Price on Trade: IEEPA tariffs head to the Supreme Court, DOJ ramps up trade enforcement

As has been widely reported, on Aug. 29, in a 7-4 decision, the US Court of Appeals for the Federal Circuit struck down President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to apply wide-ranging tariffs. The Federal Circuit’s ruling upheld a similar decision reached by the US Court of International Trade and was made en banc by all active judges on the court due to the “exceptional importance” of the case. In reaching this decision, the Federal Circuit finds all tariffs applied under IEEPA to be unlawful, which include those imposed due to the trade deficit crisis (i.e., the reciprocal tariff program) and those on Canada, China, and Mexico due to the border and illegal drug crises.

In the majority’s opinion, the Federal Circuit reasons that the “regulate importation” authority under IEEPA does not provide the president with broad authority to “impose tariffs.” The court further explains that tariffs are a form of taxes, which is a power assigned to Congress under the US Constitution. And, unlike IEEPA, other trade statutes explicitly refer to the power to apply duties and tariffs. The majority also contemplated the relevance of the major questions doctrine, noting that the IEEPA tariffs are “unheralded” and “transformative” and may thus require clear Congressional authorization. The dissenting judges disagreed, averring that the president’s authority under IEEPA to “regulate importation” should be read broadly, especially in the context of national emergencies, such as the trade and border crises.

Despite the Federal Circuit’s decision to strike down a pivotal part of the Trump administration’s policy platform, for the moment, there are no changes to the IEEPA tariffs already in place. And importers must continue paying these tariffs at least until the US Supreme Court decides the fate of the IEEPA programs. Indeed, the administration quickly petitioned the Supreme Court to review the case, and the Court agreed to do so on an expedited basis this past week. Briefs will be filed over the course of September and October, and oral argument is expected to be held in early November. While not guaranteed, a decision from the Supreme Court may be issued as early as late 2025.

In many ways, the Federal Circuit’s decision is not surprising, and the IEEPA tariffs have long seemed destined for Supreme Court review. However, it is difficult to predict how the Supreme Court will rule on the legality of the IEEPA tariff programs. The Federal Circuit decision was split, indicating that there is some weight to the arguments in favor of upholding the IEEPA tariffs. Further, the administration has a recent track record of losing cases in federal district and appellate courts, only to ultimately win them before the Supreme Court. In our view, it is too soon to say how this appeal will play out.

The legal challenge to the IEEPA tariffs is also worth contrasting with more durable trade authorities, such as Sections 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974. For instance, the Section 232 steel and aluminum program was challenged and repeatedly upheld by the courts. In March 2023, the Supreme Court denied a petition from importers challenging the steel tariffs, effectively ending that string of litigation.

If the Supreme Court strikes down the IEEPA tariffs, we do not expect President Trump to retreat from using tariffs as a preferred policy tool. Administration officials have already indicated that the Federal Circuit’s ruling will not stop them from continuing to negotiate trade deals or relying on IEEPA trade authority going forward. The administration also sees other trade authorities, such as Sections 122, 232, 301, and 338, as potential backstops to IEEPA. For example, US Treasury Secretary Scott Bessent has recently discussed potentially using Section 338 of the Tariff Act of 1930, which would authorize the president to temporarily apply tariffs of up to 50% against imports from countries determined to be discriminating against US commerce.

Likewise, as the steel industry is well aware, established trade statutes, such as Sections 232 and 301, may serve as more lasting solutions. To wit, there are currently ten ongoing Section 232 investigations on products ranging from semiconductors to wind turbines. Some have also speculated that the US Trade Representative’s annual National Trade Estimate Report on Foreign Trade Barriers could be used as the basis for a broad Section 301 investigation. As an example, Brazil is currently subject to 50% tariffs under IEEPA, but the administration is also conducting a separate Section 301 investigation into certain Brazilian domestic policies, which could be used to apply duties on top of or in place of the existing IEEPA tariffs.

It is also worth noting that the outcome of the IEEPA litigation may have revenue impacts. Treasury Secretary Bessent has acknowledged that, if the Supreme Court strikes down the IEEPA tariffs, then refunds may be required for duties collected under those programs. The potential refunds may be massive, as they may account for as much as half of the tariffs collected by the administration so far. Any refunds would also likely result in an array of logistical and procedural challenges, as well as a significant decrease in the Treasury Department’s revenue.

DOJ establishes trade fraud task force to enhance trade enforcement

The US Department of Justice (DOJ) recently announced the creation of an interagency Trade Fraud Task Force aimed at stepping up enforcement against tariff evasion and customs fraud. This cross-agency initiative is designed to increase enforcement against importers who seek to evade tariffs, duties, or customs requirements. In particular, in conjunction with US Customs and Border Protection, the DOJ’s Civil Division will focus on leveraging the False Claims Act, which imposes civil liability on any person who knowingly presents a false claim for payment of government funds or makes a false statement that is material to a claim for payment of government funds. And DOJ’s Criminal Division will prioritize using its Fraud Section to use “every available tool to hold bad actors accountable and prevent the theft of money intended to reduce the deficit and fund government programs.”

DOJ has already put the FCA to work in the trade space, highlighting as part of its Task Force announcement several high-profile customs evasion and fraud settlements reached this year. One such case includes a $12.4 million FCA settlement, resolving allegations that a Dallas-based supplier of countertops and cabinetry products had evaded anti-dumping and countervailing duties on quartz surface products imported from China by misclassifying its imports as lower-duty goods (Wiley represented the whistleblower in this matter). This and other examples show that rampant cheating of US trade laws is already prevalent, and new enforcement and self-enforcement tools are needed.

In this regard, the creation of the Task Force is a welcome development, especially in a trade environment rife with an increasingly complex web of tariff programs. The American steel industry, in particular, has long benefited from strong enforcement of existing customs duties, anti-dumping and countervailing duty orders, and other trade remedies. Now, especially with the strengthening and expansion of the Section 232 steel program, trade enforcement is paramount. In this complex environment, importers will aggressively seek opportunities to avoid fully paying their required duties. The administration’s heightened focus on this issue and its willingness to use the full toolbox of enforcement mechanisms are likely to benefit domestic manufacturers.

Editor’s note

This is an opinion column. The views in this article are those of experienced trade attorneys 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.