The U.S. Supreme Court on Friday ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs. The 6-3 ruling immediately rendered illegal the “reciprocal” tariffs levied as a baseline duty for imports at the country level.
With the benefit of 72 hours of hindsight, we can move past the breathless, hyperbolic headlines and consider what the decision actually means for US importers and consumers, as well as foreign exporters.
What It Is
A victory for the Constitutional separation of powers.
Want to levy broad-based taxes (yes, taxes) on a significant portion of the US industrial base? Go ahead – pass a law through Congress.
An opening for dissent.
The fairly clear-cut decision, some hopeless romantics believe, provides the best political cover to date for lawmakers and constituents to challenge the wisdom of concentrating international trade policy so heavily in the Executive.
A curb on the use of tariffs as foreign policy.
Country-specific tariffs under IEEPA had been used to devastating effect on countries including China (which briefly reached 125% last year), India, and Brazil. While tariffs at the country level will survive in some form, these will be temporary and with a much lower maximum potential rate. This will make it more difficult to punish an entire country (rather than a specific sector or product) by threatening or imposing tariffs
What It Isn’t
The end of tariffs.
The ruling does not invalidate tariffs imposed under other trade statutes, such as Section 122 (temporary tariffs to combat trade imbalances) Section 232 (national security‑based tariffs), Section 301 (tariffs responding to unfair trade practices). Each of these are more complex than the IEPPA tariffs – especially 232 and 301 tariffs which are generally applied to a specific component, product, or industrial sector – and the Administration intends to broaden and deepen them to compensate for the loss of IEEPA tariff powers.
A surprise.
Legal experts, betting markets, and even a certain smug Eide Bailly transfer pricing advisor had been predicting the ruling against IEEPA tariffs, meaning that the Administration has had months to prepare its response (revenge?). See above for examples of tariffs that remain largely the purview of the President.
A refund.
The Court did not rule on whether tariffs already paid under IEEPA must be refunded, nor did it establish a refund mechanism. A long and fraught process remains for securing and claiming such refunds, and small importers may struggle to manage the administrative burden. Furthermore, complex transfer pricing and income tax questions may arise relating to the allocation of any refund between entities of a multinational group.
As a lifelong history buff, I’ll lean on a gross misquote of Churchill to summarize my current perspective on US tariffs policy: this is not the end, nor is it the beginning of the end – and it probably isn’t even the end of the beginning.
Make a habit of sustained success.
