The Trump administration is becoming increasingly concerned that the US Court of Appeals for the Federal Circuit in Washington, D.C., might soon rule that President Donald Trump lacks the legal authority to impose tariffs as he has been doing. That’s our takeaway from a letter dated August 11 sent to the Clerk of the Court by two of the administration’s top lawyers. It involves a challenge to President Trump’s authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA). (Hat tip to Jim Lucier of Capital Alpha Partners.)

The letter follows the Federal Circuit’s July 31 oral argument, where judges reportedly pressed the government on the tariffs’ legality. So it was filed post-oral argument to update the court on “pertinent and significant” developments since the government’s briefs were submitted. Trump’s lawyers seem to be anticipating that they will lose the case and are asking for a stay if so. That would allow them to ask the Supreme Court to rule on the matter. SCOTUS might pass on doing so if most of the 12 lower-court judges rule against the administration.

The letter warns: “Suddenly revoking the President’s tariff authority under IEEPA would have catastrophic consequences for our national security, foreign policy, and economy. The President believes that our country would not be able to pay back the trillions of dollars that other countries have already committed to pay, which would lead to financial ruin.” That “could lead to a 1929-style result.” The letter concludes: “In short, the economic consequences would be ruinous…”

The conclusion may be exaggerated, but the result would be messy for sure. Foreign governments might not abide by their recent trade agreements with the US. Companies that have been paying the tariffs are likely to demand refunds from the Treasury.

If he loses in court, these [bond] yields might move higher. Stock prices might decline on this news initially due to a new round of policy uncertainty. So the dire tone in the letter is understandable, even though it is a wee bit over the top.

Jim Lucier, our good friend at Capital Alpha Partners, wrote yesterday: “We expect a decision by the Federal Circuit by the end of September, but we believe it could come as soon as late August. An en banc decision by the Federal Circuit that is unanimous or near-unanimous could give the Supreme Court cover not to take up the case immediately, and not to grant a stay that would keep the tariffs in place if the Federal Circuit revokes them.”