It was not unexpected. Warnings had been coming for months that U.S. President Donald Trump’s flagship “Liberation Day” tariffs announced last April were simply not based on an adequate legal foundation, but the timing of the U.S. Supreme Court’s (SCOTUS) February 20 ruling which struck down the policy still managed to generate economic shockwaves and trigger a new phase of global trade uncertainty.
In a six-to-three decision, Supreme Court justices, including six Republican appointees, found that the President had overstepped his powers in introducing his global tariffs last April (so-called Liberation Day) using a 1977 law known as the International Emergency Economic Powers Act (IEEPA), without seeking congressional approval. The IEEPA (likened by some commentators to a yelp of pain) was intended to give the President the tools to respond to declared national economic emergencies, while Trump himself has been crowing about how well the economy is performing on his watch. IEEPA does not cite tariffs as a response mechanism in these situations as they are delineated in detail under numerous other provisions of U.S. trade law, generating a bewildering array of special tariff categories. SCOTUS also focused on the lack of congressional approval in Trump’s tariff pronouncements, even though such approval is needed for all forms of taxation (tariffs are a form of taxation).
Following the ruling, Trump declared that he was “ashamed of certain members of the court,” labeling the justices who rejected his trade policy as “fools.” Trump himself appointed three of the six current Republican SCOTUS judges.
The SCOTUS decision is perhaps the largest blow so far to Trump’s second-term agenda and will unquestionably influence the state of the economy and the all-important economic growth rate as the U.S. approaches mid-term congressional elections in November. Trump has argued that his tariff policy has already generated major trade deals and massive foreign investment commitments from key trade partners, all part of his objective of re-industrializing the United States.
New but different tariffs authorized
The Trump administration was not caught without a backup plan. Within hours of the announcement of the SCOTUS decision, the White House broadcast Trump’s plans for a flat ten percent global levy to come into force on February 24 in all cases where the IEEPA tariffs were cancelled. A day later, on February 21, Trump announced that he was replacing that decision with a new, higher 15 percent global levy, but the documentation needed has not been issued, leaving the new tariffs at ten percent for now.
European officials in Brussels have expressed concern at Trump’s response to the Supreme Court ruling and his plans for a flat ten percent global levy which may cause the European Parliament to freeze the EU’s trade deal with the United States.
Why such confusion over trade legislation?
America’s complicated array of trade legislation has served to provide presidents with the authority to defend endangered industrial sectors in some cases when facing unfair competition, as well as to defend the U.S. economy more broadly in crisis periods. Congressional approval is required to keep such protection in place for extended periods. Now that IEEPA tariffs have been struck down, the Trump administration is using Section 122 of the Trade Act of 1974 to impose its new global tariff regime, although a considerable set of exclusions apply. These include energy products, certain critical minerals, pharmaceuticals, certain aerospace products, natural resources and fertilizers that cannot be grown, mined, or otherwise produced domestically or found to be in short supply, as well as certain agricultural products, including beef, tomatoes, and oranges. Numerous additional exemptions exist.
The authority extended to President Trump under Section 122 covers the first 150 days after which congressional approval will be needed for a continuation (at some point in July). Such authority was originally intended to cover a balance-of-payments emergency which is not the case in today’s economic reality, and commentators such as Nobel laureate economist Paul Krugman have characterized this law as “zombie legislation.”
Meanwhile, separate tariffs on steel, aluminum, lumber, automobiles and automotive parts — introduced using a different trade law (Section 232 of the Trade Expansion Act of 1962 ) remain in place, untouched by the SCOTUS ruling.
The global trading community will be spending the next weeks trying to piece together which tariff rate and specific bilateral trade deal actually applies to each transaction, why and how. The cost of continuing U.S. trade policy uncertainty is impossible to assess at this point.
The refund question
The U.S. Treasury has already collected at least $130 billion in tariffs using the IEEPA rules, according to the most recent government data. It should be noted that the SCOTUS decision did not address the details of refunding IEEPA-imposed tariffs, although it is assumed a mechanism will be created eventually since the tariff payment data for imports is available through the U.S. Customs and Border Protection Service (CBP).
Many companies that paid IEEPA tariffs have already filed protective lawsuits in the U.S. Court of International Trade to preserve their refund rights.
The refund process is expected to be lengthy and case-focused, potentially taking many months to years depending on how quickly protests and court actions are resolved and how the CBP implements guidance.
Congressional involvement may also become a factor as Republican members of Congress who supported Trump’s unpopular IEEPA tariffs will be sensing vulnerability as mid-term elections approach and a possible extension request from the Trump administration for the new 10/15 percent global tariffs moves to center stage.
Some pundits are suggesting that the Trump administration may try to program any IEEPA refund payments to importers for later in 2026 as a form of pre-midterm election economic stimulus, instead of paying out the so-called “tariff dividend” checks of around $2000 that some reports indicate Trump had been planning to finance through his IEEPA tariff “war chest.”
Reducing U.S. debt with those funds would have been far more sensible, but less politically beneficial, for Trump. Time will tell.
