Businesses and consumers are starting to adapt to the tariffs President Trump has imposed on imported goods from virtually everywhere in the world, raising costs throughout the economy. But a new disruption is looming that could end most of those tariffs and send Trump back to the drawing board.

A federal appeals court is set to rule any day on whether the legal basis Trump has used to justify the majority of his new tariffs is legally valid.

On May 28, a lower court ruled that Trump does not have the authority to impose import taxes by declaring a national emergency, as he has done in numerous cases. A federal appeals court suspended that decision, allowing the tariffs to remain in place, while it heard the Trump administration's appeal.

That court's ruling is likely by the end of August, and many analysts think Trump will lose. “It is the base case expectation of legal trade experts that the court of appeals will concur with the unanimous decision of the US Court of International Trade that the President does not have the authority to impose tariffs going forward,” Henrietta Treyz, co-founder of Veda Partners, explained in an Aug. 22 analysis. “Investors should be prepared for an imminent ruling.”

Read more: How Trump's tariffs affect your money

If the appeals court does invalidate those tariffs, Trump will almost certainly appeal to the Supreme Court. But a loss at the appeals court could still force Trump to overhaul his entire trade war. Stock values could leap, since the Trump tariffs harm profits at many companies. And the Federal Reserve would have to incorporate another wild card into its calculations on whether to cut interest rates in the fall.

Tariffs have come fast and furious during Trump’s second term because he’s using a novel approach he never attempted during his first term.

In dozens of instances, Trump has claimed he has the authority to impose tariffs as president because a “national emergency” exists. He repeatedly cites a 1977 law, known as IEEPA, that Congress passed to provide firm guidelines on a president’s emergency powers. And the national emergency he typically cites is a deficit in goods with a trading partner.

But IEEPA doesn’t even mention tariffs, or say anything about a president’s power to impose taxes, which is normally up to Congress. The May ruling declared the emergency tariffs unconstitutional. Legal analysts think the appeals court has signaled that it agrees with that finding, and will rule against Trump.

If it does, it will wipe out the basis for much of Trump’s current trade war. As a rule of thumb, the emergency tariffs are the “reciprocal” tariffs Trump has levied on imported goods from virtually every nation. Those range from 10% to 50%, with the biggest change being in an increase of more than 30 percentage points in the tax on goods from China, the second-largest source of American imports.

The emergency tariffs account for 78% of the new tariff revenue importers are paying, according to the Tax Foundation. So a legal outcome invalidating those tariffs would be a game changer. Investors and businesses would have to strategize for new scenarios directly affecting profits, investment decisions, economic growth and the Federal Reserve’s monetary policymaking.

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The first question would involve what the Supreme Court might do. It could take up an appeal and rule either for or against Trump. If it does take the case, it could leave the tariffs in place until it has ruled, or ban them until it has ruled. It could also decline to take the case, letting the appeals court ruling stand.

“Don’t assume the Supreme Court will keep President Trump’s [emergency] tariffs in place indefinitely if the federal circuit strikes them down,” James Lucier of research firm Capital Alpha Partners wrote in an Aug. 21 analysis. “The tariffs could be gone sooner than expected.”

He pointed out that if the ultimate outcome is an end to the emergency tariffs, the government will have to refund all the tariff revenue it has already collected under those taxes.

Without the emergency tariffs, Trump would still have the ability to impose tariffs for different reasons, such as a national security basis or response to other countries’ unfair trade practices. Trump has used those types of justifications for most of the new tariffs targeting specific products, such as steel, aluminum, autos and auto parts. Those tariffs wouldn't be affected by the upcoming ruling on emergency tariffs.

But those types of tariffs involve lengthier and more tedious procedures and generally aren’t as sweeping as the emergency tariffs Trump obviously prefers. That’s why Trump, during his first term, didn’t get around to imposing meaningful tariffs until well into his second year. In 2025, by contrast, the use of emergency tariffs has allowed Trump to impose import taxes in just seven months that are far more substantial than every tariff he put in place during his entire first term.

Trump himself understands the risk to his whole trade agenda. On Aug. 11, his administration filed an unorthodox letter in the appeals court case arguing that revoking the emergency tariffs could trigger an epic depression.

"Suddenly revoking the president’s tariff authority under IEEPA would have catastrophic consequences," the letter states. "The president believes that our country would not be able to pay back the trillions of dollars other countries have already committed to pay, which could lead to financial ruin. If the United States were forced to unwind these historic agreements, the President believes that a forced dissolution of the agreements could lead to a 1929-style result. In such a scenario, people would be forced from their homes, millions of jobs would be eliminated, [and] hard-working Americans would lose their savings."

Like much of Trump's hyperbole, the appeals court filing is almost comically inaccurate.

The US economy was strong before Trump started imposing tariffs and has actually weakened during Trump’s second term. American importers pay the tariffs, not foreign countries, so any money paid back would go to American taxpayers, not foreigners. And markets would likely rejoice if courts voided Trump's emergency tariffs, indicating not financial ruin, but a reprieve from it.

A court ruling against Trump might leave him depressed, but it would be a happy outcome for the rest of the economy.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.

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