SCOTUS strikes down tariffs, but uncertainty remains

One year after President Donald Trump announced sweeping tariffs on nearly every country, creating a cloud of uncertainty across industries, the Supreme Court ruled the tariffs unlawful. What now?

On Friday, Feb. 20, the Supreme Court ruled in a 6-3 decision that Trump cannot unilaterally impose global reciprocal tariffs and those imposed on Canada, China and Mexico to fight the flow of illegal drugs. Justices Samuel Alito, Brett Kavanaugh and Clarence Thomas dissented.

Last February, Trump signed an executive order imposing tariffs on Canada, China and Mexico, declaring a national emergency based on fentanyl and human trafficking coming through the borders. That was followed by another emergency declaration claiming “large and persistent” trade deficits are a threat to national security and imposing “reciprocal” tariffs on nearly every country.

Markets reacted immediately to the tariffs. Last April, Mack Trucks blamed tariffs and market uncertainty for layoffs at a Pennsylvania facility. That same month, cross-border freight took its biggest hit since the pandemic. Last year’s tanking of Class 8 truck sales was largely due to tariffs.

Both sets of tariffs hinged on the 1977 International Emergency Economic Powers Act (IEEPA). This law gives the president broad authority to regulate international economic transactions after declaring a national emergency. It requires the president to show an “unusual and extraordinary threat” to the U.S. that comes from outside the country.

No president before Trump has tried to impose tariffs by invoking IEEPA. The unprecedented move sparked numerous lawsuits. Last May, the Court of International Trade ruled the tariffs unlawful. However, they were allowed to stay pending an appeal that was all but guaranteed to go to the Supreme Court.

Friday’s Supreme Court 6-3 decision found that IEEPA does not authorize the president to unilaterally impose tariffs.

In the majority opinion, Chief Justice John Roberts pointed out that Congress has the sole power of the purse. Any delegation of that substantial power must be explicit, which IEEPA does not provide.

“The Framers gave ‘Congress alone’ the power to impose tariffs during peacetime,” Roberts states. “And the foreign affairs implications of tariffs do not make it any more likely that Congress would relinquish its tariff power through vague language, or without careful limits. Accordingly, the President must ‘point to clear congressional authorization’ to justify his extraordinary assertion of that power. He cannot.”

Trump called the ruling “deeply disappointing,” but said the decision could make his ability to impost tariffs stronger and clearer.

“In actuality, while I am sure they did not mean to do so, the Supreme Court’s decision today made a president’s ability to both regulate trade and impose tariffs more powerful and crystal clear, rather than less,” Trump said during a press conference.

Business groups applauded the decision. The U.S. Chamber of Commerce and the National Retail Federation called for refunds to claw back additional costs businesses have incurred.

“Over the past year, the Chamber has been working with small and midsize businesses around the country that have seen significant cost increases and supply chain disruptions as a result of these tariffs,” U.S. Chamber of Commerce Executive Vice President Neil Bradley said. “Swift refunds of the impermissible tariffs will be meaningful for the more than 200,000 small business importers in this country and will help support stronger economic growth this year. We encourage the administration to use this opportunity to reset overall tariff policy in a manner that will lead to greater economic growth, larger wage gains for workers, and lower costs for families.”

What happens now?

The Supreme Court’s decision applies only to certain tariffs, which could be reinstated in other ways.

Since returning to office, Trump has imposed a wide range of tariffs. While two of the biggest tariffs relied on IEEPA, many others did not.

Trump has used Section 232 of the Trade Expansion Act of 1962 to impose tariffs on individual products. That allows the president to impose tariffs on imports deemed a threat to national security only after a Department of Commerce investigation. Section 232 has been used to levy taxes on aluminum, steel, automobiles and heavy trucks. Those tariffs remain intact.

While dismantling the IEEPA tariffs may offer some relief and certainty for businesses, it could be just temporary. There are other avenues for Trump to implement those tariffs.

Section 232 can be used to go after certain sectors. Section 201 allows tariffs when a surge of imports is found to cause serious injury to a domestic industry. That requires an International Trade Commission investigation.

Other options include Sections 122, 301 and 338. All of these include some limitations on either the duration or the rate of tariffs. They also use a scalpel rather than a bulldozer, requiring the president to zero in on a specific country or sector under certain circumstances.

In fact, Trump announced during the press conference that he will implement a 10% tariff on all countries using Section 122. That allows tariffs when there are fundamental international payment problems, such as a large deficit. However, there is a 150-day cap that can be extended only by Congress.

Trump also suggested that not only can he impose tariffs in other ways, but he suggested that reinstated tariffs under different authorities could be higher than before.

“The Good News is that there are methods, practices, Statutes, and Authorities, as recognized by the entire Court in this terrible decision and also is recognized by Congress, which they refer to, that are even stronger than the IEEPA tariffs, available to me as President of the United States,” Trump said.

As far as refunds go, that is up in the air. The Supreme Court never addressed whether businesses are entitled to a refund. That issue will likely end up in the courts as well. LL