Last month, a federal appeals court ruled that many of the tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were illegal. Gulp. The tariffs in question — sometimes called “reciprocal” tariffs — had raised import tax rates up to 50% on India and Brazil and as high as 145% on certain Chinese goods. As a result, American importers paid over $210 billion in these tariffs (as of late August 2025) that courts have deemed invalid. The appeals court stayed the decision to allow the Trump administration time to appeal to the Supreme Court, which it already has. If the Supreme Court declines to hear the case or upholds this decision, allow me to invoke the immortal words of Keith Jackson and state eloquently for the record: “Whoa, Nellie!”
Let’s apply some context. In the 2009 case of Cobell v Salazar, in what was widely cited as the largest single financial settlement or judgment ever lost by the U.S. federal government, Uncle Sam settled to the tune of $3.4 billion for the mismanagement of American Indian trust funds. The Cobell loss ($3.4 billion) is a large expenditure, but in the context of the U.S. government’s overall budget, it’s a manageable hit. It’s roughly the cost of running the Department of Education or the Department of Veterans Affairs for a year. The potential tariff loss ($200 billion) is another bag of burritos. A loss of this size would be larger than the combined annual budgets of the Departments of Transportation, Homeland Security, Justice, and State.
If the Trump administration loses the next legal fight over tariffs, our government could be on the hook to refund U.S. importers $200 billion (plus interest) in duties paid under the unlawful tariffs. This scenario would certainly necessitate the issuance of new Treasury debt to cover the refunds. New and unanticipated issuance of Treasury debt has the potential to cause bond prices to decline and yields to rise. Remember, we’re already flooding the market with Treasurys thanks to unprecedented government spending that has spanned decades and administrations across both sides of the aisle. The last President to enjoy a balanced budget was Clinton. That was the same year the iPod was introduced.
For those of us still fighting the good fight in housing, a sobering thought: more debt to repay unlawful tariffs certainly means higher borrowing costs. With mortgage bonds along for the ride, what happens to mortgage rates and, by extension, affordability?
If the Supreme Court loss materializes, the U.S. government would have to issue a wave of new Treasury bonds to raise $200+ billion for the refunds. Basic economics of the bond market suggest that, all else equal, a significant increase in supply drives bond prices down and yields up (since investors will demand higher yields to absorb the extra debt). The 10-year Treasury yield, a key benchmark for government borrowing costs, would rise in response to this unexpected and massive financing need.
Notably, the mere possibility of these refunds has already moved markets. When investors returned from the Labor Day holiday and digested the appeals court ruling, U.S. stocks fell ~1% and longer-term Treasury yields jumped in response. Reuters reported that “longer-dated U.S. Treasury yields jumped, amid a global bonds selloff on fiscal worries” the day after the tariff decision. In other words, bond traders immediately grew concerned that the ruling would worsen the fiscal outlook and lead to more government borrowing. No bueno for bonds. No bueno for housing, builders, homebuyers, sellers, lenders, and real estate agents.
The Federal Reserve would also face another tricky situation, as a refund of this magnitude is effectively fiscal stimulus, pouring kerosene on inflationary embers. This comes as the committee is likely to cut the Fed Funds Rate in just a few weeks and Powell’s term as Chairman enters its final phase.
The Supreme Court is likely to consider the case at its “long conference” in late September. It’s during this conference that the justices decide which cases they will hear for the upcoming term. While there’s no guarantee the court will take the case, observers believe there’s a good chance it will, given the high-profile nature of the issue and the implications for presidential power. The current composition of the Supreme Court has a 6-3 conservative majority, with three of the justices—Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett—having been appointed by the current President during his first term.
If the Supreme Court does decide to hear the case, it could issue a decision by next summer. Until such decision is reached, a new hurdle has been introduced in the effort to restore home affordability.
Mark Milam is the CEO of Highland Mortgage.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: [email protected].