The Trump administration has issued a stark warning to a federal appellate court that overturning its sweeping tariffs could trigger an economic collapse reminiscent of the Great Depression of 1929, threatening key social programs such as Social Security and Medicare.

The case is being heard on Tuesday by the US Court of Appeals for the Federal Circuit, a high-level court that reviews specialized matters including international trade disputes. At the heart of the dispute is whether President Donald Trump exceeded his authority under the International Emergency Economic Powers Act (IEEPA), a 1977 US law created primarily to block financial transactions and freeze assets during national emergencies, when imposing what the administration calls its "Liberation Day" tariffs.

The legal challenge began when small businesses and a coalition of twelve Democratic state attorneys general filed lawsuits claiming that IEEPA does not authorize the president to unilaterally reshape trade policy. In late May 2025, the US Court of International Trade unanimously struck down most of Trump’s tariffs, ruling them unlawful under IEEPA. The Federal Circuit issued a stay, allowing the tariffs to remain in effect while the appeal continues.

During oral hearings on July 31, 2025, several of the eleven appellate judges expressed skepticism toward the administration’s interpretation of IEEPA. They questioned whether a law that never mentions tariffs could justify such sweeping duties on hundreds of billions of dollars in imports.

Administration’s economic warning

In a supplemental letter filed on August 11, Solicitor General D. John Sauer and Assistant Attorney General Brett Shumate argued that reversing the tariffs forces the United States to repay trillions of dollars linked to trade agreements, causing an immediate and severe economic downturn.

They warned of a potential 1929-style depression that could lead to mass unemployment, foreclosures, and the collapse of retirement and healthcare programs. According to the administration, foreign governments have pledged more than one trillion dollars in investments tied to the tariffs, and undoing these commitments could be catastrophic.

Related News

US deficit hits $291B in July despite higher tariffs

Trump announces another 90-day pause on China tariffs

The investment figures cited by the administration have been heavily criticized by economists and foreign officials. That said, Japan announced a five hundred and fifty billion dollar investment fund, but its trade negotiator clarified that much of the amount would take the form of loans repayable with interest rather than direct investment.

South Korea pledged three hundred and fifty billion dollars in projects designed to help Korean companies enter the US market, although the profit-sharing arrangements remain unclear. The European Union estimated six hundred billion dollars in potential business investments, but these figures represented corporate plans rather than binding government commitments.

Trade expert Brad Setser has said that these numbers bear no relation to reality, stressing that they represent financing commitments for future projects rather than immediate payments to the US Treasury.

Historical context and the 1929 comparison

On a side note, the administration’s reference to the Great Depression draws on a period of global economic collapse that followed the Smoot-Hawley Tariff Act of 1930. That law raised average US tariffs to nearly fifty percent, prompting retaliation from twenty-five countries, reducing global trade by sixty-five percent, and slashing US exports from 5.2 billion dollars to 1.7 billion between 1929 and 1933.

Economists note that while Trump’s tariffs are extensive, they do not match the scale or universal application of those 1930s measures.

The administration’s legal team has cited United States v. Yoshida International, a 1975 case that upheld President Nixon’s temporary ten percent tariff during a currency crisis. Critics argue that this precedent does not support the broad trade powers Trump now claims.

Article I of the US Constitution grants Congress, not the president, the authority to regulate foreign commerce and impose duties. If the courts side against Trump, it could greatly limit the ability of future presidents to use emergency powers to alter trade relationships without congressional approval.

Looking forward

The Federal Circuit is expected to rule by early August 2025. However, both sides have indicated they will appeal to the US Supreme Court, which could hear the case in its October 2025 term. In the meantime, the administration has admitted that alternative tariff authorities exist but described them as short-term and far less effective, contradicting earlier assurances that back-up plans were ready.

This goes beyond a dispute over tariffs as it is a test of presidential power in economic policy, and its outcome could reshape America’s trade strategy for years to come.