The US Supreme Court on Friday dealt its biggest blow against Donald Trump, ruling the president had no authority to use emergency powers to impose tariffs.
The ruling struck at a critical pillar of Trump’s presidency and marked a rare effort by the court to rein in his power after more than a year of Trump repeatedly testing the limits of his authority by implementing policies with a deluge of executive orders and by invoking rarely used laws.
America’s most powerful bench, which has been broadly sympathetic to Trump’s effort to exert executive power, had largely allowed his second term agenda to be implemented unchecked. Friday’s opinion drastically breaks this momentum.
What did the Supreme Court rule?
Trump last year invoked emergency powers enshrined in the International Emergency Economic Powers Act to slap a raft of levies on countries worldwide.
The Supreme Court’s majority on Friday ruled the law does not authorise the president to impose tariffs.
“The president asserts the extraordinary power to unilaterally impose tariffs of unlimited amount, duration and scope,” Chief Justice John Roberts wrote in the majority opinion, adding Trump “must identify clear congressional authorisation to exercise it”.
But Robert wrote the IEEPA, which “contains no reference to tariffs or duties”, falls short, stressing no other president had used this law to implement the levies.
Trump on Friday said the justices were a “disgrace” and had been swayed by foreign interests.
The vote was split 6-3, with liberal justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson joining conservatives Roberts, Neil Gorsuch and Amy Coney Barrett in the majority.
Justice Brett Kavanaugh penned the main dissent and was joined by fellow conservatives Clarence Thomas and Samuel Alito.
Kavanaugh argued the national emergencies Trump claimed in relation to drug trafficking into the US and trade imbalances authorised him to use IEEPA to impose tariffs.
“The tariffs at issue here may or may not be wise policy,” he wrote. “But as a matter of text, history, and precedent, they are clearly lawful.”
What happens next?
The top court focused on whether the president was authorised to use emergency powers to impose tariffs. It left other questions to lower courts, affirming an appeals court decision in one of the cases that challenged Trump’s tariffs.
The case was originally brought by a group of businesses as well as 12 US states. It challenged Trump’s “reciprocal” tariffs as well as levies placed on China, Canada and Mexico to retaliate for their alleged involvement in trading the deadly opioid fentanyl.
The appeals court for the federal circuit last year held Trump had exceeded his authority in using IEEPA to impose levies. But it rejected a decision by the US Court of International Trade to block the tariffs universally and the appeals court called on the CIT to re-evaluate if and how to impose remedies.
Steven Engel, partner at law firm Dechert, said the Supreme Court “typically will not decide in the first instance questions that lower courts did not address”.
“To the extent that there are hard legal questions or controversies that arise, they could well be appealed and wind up back at the Supreme Court,” he added.
What other tools exist for Trump to impose tariffs?
Friday’s opinion forces the Trump administration to resort to alternative tools to impose tariffs.
But none can be deployed as quickly and simply as IEEPA, raising the possibility of a short delay to the collection of levies. Other US trade laws typically require periods of review and study before tariffs can be applied to foreign goods.
Trump on Friday said he would sign an order to impose a 10 per cent global tariff under Section 122 of the Trade Act of 1974 in addition to the tariffs already being charged.
In addition to Section 122, the Cato Institute singled out Section 338 of the Tariff Act of 1930 as the most likely route for the administration to take.
Section 122 allows Trump to impose tariffs of up to 15 per cent immediately for up to 150 days without the need for time-consuming investigations required for other sectoral tariffs on products such as steel and aluminium under Section 232 of the Trade Expansion Act.
Cato said such an immediate option was likely to hold “considerable appeal” for Trump, but noted the “catch”, which is that the 15 per cent tariffs are only valid for 150 days before requiring a vote in Congress to extend them.
However, trade analysts warned that even with alternative legal routes including Section 122, these would be less comprehensive than IEEPA tariffs invalidated by the Supreme Court on Friday.
Sam Lowe, trade lead at consultancy Flint Global, wrote in a note to clients: “These instruments are not as broad and wide-ranging as IEEPA and there is a chance that there is a gap in both timing and scope of newly imposed tariffs compared to the struck-down IEEPA tariffs.”
What happens to tariff revenue and trade deals under IEEPA?
This remains unclear. The top court did not address whether the government must refund tariff revenue linked to IEEPA, which experts estimate has risen to at least $160bn over the past year.
The US “may be required to refund billions of dollars to importers who paid the IEEPA tariffs even though some importers may have already passed on costs to consumers or others”, Kavanaugh wrote in his dissent. “As was acknowledged at oral argument, the refund process is likely to be a ‘mess’.”
The International Chamber of Commerce said while some businesses would welcome the prospect of tariff refunds, this was likely to be a complex process, adding that the Supreme Court’s ruling was “worryingly silent” on the issue.
Experts argued the question of refunds was expected to be addressed by the CIT, which has been flooded with cases by tariff payers seeking repayments.
Matthew West, chair of the international trade team at Baker Botts, said Friday’s ruling had left businesses “in limbo” until the lower courts had determined how any refund process should take place.
Engel said: “There will be a period of uncertainty.” Crucial questions include potential alternative tariff tools as well as refunds — and “whether there’s some way in which some of these new tariffs could be made retroactive”, he added.
Kavanaugh also warned that because the tariffs imposed via emergency powers “helped facilitate trade deals worth trillions of dollars — including with foreign nations from China to the United Kingdom to Japan, the court’s decision could generate uncertainty regarding various trade agreements. That process, too, could be difficult.”