MICHEL MARTIN, HOST:
We're going to turn now to some major breaking news out of the Supreme Court. The court has struck down President Trump's global tariffs. It's a major setback for the president. He has counted on these tariffs as part of a major cornerstone of his sort of economic agenda. We're going to talk more about this with Diane Swonk. She's an economic advisor and chief economist at KPMG US. Diane Swonk, thanks so much for joining us.
DIANE SWONK: My pleasure.
MARTIN: It's a complicated ruling. It's a couple of hundred pages long, and there are people who are agreeing in part and disagreeing in part. But what is the bottom line here?
SWONK: The bottom line is that even though the Supreme Court ruled the IEEPA tariffs illegal, they even said themselves, quote-unquote, "that refunds will be a mess." A mess is what they put, end quote, that I think is very important here. The logistics of refunds are very difficult and only the largest firms will be able to actually get all the paperwork necessary and be able to wait out the time of when those refunds might actually come in. Many smaller and mid-size firms will be left without refunds. And also, we could see the administration push back on those refunds, and that could be further delayed in the court. The last and most important point is that financial markets initially rallied on this news, thinking that the tariffs would go away, especially on the heels of the hottest inflation figures for the Fed's preferred index that came out today for the month of December since early 2024. All of a sudden, you get this relief. That is not the case. The White House has been preparing for a negative ruling by the Supreme Court, and we expect an executive order using other levers that the White House has that it can raise tariffs to reinstate any that are ruled illegal almost instantaneously.
MARTIN: Let me jump in here for a second. Why did the markets rally upon this news? The president has touted these tariffs as kind of a cornerstone of his plan to what he considers to sort of jump-start the economy, to revitalize American manufacturing. So why is it that the markets, given - I understand all your caveats, but why is it that the markets initially have reacted so favorably to this ruling?
SWONK: The markets are looking at this as no longer a compression on profit margins, which we have seen most notably in the vehicle industry where they've absorbed almost all the tariffs, but it's shown off in layoffs instead. And that is not something that the market likes. So the idea that firms who get money back and restore their cash flow and potentially not have tariffs going forward that are as high because this is over half of the tariffs that have been levied, that is the hope. That hope is not necessarily rooted in a strong reality, except for the largest firms, which, of course, the equity market looks at the largest firms, which may be eligible down the road through a later process and able to get some cash back that they paid in tariffs.
MARTIN: What has been the impact on consumers?
SWONK: Consumers have seen the prices go up. We saw the PCE index, which is the Fed's target, and that hit its highest level since early 2024. We saw goods prices accelerate and become more dispersed, that's related to tariffs. But in addition to that, we're seeing service sector inflation outside of shelter costs, which is something that we watch very closely. That's been stuck in a 3.3% range. It has not really been able to cool off to anything pre-pandemic, and that means that consumers are still really feeling very depressed about an economy that looks good on paper but doesn't feel very good to their wallets.
MARTIN: Before we let you go, legal opposition to these tariffs crossed political lines. Libertarians, pro-business groups typically aligned with the administration have opposed this. What are we likely to see going forward from that side of it? As briefly as you can?
SWONK: They're still not going to be happy about any reinstatement of tariffs, but those will be harder. The tariffs that we're talking about now, are statutory.
MARTIN: That's Diane Swonk, chief economist at KPMG. Diane, thanks. Transcript provided by NPR, Copyright NPR.
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