Leibowitz: With 'reciprocal' tariffs struck down again in court, what happens next?

The CAFC ruled against the president 7-4. All eleven active judges sat on this case, which affirmed the May decision against the president by the Court of International Trade (CIT), which voted 3-0 against the president. If you are keeping score, the “reciprocal” tariffs have already lost by a score of 10-4. For the president to gain the support of a majority of jurists, the Supreme Court would need to reverse the CAFC decision by a vote of 8-1. That is almost certainly not going to happen. However, no matter: If five justices support the president, his tariffs will be sustained.

Will five justices find, as both the CIT and CAFC held, that the “reciprocal” tariffs, as well as other tariffs levied against Canada, Mexico and China regarding fentanyl trade, are not permitted by IEEPA? It is possible, but not certain. Some (myself included) believe that it is quite unlikely.

The explicit power given to Congress in the US Constitution to “lay and collect” tariffs supports the finding of the first two courts that, if Congress wanted to surrender that power to the Executive Branch, it would have expressly said so. There are many ways that the president could “regulate” imports without imposing tariffs plainly contrary to the tariffs that Congress itself enacted.

The explicit power given to the president in the Constitution to conduct foreign affairs (Article II) suggests that he can, if he chooses, use tariffs as a lever to obtain concessions from other countries. The use of tariffs, the president argues, are an option that he says has not been ruled out under the statute.

The plaintiffs’ position looks stronger than the administration’s. On the one hand, the president, under IEEPA, has broad power to “regulate” imports, even if he cannot impose tariffs of any amount and any duration. For example, embargoes (prohibition of imports), price floors for them, sanctions on companies and individuals. These are all techniques that presidents have employed under IEEPA. So, the power to impose tariffs as he wishes is not necessary to give meaning to IEEPA. On the other hand, if the president can impose tariffs of any amount and duration, then the power of Congress to impose tariffs (and other taxes) could become meaningless.

A major feature of this case is the argument over the consequences of a decision that tariffs are, or are not, permitted under IEEPA. The president argues that his entire trade strategy is dependent on these tariffs. Foreclosing tariffs would, he argues, be a catastrophe of epic proportions because (1) unwinding the tariffs would require refunds of up to a trillion dollars; and because (2) foreign countries’ commitments to invest in US manufacturing plants would be thrown into doubt. That’s what Treasury Secretary Scott Bessent argued in a Supreme Court filing last week. The administration soft-pedals the point that these “trade deals” are anything but finalized.

It is true that unwinding the tariffs would be a massive and disruptive project. Already, upwards of $100 billion have been collected, and Secretary Bessent speculates that refunds could approach $1 trillion.

On the one hand, if these tariffs must be refunded, the budget deficit will increase significantly. On the other hand, tariff refunds are not unprecedented. This would be by far the largest refund on record, but the refund of Harbor Maintenance Fees on export shipments was significant. It can be done.

And the declaration of Secretary Bessent that claims up to a trillion dollars of tariffs would have to be repaid, wreaking havoc in bond markets, is not likely to sway the Supreme Court, which has faced Armageddon-like arguments in the past and not flinched.

The consequences of the tariffs being sustained are also major. If tariffs can be used to address an “emergency,” there is no limit to how high they can go or how long they can last. Will Congress lose control over domestic income taxes too?

These issues are important, so much so that the administration has asked for expedited consideration of this case by the Supreme Court. The government has asked the Supreme Court to take the case by this week and, as noted above, conduct oral argument by November. The Supreme Court may do this, but it has the power to go more deliberately.

The plaintiffs, victorious thus far, have not filed a response regarding the expedited schedule. Normally, the Supreme Court would take months for briefing of a case of this magnitude. Unlike several court decisions that have spawned controversy, this one is on the merits and will result in final relief, not just a preliminary injunction. If tariffs are allowed, then the declaration of an “emergency” under IEEPA will be front and center. Was there a fentanyl “emergency” as defined in IEEPA, for example, and do tariffs really solve or even address that problem? The Supreme Court might not simply accept the declarations of “emergency” and decline to review it. That would be a major development too. Whatever the decision, it will surely have nationwide (and worldwide) ramifications.

Depending on the outcome, other tariffs could be affected. Tariffs on steel, aluminum, copper, and cars are based on other authorities that will be harder to unwind. That said, Section 232 has not been before the Supreme Court for nearly 50 years. A firm decision against the administration could call the recent 50% tariffs on steel, aluminum, and “derivative products” into question. And, because the “reshoring” of manufacturing would require decades of consistent policy, it’s risky to base investment decisions on tariffs created and expanded by one president that can easily be undone by another.

It would be far better to develop policy for the long term through cooperation between Congress and the Executive Branch of government. It would be messy and no one would be completely victorious. But the result might have a better chance of lasting more than four years.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.