Leibowitz: The Supreme Court strikes down IEEPA tariffs—what’s next?

On Friday, the Supreme Court released its long-awaited decision on the IEEPA (International Emergency Economic Powers Act) tariffs imposed by president Trump beginning last April. As most of you already know, by a six-to-three majority, the Court ruled against the president.

The IEEPA tariffs are unlawful—all of them.

The core opinion striking down the tariffs was authored by the Chief Justice, John Roberts, who held that the IEEPA statute did not authorize the imposition of tariffs (taxes) on imports into the United States.

Justices Gorsuch, Barrett (both of whom were appointed by president Trump in his first term), and Justices Kagan (a Clinton appointee), Sotomayor (Obama), and Jackson (Biden) joined the majority.

Justices Thomas (George H.W. Bush), Alito (George W. Bush), and Kavanaugh (Trump) dissented, arguing that the IEEPA statute authorized the President to impose tariffs to respond to a peacetime “emergency” and that such a delegation of congressional authority was consistent with the Constitution.

But what about my refund?

What did the Court not decide? Importantly, none of the five separate opinions (a Court opinion, three opinions agreeing with the result, and two dissents disagreeing with the result) discussed whether there was a genuine “emergency” justifying any action at all under IEEPA. And, the effect of the decision on tariffs that have already been paid for nearly a year (somewhere around $150 billion) was also not discussed.

On the first issue, the Court left no doubt that the tariffs already collected were unlawful. The only appropriate remedy for those who paid them is to refund the tariffs. Of all the parties involved, the federal government is the one entity that cannot keep that money.

The refunds, however, will not be immediate. First, there is no mechanism yet to obtain refunds. The lower court in this case (the Court of International Trade) will need to create one, unless another mechanism is created.

Second, the president directed US Customs and Border Protection to cease collecting the IEEPA tariffs last night. While the Supreme Court judgment or “mandate” will not issue for a month or so, Customs will no longer collect IEEPA tariffs immediately. Instead, a new proclamation imposing a 10% tariff on most imports will become effective on Tuesday, Feb. 24.

A mandate to the Court of Appeals for the Federal Circuit will issue soon, and then that court will issue instructions to the Court of International Trade (the first court hearing the case) as to what to do with regard to enforcing the judgment, including setting up a procedure for refunds.

That is when the fun will begin in earnest. In the meantime, given the president’s termination order last night, the IEEPA tariffs will no longer apply. Chalk one up for the rule of law.

First counter punch

On Friday, the president strongly criticized the Court’s decision and announced steps he will take to impose tariffs notwithstanding his loss in the High Court. The proclamation imposing new 10% tariffs on most imports was posted on Friday evening. The action will be effective from midnight on Feb. 24, and will expire on July 24, unless Congress extends the tariffs. Such an extension is unlikely.

Other tariff actions to replace the Section 122 tariffs will then be considered. The president mentioned other statutes that explicitly authorize tariffs, including Section 232 (now applied to steel, aluminum, copper, auto parts, etc.), Section 201 (safeguard tariffs on washing machines and solar panels), Section 301 (China tariffs) and Section 338 of the Smoot-Hawley Tariff Act of 1930 (allowing the president to impose tariffs to remedy foreign discrimination against US products).

These statutes could be employed to impose tariffs on more goods, but all of them require some due process before implementation, and that will likely trigger more challenges. There are no statutes that can be read to permit the president to hit all goods with tariffs at once.

The president also asserted that the Court conclusively upheld his authority to use IEEPA for all other measures against imports under IEEPA.

But the Court did not do that, because these other measures (e.g., embargoes, licensing) were not argued before the Court. By the same token, none of the Court opinions made mention of whether the finding of an “emergency” as defined by IEEPA was itself consistent with law. If IEEPA authority is invoked to justify actions other than tariffs, more litigation is inevitable.

But… but… what about my refund?

Finally, there is the critical issue of refunds of illegal duties already collected. The Supreme Court affirmed the decision of the Federal Circuit, which upheld the CIT’s decision declaring the IEEPA tariffs unlawful, but remanded the case to the CIT to determine whether injunctive relief against the president was appropriate.

The CIT will need to make that determination, as well as a determination regarding refunds to parties not before the courts.

A mess will ensue. As noted above, $150 billion or more in IEEPA tariffs have already been collected. The government will have to pay refunds. Most likely, the refunds will go to the “importers of record” that paid the tariffs to US Customs.

The United States may try to complicate or delay efforts by importers and US consumers to obtain them. The CIT has already received about one thousand cases seeking to secure refunds of IEEPA tariffs. There will be more. The CIT will soon wrestle with the immense process of adjudicating claims for refunds.

Congress may get in on the action by passing a statute providing for refund procedures, but that is at best speculative at this point. The president could issue an executive order authorizing Customs to issue refunds to qualified importers, but that does not appear likely. Importers, Customs, the CIT, and other stakeholders will need to address a complex impending storm of immense importance.

The administration will need to address the many deals announced with other trading partners, where the IEEPA tariffs played a critical role. As of now, many countries have acceded to tariffs of 15% or more, in exchange for concessions from their end. But the Court’s decision renders those tariffs, all of which were based on IEEPA, uncollectable. The future of those deals is cloudy.

Will the president try to modify them or let them slide? Too early to say.

President Trump definitely absorbed a major loss from a coequal branch of government. The president, to his credit, acted quickly to terminate the unlawful IEEPA tariffs. But he also imposed Section 122 tariffs that may also be challenged by adversely affected companies.

The next few weeks and months will determine whether more disruptions are in store for manufacturers and consumers as the new Trump economic order is revised or reconstructed. The future of trade looks a bit brighter today, but nothing is certain. The president broke the trading system, and now the Court has broken the system that he would have built in its place.