Supreme Court Limits Trump Tariffs Sparks Trade Dispute

The Supreme Court recently ruled against the Biden administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs. The decision centers on whether the act grants the president the authority to levy tariffs, a power the Court concluded it does not.

Victory for Congress and the Constitution

The ruling is considered significant from both a legal and political perspective. It reaffirms the separation of powers between the executive and legislative branches and upholds Congress’s constitutional authority over taxation, tariffs, and foreign commerce. This represents a rare instance of the Court limiting actions by a president and is among the first decisions decided on the merits of a case rather than procedural grounds.

Narrow Implications for Trade Policy

The decision’s impact on trade policy is expected to be limited. It does not affect existing tariffs or those under investigation through other major trade statutes, such as Section 232 (national security), Section 301 (trade agreement violations), Section 201 (safeguards), or antidumping/countervailing duty laws. It also offers little guidance for interpreting other trade statutes.

IEEPA Left Untouched

The Court’s ruling specifically addresses the authority to impose tariffs under IEEPA. It does not affect the act’s other powers, such as imposing embargoes, sanctions, or freezing assets. The Court did not analyze the prerequisites for using IEEPA, including the declaration of a national emergency or the requirement that actions address the declared emergency.

Refunds Not Addressed

The Court’s decision, which sent two cases back to the Court of International Trade (CIT) for resolution, does not directly address the issue of refunds. The cases involve VOS Selections, filed by small businesses and state attorneys general, and Learning Resources, filed by two small businesses. Because the ruling declares that IEEPA does not authorize tariffs, it affects all IEEPA tariffs before the court, prompting the Trump administration to issue an executive order halting their collection. However, the process for issuing refunds to importers remains to be determined.

Effect on Tariff Rates

Data indicates that without the IEEPA tariffs, the average effective tariff rate would be 9.1 percent, the highest since 1946. With the IEEPA tariffs in place, the rate would have been 16.9 percent. Following the president’s executive order imposing 10 percent Section 122 tariffs, the estimated average effective tariff rate is now 13.7 percent, assuming the tariff comes to pass.

Next Steps

Refund Routes

Importers of record are entitled to refunds plus interest on any IEEPA duties paid, as the Court’s ruling establishes that the tariffs were invalid. Importers can file a “Post Summary Correction” to amend entries and remove the tariffs, or, for liquidated entries, file an administrative protest. While the legal basis for refunds is clear, delays are likely due to the volume of refunds expected.

Section 122 Tariffs

Following the Supreme Court’s decision, the president declared a “fundamental international payments problem” and imposed 10 percent Section 122 tariffs, effective for 150 days. The executive order includes exemptions for certain goods, including critical minerals, energy products, and some agricultural products. The president has indicated an intent to raise the tariff rate to 15 percent, though no executive order has been issued. The legality of these tariffs may be challenged, as Section 122 requires a demonstration of a payments problem, a requirement some commentators believe has not been met.

The Effect on Trump’s Trade Deals

The Supreme Court’s ruling impacts ongoing trade negotiations with eighteen countries, as many are predicated on avoiding IEEPA tariffs. Trading partners are currently adopting a “wait and see” approach, but the potential for new Section 301 and Section 232 investigations may alter the landscape. The future of these agreements remains uncertain, particularly without Congressional approval.