The Supreme Court Strikes Down the Tariffs
It's a win for small businesses, but it's not likely that their pain is over.
Good morning!
Here are today’s highlights:
Where do you go for unbiased exit advice?
Lou Mosca encourages owners to make a point of reaching out to employees.
The economy took an unexpected hit in the fourth quarter.
THE TRADE WARS
The Supreme Court strikes down President Trump’s so-called reciprocal tariffs: “President Trump’s global tariffs are illegal, the Supreme Court ruled Friday, in a stinging repudiation of a signature White House initiative. The tariffs before the Supreme Court constituted a large majority of Trump’s duties. Over the next decade, the tariffs the president imposed through his claims of emergency powers were expected to raise about $1.5 trillion, according to the Tax Foundation, representing 70 percent of Trump’s second-term tariffs.”
“Until Trump, no president had invoked the emergency-powers law as a basis to impose tariffs. Three different lower courts ruled the tariffs unlawful, including a specialized federal appeals court of national jurisdiction that said the emergency-powers law didn’t authorize tariffs of the magnitude Trump imposed.”
“Across the three decisions, 15 judges weighed in on Trump’s actions, with 11 concluding the president exceeded his authority. The Supreme Court, too, signaled skepticism when it heard fast-track oral arguments in November.” READ MORE
The court’s decision won’t end the pain for small businesses: (This story was written before the decision was announced. We’ll have more analysis of what this means for small businesses next week.) “The U.S. Supreme Court may soon invalidate President Donald Trump’s sweeping 2025 tariffs imposed under the International Emergency Economic Powers Act. Both conservative and liberal justices have questioned whether that act, which does not mention tariffs or taxes, authorizes across-the-board import duties. By rejecting an expansive interpretation of the act, the court would reinforce constitutional limits on executive power, but would not solve the practical problems facing small businesses.”
“If the court strikes down tariffs under IEEPA, the Trump administration is planning to pivot quickly to adopt them under other legal authorities. Steel and aluminum tariffs already rest on threats to national security under Section 232 of the Trade Expansion Act. Section 301 remains available to counter unfair trade practices. Section 122 allows for tariffs based on large and serious balance-of-payment deficits.”
“Nor is it clear that the court would require refunds of tariffs already collected. The court could apply its ruling prospectively only to halt future tariffs under IEEPA. Even if refunds are mandated, the timeline is uncertain. Small businesses do not have the luxury of waiting years for reimbursement. They pay tariffs upfront when goods clear customs, often weeks before receiving payment from customers. If refunds are slow — or don’t come at all — some will not survive.”
“Even if the Supreme Court invalidates the IEEPA tariffs, the damage will remain for small businesses. A business cannot retroactively place orders it canceled. It cannot instantly rehire workers who found other jobs. It cannot rebuild disrupted supplier relationships. Therefore, Congress needs to rethink and revise current tariff policies. First, Congress should limit tariffs under Section 232 to genuine national-security threats. The range of situations alleged to constitute threats to national security has become much too expansive.” READ MORE
It’s not entirely clear that the tariffs were working: “Imports to the U.S. grew to a record high in 2025, leaving the trade deficit little changed despite steep Trump administration tariffs aimed at closing trade gaps. The nation’s trade deficit—the gap between imports and exports in both goods and services—was $901.5 billion last year, slightly smaller than the $903.5 billion deficit recorded in 2024, the Commerce Department said Thursday. The small change shows America’s role as a heavy net importer remains intact, at least thus far, despite seismic policy shifts during the year.”
“Overall, imports last year were $4.334 trillion, up about 5 percent from the prior record of $4.136 trillion in 2024. Exports were $3.432 trillion, up about 6 percent year over year. Worldwide tariffs rolled out by the Trump administration in April were designed in part to target the trade imbalance in goods specifically. The trade deficit in goods last year rose to a record $1.241 trillion, up from $1.215 trillion in 2024.”
“The trade deficit soared in the months following President Trump’s re-election in late 2024, as companies raced to bring foreign goods onshore ahead of the tariffs they expected him to impose. Then, when the first big wave of those tariffs landed in April, the trade deficit contracted sharply, before returning to more typical levels in the second half of the year when some of the tariffs were rolled back.
