Last Wednesday, the U.S. Supreme Court took up one of the biggest trade cases in years – a challenge to Donald Trump’s sweeping tariffs. That case could decide not only whether those tariffs were legal but also how much power future presidents have to shape the economy on their own.

At the center of the debate is a law first introduced in 1977 called the IEEPA (International Emergency Economic Powers Act), which Trump used to justify tariffs on hundreds of billions of dollars’ worth of imported goods. He argued that foreign trade practices created an “economic emergency” (trade deficits and illegal fentanyl imports), allowing him to act without waiting for Congress. However, that move is now under fire.

During the Supreme Court hearing last Wednesday, justices from both the conservative and liberal sides questioned whether IEEPA was ever meant to be used this way, and their skepticism suggests the Court might rein in how presidents use emergency powers for economic decisions. Impact of the tariffs continues to echo through the markets, as import taxes on steel, electronics, and consumer goods have kept input costs elevated for U.S. companies. Many firms have passed those costs to consumers, keeping prices sticky even as broader inflation pressures ease. In theory, if the Supreme Court strikes down Trump’s use of emergency powers for tariffs, markets could interpret it as a step toward a more predictable trade policy – potentially easing inflation concerns, helping stabilize yields, and shifting investors’ interest towards longer-term bonds. And if it does happen, what happens to the billions of dollars in tariffs already collected? Well, importers would almost certainly demand refunds, which could trigger years of legal and administrative wrangling and potentially shift billions back into corporate hands.

For now, bond traders remain cautious. Persistent trade-related price pressures, a less dovish Federal Reserve stance, and the ongoing U.S. government shutdown (which is limiting access to fresh economic data) have kept risk appetite subdued. Treasury yields stayed elevated last week, with the 10-year UST hovering near 4.1%, as investors scaled back expectations for near-term rate cuts.

With a ruling due early next year, markets are watching closely. The Court’s decision could help define how much stability investors can expect in U.S. trade policy – and by extension, in inflation, yields, and global risk sentiment. Until then, traders and business leaders will likely stay cautious, waiting for clarity before placing their next big bets.