The Supreme Court’s IEEPA Tariff Ruling and What Comes Next

Well, it’s finally here. The moment trade wonks everywhere have been waiting for—the Supreme Court’s decision on the International Emergency Economic Powers Act (IEEPA) tariffs. There is still a lot of dust to settle, but this column will get into the middle of it and look at three things: the decision itself, what might happen next domestically, and how foreign governments might react.

The court’s decision was clear, although the justices’ reasoning differed—the argument over which rationale to use to come to the same conclusion took up many of the 170 pages in opinions by seven justices. That probably explains the delay in issuing the decision. Justice Neil Gorsuch’s 46-page concurrence, for example, was longer than the majority’s opinion. In the end, six justices agreed on a relatively simple outcome: IEEPA does not permit tariffs.

The more conservative justices (Chief Justice John Roberts, Justice Gorsuch, and Justice Amy Coney Barrett) referred to the “major questions” doctrine, which holds that if Congress is going to delegate authority in a major case, it should do so with language that clearly defines the authority and limits the president’s ability to go beyond it. The more liberal justices (Justice Elena Kagan, Justice Sonia Sotomayor, and Justice Ketanji Brown Jackson), who apparently are not fans of that doctrine, argued that a simple interpretation of the plain text of IEEPA led to the same conclusion. In an amusing irony, Chief Justice Roberts, who wrote the opinion for the court, pointed out in some detail that Trump’s frequent assertions of how important the tariffs were and how much money they were raising essentially validated the argument that this was, indeed, a major question. In other words, Trump helped dig his own hole.

One important conclusion the court made is that there is a distinction between taxation and regulation, and that taxation is reserved solely to Congress and not to the president. And, of course, tariffs are taxes.

While this is an important decision limiting presidential power, the economic impact may be modest. The president said frequently that he has a plan B to reimpose the tariffs using other statutes, and in a press conference following the decision, he rolled out the first part of it, invoking Section 122 of the Trade Act of 1974 to deal with a large and serious balance of payments deficit, which allowed him to impose a 10 percent tariff for 150 days (which he raised to 15 percent a day later, continuing the confusion). That will give him breathing room to decide what else to do. The other laws in play—primarily Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974—have procedural requirements that will slow down their implementation but may ultimately permit him to reimpose most of the tariffs. That will certainly be litigated, but the courts so far have allowed the tariffs to remain in effect while the lawsuits are pending, so companies should not look for immediate relief. Instead, they should expect more confusion, with new tariffs coming and going, as the administration scrambles to come up with patches to replace the tariffs the court tossed out.

The other issue for the business community is refunds. The law seems to require them, and there is an established procedure for obtaining them, but it has never been employed at the potential scale here—some $170 billion in refunds. The government can make this hard or easy and will probably choose the former. Regardless, the first move belongs to companies that will have to file paperwork claiming refunds and provide supporting documentation. Companies that sit back and wait for a payment will be disappointed, and even those who do it properly should be prepared for a long wait before they actually get their money back. The case has been sent back to the U.S. Court of International Trade to address these details, so expect more litigation, as Trump predicted.

Finally, foreign governments have to think about their next move. The administration is arguing that the trade agreements it made remain in effect, with the tariffs that were agreed to remaining in force, but the other governments must be thinking that, since their concessions were essentially forced by the tariffs, with that tool now undermined, perhaps they should rethink what they agreed to. That will be easier for countries that have not concluded and signed an agreement, and we may see those negotiations slowing down. Countries that have their own legislative procedures to approve an agreement may slow-roll them while they decide what to do. One bellwether in that regard will be the European Parliament, which is slated to take up the European Union’s trade agreement with the United States in the next few weeks.

China is in a different situation, since many of the tariffs on its exports are based on Section 232 or Section 301 authority and are not affected by the court’s decision. Even so, as his meeting with Trump approaches, Xi Jinping may well view the court’s decision as removing an important tool for Trump and putting him in a weaker position. Trump, of course, is already making strenuous efforts to demonstrate that this perception is not true.

If countries are prudent, they will not rush to judgment on next steps since they know Trump’s willingness to retaliate for every slight, real or imagined, but they likely cannot help but conclude that the court’s decision puts the United States in a weaker position than it was the day before, if only because it makes Trump’s threats of large new tariffs hollow.

William A. Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair at the Center for Strategic and International Studies in Washington, D.C.