“Overall last year, the tariffs did little to dissuade Americans from importing—with goods and services purchased from overseas little changed from levels seen during the Biden administration. Goods imports for 2025 totaled $3.44 trillion last year, about 4 percent greater than in 2024.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Where Do You Go for Unbiased Exit Advice? Sooner or later, most business owners run into the same unsettling question: How do I actually get out of this thing? Pass it to family? Sell to a competitor? To key employees? To private equity? To an ESOP or an Employee Ownership Trust? Or maybe just shut it down? There’s no shortage of advice—but almost all of it comes with strings attached. Most advisors know one path best, and not coincidentally, it’s the path they’re paid to promote. Sorting through the options on your own can feel overwhelming, expensive, and risky. What if there were a place to get an honest, apples-to-apples comparison—one that looks at your specific business and lays out what really fits?
That’s the problem Sonali Kothari is trying to solve with Zolidar, a startup she co-founded. In this episode, she explains how the company is building a tool to help owners think clearly about their exit. You can even test-drive it yourself with Zolidar’s free 10-minute Day Zero Guide for a preliminary assessment.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
MANAGEMENT
In this week’s video, Lou Mosca encourages owners to dedicate time to really connecting with employees: “After 27 years with the company, I recently became the owner of American Management Services. One of the first leadership decisions I made was to commit to a simple but powerful practice: 30 minutes each week of uninterrupted, open dialogue with any employee who wants it. No agenda, no performance review, just focused time to talk about what matters to them. I’ve already seen how much my people care and how much I, as an owner, gain from truly listening: clearer insight into how our strategy is understood, a better view of what’s really happening on the ground, and a deeper sense of trust and engagement.” CONNECT WITH LOU
THE ECONOMY
GDP fell in the fourth quarter while inflation rose: “Economic growth slowed more than expected near the end of 2025 while inflation held firm, according to data released Friday that could complicate the Federal Reserve’s path on interest rates. Gross domestic product rose at an annualized rate of just 1.4 percent, according to Commerce Department numbers released Friday, well below the Dow Jones estimate for a 2.5-percent gain. For the full year in 2025, the U.S. economy grew at a 2.2-percent pace, down from the 2.8-percent increase in 2024.”
“At the same time, inflation held firm in December, according to the gauge most closely watched by Fed officials. The core personal consumption expenditures price index, which excludes food and energy, rose 3 percent in December, according to a separate release.”
“That matched the consensus forecast but kept the pivotal inflation measure well above the Fed’s 2-percent target. On a headline basis, the PCE index accelerated 2.9 percent, or 0.1 percentage point higher than expected.” READ MORE
TOURISM
Last year, the U.S. was the only major destination to see a decline in travelers: “Michelle Cowley, a London-based communications specialist, and her husband spent nearly two years planning a $16,000 vacation to Walt Disney World in Florida. Then their children, ages 7 and 11, heard about Renee Good and Alex Pretti being killed by ICE agents and didn’t want to go. Comments by President Trump in January, including threats to annex Greenland and criticisms of British military contributions in Afghanistan, sealed the family’s decision. ‘We have decided that it really is not the place we want to be at the moment,’ Ms. Cowley said.”
“Last year, as tourism grew worldwide, the United States was the only major destination to see a decline in foreign visitors, recording a 6 percent drop, according to the World Travel and Tourism Council, an industry group. January saw a continued decline in inbound visitors, down 4.8 percent from January 2025.”
“Visitors from Canada, usually the second-largest source of U.S. tourism after Mexico, plunged by 28 percent in January compared to January 2024. Other key markets like Germany and France also recorded significant declines, while Britain, the largest long-haul source market for U.S. tourism, saw a marginal growth of 0.5 percent compared to the previous year.”
“‘When 11 million international visitors aren’t showing up, the result is billions of dollars in economic losses to the travel industry,’ said Erik Hansen, a senior vice-president at the U.S. Travel Association, a trade group that promotes travel to and within the country.” READ MORE
ARTIFICIAL INTELLIGENCE
AI has moved into a new phase: “Americans are living in parallel AI universes. For much of the country, AI has come to mean ChatGPT, Google’s AI overviews, and the slop that now clogs social-media feeds. Meanwhile, tech hobbyists are becoming radicalized by bots that can work for hours on end, collapsing months of work into weeks, or weeks into an afternoon. Recently, more people have started to play around with tools such as Claude Code. The product, made by the start-up Anthropic, is ‘agentic,’ meaning it can do all sorts of work a human might do on a computer.”
