown from a Depression is critical. The scenarios above suggest that even a fairly severe combination of refund obligations and export retrenchment is likely to reduce output by a few percentage points at most, not to induce the sustained multi-year collapse of output and employment that defines a depression.

Policy choices—such as phasing refunds, using short-term borrowing, temporary targeted fiscal cushions, or negotiated settlements with importers—can blunt immediate impacts. Similarly, central bank responses and automatic stabilizers can and historically have softened temporary shocks to aggregate demand. The literature on tariff incidence and macroeconomic dynamics is explicit that policy design matters for transition costs; for instance, recent policy institutes and academic groups that quantified the 2025 tariff package emphasize sizable, long-run costs to output and wages under sustained protection, but those are distinct from the claim that unwinding the tariffs will, by itself, trigger systemic financial collapse.

Conclusion

In conclusion, the legal question in V.O.S. Selections ultimately concerns the separation of powers and the statutory reach of emergency authorities; its resolution could constrain or restore executive latitude over trade policy. Economically, a judicial rollback of the tariff program would create costs—and could, if mismanaged and combined with contemporaneous financial fragility, contribute to a broader downturn.

But scaling the arithmetic, institutional context, and historical analogues together indicates that a single judicial decision invalidating tariff authority is an implausible direct cause of a 1929-style Great Depression.

A more defensible interpretation is that the choice before the courts raises meaningful distributional, fiscal, and transitional risks that deserve careful policy management to avoid unnecessary short-term contractions. If policymakers respond with phased remedies, temporary fiscal backstops, and clear communication to markets, the economy’s size, depth, and modern policy toolkit make a collapse of that magnitude unlikely.

The more important lesson is less dramatic but more durable: large, long-lived trade interventions carry significant structural costs, and reversing them cleanly is crucial to preserving legal norms and macroeconomic stability.

This article is a general analysis of legal and economic issues and should not be construed as advocacy for or against any policy position.