Price on trade: IEEPA tariffs struck down, but what will go up?

The wait for an answer is finally over (sort of). In a six-to-three decision, the Supreme Court invalidated the Administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs. This ruling will wipe out the “reciprocal tariffs” applied on nearly all trading partners, “fentanyl/border” tariffs on Canada and Mexico, “fentanyl” tariffs on China, and special tariffs on India and Brazil.

In the policy realm, the ruling deprives the Trump administration of an expedient tool in negotiations with trading partners.

While it is now settled that the IEEPA authority cannot extend to tariffs, the decision is simply a prelude for much more activity to come. Some of that activity may have already unfolded since this piece was uploaded. The two biggest outstanding questions are: (1) how the White House will respond, and (2) what importers will need to do to receive a refund.

We got insight into the administration’s response to the decision even before it was announced. For months, administration officials (and this column) have signaled that there are numerous alternatives should the IEEPA tariffs be struck down. In a press conference shortly after the decision, the president directly confirmed that we should expect, at least, action under Sections 122 and 301 of the Trade Act of 1974.

Then the Friday night flurry began.

Follow though

First, the president issued a proclamation making good on his Section 122 promise. Section 122 allows the president to impose duties to address “fundamental international payment problems.” The measure cites the US trade deficit, among other imbalances, as the reason swift action is needed. While Section 122 allows the president to impose up to 15% duties, the president’s proclamation imposes duties of 10% for the statutory limit of 150 days.

On Saturday, after the executive order was signed, the president announced he would raise the duties by another 5% to 15% (though no new executive order has been signed as of this writing). The scope of the duties appears to mirror the IEEPA tariffs in terms of product coverage, and USMCA products are exempted, along with products covered by the steel, aluminum, and auto 232s.

But wait, there’s more

Next, the US Trade Representative issued a memo laying out the administration’s path forward in more detail. In addition to identifying the Section 122 measure, the USTR signaled the imminent initiation of “several investigations” under Section 301.

Section 301 is used to address unfair trade practices. This is the same authority used in Trump I to impose duties on hundreds of Chinese products, so the administration is adept at rolling these out. On that note, if anyone doubted that these Section 301 measures were intended to replace IEEPA tariffs, the USTR announced that the investigations would “cover most major trading partners” and would occur on an “accelerated timeframe.”

The administration will be on solid footing having already survived legal challenges to the use of Section 301 to impose tariffs. Unlike IEEPA, import duties are explicitly allowed in the Section 301 statute. Section 301 investigations will cover, at minimum, the following unfair trade practices:

• Industrial excess capacity
• Forced labor
• Pharmaceutical pricing practices
• Discrimination against US technology companies and digital goods and services
• Digital service taxes
• Ocean pollution
• Practices related to the trade in seafood, rice, and other products

Every country in the world conceivably falls into one of these buckets.

And, for good measure, the president issued an executive order clarifying that duties would still be collected on shipments of de minimis value from all countries.

These actions were all coupled with another order officially rescinding the suite of IEEPA tariff executive orders.

What does this not mean?

Amidst all the activity, it’s important to highlight what will not change. The Supreme Court’s decision does not impact the existing 301 duties or Section 232 duties on steel, aluminum, or any other product. In fact, the Supreme Court’s opinion acknowledges that the president has authority to impose duties under multiple other statutes – including Sections 122, 201, 232, 301, and 338 of various acts.

According to the Court, the difference is that IEEPA does not give the president the power to tax, only to regulate, and tariffs are a form of tax. Taxation is a power inherently granted to Congress in the Constitution, so Congress must delegate that power. In these other statutes, Congress explicitly gave the president the power to impose tariffs.

Refund say what?

Before the dust had settled on the Supreme Court’s decision, everyone’s attention was turning to refunds.

The Supreme Court’s decision leaves the refund issue to the lower courts. While legal theory generally supports the idea that refunds should be available, at the president’s press conference, in response to a question, president Trump struck a somewhat defiant tone and essentially said, “we will see you in court.”

Assuming that refunds are in order, it’s not clear what that process will look like. The Court of International Trade has previously said it has the authority to order refunds, and the Department of Justice has stipulated that it will not challenge that authority—at least as it pertains to “similarly situated” importers.

Refunds could come through an administrative process at US Customs, or importers may need to bring their own challenge at the Court of International Trade (CIT). The latter would make for a busy year at the CIT.

US Customs has never faced a refund regime on this scale, so we can be sure that refund requests and procedures will drag out for a while.

What about Section 232?

All of Friday’s excitement has almost pushed rumblings about changes to the steel and aluminum Section 232 programs from the headlines, but it’s worth spending a minute on.

Any changes to the steel and aluminum programs are unlikely to be a complete overhaul, as the Financial Times and others suggested. Based upon other articles that appear to have been sourced from the administration, they are likely to close the interpretive “loophole” that counsel for trading companies and foreign producers have improperly exploited to undervalue items like pipe.

The administration will probably simplify the valuation process, easing the administrative burden for Customs and importers. As such, changes to 50% duty rates on steel mill products or major derivatives appear unlikely, and the changes should end duty evasion schemes involving multiple invoicing games.

Other changes may include cleaning up the coverage of some consumer products containing minimal amounts of steel (there is the infamous inclusion of dental floss as a derivative due to its container, an item not requested by any steel company, for example). Overall, we are eager to see a new EO and hopeful that the changes improve the program by ending abuse.

For those of you wanting to stay up on the latest developments or looking for new information Wiley has more information following the Supreme Court decision (here and here) and will have a webinar on Monday, February 23 (register here).