“Some academics are testing Claude Code’s ability to autonomously generate papers; others are using agents for biology research. Journalists have been experimenting with Claude Code to write data-driven articles from scratch, and earlier this month, a pair used the bot to create a mock competitor to Monday.com, a public software company worth billions. In under an hour, they had a working prototype.”
“Although the actual quality of all of these AI-generated papers and analyses remains unclear, the progress is both stunning and alarming. ‘Once a computer can use computers, you’re off to the races,’ Dean Ball, a senior fellow at the Foundation for American Innovation, told me.”
“Last week, Matt Shumer, the CEO of an AI company, compared the current moment in AI to the early days of Covid, when most Americans were still oblivious to the imminent pandemic. ‘Making AI great at coding was the strategy that unlocks everything else,’ wrote Shumer. ‘The experience that tech workers have had over the past year, of watching AI go from helpful tool to does my job better than I do, is the experience everyone else is about to have.’” READ MORE
THE 21 HATS RESOURCE GUIDE
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OBITUARY
Jo Ann Bass ran Joe’s Stone Crab in Miami Beach: “Jo Ann Bass, the matriarch of Joe’s Stone Crab, a century-old family restaurant that leveraged the claws of a ubiquitous local crustacean in becoming a Miami Beach institution, not unlike the Fontainebleau hotel and the Art Deco jewels of Ocean Drive, died on Jan. 31 at her home in that city. She was 94. The restaurant announced her death on its social media channels. With its tuxedoed waiters and frenzied bustle, Joe’s Stone Crab, on Washington Avenue near the southern tip of Miami Beach, is consistently ranked as one of the highest-grossing independent restaurants in the country.”
“Ms. Bass was a third-generation proprietor, a granddaughter of the restaurant’s founders, Joseph and Jennie Weiss, who started the business in 1913. While her father, Jesse Weiss, was the colorful face of Joe’s for more than six decades, Ms. Bass had effectively run the restaurant since the 1960s, overseeing the menu and adding signature dishes like Key lime pie, while presiding over the opening of Joe’s Take Away, a more casual bistro and to-go operation next door.”
“Her paternal grandparents, Hungarian immigrants, had fled New York City for the mild climate of South Florida to ease Joe Weiss’s asthma. They opened Joe’s Restaurant as a lunch counter in 1913. They changed its name after a visiting ichthyologist suggested that they add stone crabs to the menu, even though many considered them to be inedible at the time.”
“With the assistance of her son, Stephen, Ms. Bass helped guide Jo’s during the widely chronicled renaissance of South Beach as a pastel outpost of style, art mecca and Lamborghini-friendly celebrity playground. ‘It’s in my blood,’ she said of Joe’s in an oral history for the Miami Beach Visual Memoirs project. ‘I love it. The whole place. It’s my family, it’s my security blanket, it’s a new movie every day.’” READ MORE
THE 21 HATS PODCAST
Hot Seat: Three Owners, No Easy Answers: Sometimes the best conversations start with a simple question—and then another, and another. This week, we put Kate Morgan, Jaci Russo, and Ted Wolf in the hot seat and fire away: Are you hiring? Are you finding impressive job candidates? What was the worst job you ever had—and did you learn anything from it? Have you bought crypto? If you had $10,000 a month to spend on marketing, where would it go? Should a marketing agency ever turn its marketing over to another marketing agency? What’s holding you back? What’s the simplest thing you’ve never quite figured out how to do?
None of these are trick questions, but they don’t necessarily have easy answers. Kate admits she’s never opened her accounting software. Jaci says one of the best things that ever happened to her was getting fired. Ted recounts losing 40 percent of his company’s revenue in a single weekend. Running a business means living with trade-offs, uncertainty, and the occasional punch to the gut. As Jaci reminds us, it usually works out—one way or another. But that doesn’t mean the answers are simple when you’re in the middle of it.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren