Ruling Against the Tariffs: The Supreme Court issued a ruling on February 20 vacating all U.S. tariffs imposed under the International Economic Emergency Powers Act (IEEPA), including tariffs labeled “baseline” (10% on most countries), “reciprocal” (higher than 10% and varying by country), and “trafficking” or “fentanyl” tariffs imposed on Canada, Mexico, and China. The tariffs may no longer be collected, and those collected over the past year must be refunded.
The 6-3 decision was written by Chief Justice John Roberts, who wrote: “Had Congress intended to convey the distinct and extraordinary power to impose tariffs [under IEEPA], it would have done so expressly.”
President Trump on Friday evening issued an executive order (“Ending Certain Tariff Actions”) declaring the IEEPA tariffs “shall no longer be in effect and, as soon as practicable, shall no longer be collected.” CBP announced on Sunday it will stop collecting the IEEPA tariffs at 12:00 a.m. ET on Tuesday, February 24.
The Chamber Responds: The Chamber welcomed the news in a press statement by Neil Bradley, Executive Vice President and Chief Policy Officer. He noted the economic damage inflicted by the tariffs, especially for small businesses; and he called for swift refunds: “We encourage the administration to use this opportunity to reset overall tariff policy in a manner that will lead to greater economic growth, larger wage gains for workers, and lower costs for families.”
The Chamber filed an amicus brief in Trump v. V.O.S. Selections, Inc. arguing that the challenged tariffs were enacted in excess of statutory authority and are causing irreparable harm to businesses of all sizes.
Temporary Tariffs Coming: In a midday Friday press conference, President Trump criticized the decision and said he would use other authorities to largely replicate the invalidated tariffs. U.S. Trade Representative Jamieson Greer had earlier said that, if the IEEPA tariffs were invalidated, the administration would prioritize “continuity” by maintaining lists of covered and excluded products.
In a Friday evening proclamation entitled “Imposing a Temporary Import Surcharge to Address Fundamental International Payments Problems,” the White House set in motion effective Tuesday, February 24, new tariffs under Section 122 of the Trade Act of 1974. President Trump said on Friday that these would be set at 10%, but in a social media post the next day he said he intended to raise the rate to 15%. Section 122 allows the executive to set duties at a rate no higher than 15% for 150 days. As of Monday at 3:30 p.m., the proclamation just cited has not been updated to reflect this 15% rate.
Familiar Exceptions: The proclamation lays out a wide range of carveouts. Similar to the IEEPA tariffs, the Section 122 duties do not apply to energy products, certain minerals and metals, many agricultural products, goods subject to Section 232 investigations or tariffs, and USMCA-compliant goods from Canada and Mexico. However, the exceptions are not identical to those under the IEEPA tariffs; for instance, textiles and apparel products from the six CAFTA-DR countries that comply with the terms of that agreement are not subject to Section 122 tariffs, though it appears the changes are few. The proclamation links to an Annex and Annex 2, which detail these exceptions.
More Legal Questions? Section 122 of the Trade Act of 1974 allows tariffs up to 15% for no more than 150 days to address “large and serious United States balance-of-payments deficits.” It has no requirement for notice and comment and thus may be applied as soon as CBP can make necessary changes to its systems.
However, questions over the legality of Section 122 tariffs have quickly come to the fore. Of note, the Trump administration’s Department of Justice argued before the U.S. Court of International Trade that the IEEPA tariffs “did not identify or focus on balance-of-payments concerns of the type addressed by Section 122. Instead, the concerns the President identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of-payments deficits.”
Indeed, economic commentators spent the weekend explaining that Section 122 was crafted to address balance-of-payments problems that can only arise under a fixed exchange rate regime of the kind that had just collapsed at the time the Trade Act of 1974 was enacted. These commentators avow no balance-of-payments crisis as described in the statute exists today.
A Short-Term Fix: Section 122 tariffs may remain in place for more than 150 days only with congressional assent, but support in Congress for an extension appears insufficient at present. It isn’t clear if litigation over tariffs of such relative brevity will materialize, though the duties are expected to generate approximately $40 billion in revenue for the Treasury in this period—and the possibility of securing reimbursement may prove attractive to some litigants.
And a Third Wave of Tariffs: With that in mind, USTR is expected on Monday to initiate Section 301 tariff investigations that will take a few weeks at least. Greer said in the Friday afternoon presser that Section 301 tariffs are “very durable” legally; to that point, the Section 301 tariffs on imports from China implemented beginning in 2018 have withstood legal challenge. The administration appears to see these Section 301 tariffs as the core of what they hope will be a more durable tariff regime.
Most of these new Section 301 investigations are not expected to be country-specific but instead will assume a global scope across “areas of concern such as industrial excess capacity, forced labor, pharmaceutical pricing practices, discrimination against U.S. technology companies and digital goods and services, digital services taxes, ocean pollution, and practices related to the trade in seafood, rice, and other products” (according to a statement by Greer). The administration will also continue its existing Section 301 undertaking on China and its investigation relating to Brazil.
“Reciprocal Trade” Deals: The administration has said the so-called “agreements on reciprocal trade” that have been signed with a number of countries are legally binding. Greer has said they will remain in place even as the related U.S. tariffs are imposed under other legal authorities (and possibly to lower rates for some countries).
However, it isn’t clear how the Section 122 tariffs will interact with those trade deals. The EU negotiated an all-in ceiling of 15% tariffs (including MFN duties), but the new proclamation would appear to stack the 15% Section 122 tariffs with MFN duties; Japan and Korea have similar arrangements. The exceptions in the proclamation may not align with those negotiated in the country-by-country “agreements on reciprocal trade.” Further, for many countries, the 15% Section 122 tariffs loom as a sudden and unexpected increase from 10%: This includes FTA partners such as Australia as well as many Latin American and African countries that had previously faced a 10% headline rate.
It’s important to bear in mind that only half a dozen countries (e.g., El Salvador, Indonesia) have signed “agreements on reciprocal trade.” Only one, Cambodia, has implemented its tariff-reduction and NTB-related commitments. Many other countries have signed Joint Statements with the United States that are precursors to these somewhat more elaborate agreements.
China is Different: China is a different position given the Section 301 undertaking dating back to 2018. The tariffs imposed beginning in that year on select Chinese goods—and modified several times since then, including expansions in scope during the Biden administration—can be altered on short order.
This procedure requires publishing a proposed modification in the Federal Register, conducting a 30-day comment period, completing a rapid review, and issuing a final notice with an effective date 15-30 days later. This process can be concluded in approximately eight weeks and affords a relatively simple way to replicate the IEEPA tariffs on goods from China.
The Trump administration also holds two legacy Section 301 proceedings—one covering legacy semiconductors and one tied to Phase One commitments—but both are effectively paused. Attempting to activate or expand either as a substitute for lost IEEPA tariffs could be seen as upsetting the trade truce with China reached in October in Busan, Korea—and the administration is keen to avoid doing so as the president prepares to travel to China from March 31 to April 2.
Process for Refunds: The president’s comments on Friday suggested the administration will not take a cooperative stance on tariff refunds. Treasury Secretary Scott Bessent in media appearances over the weekend said refunds would amount to the “ultimate corporate welfare,” but he also said: “The Supreme Court remanded it down to a lower court. And, you know, we will follow what they say, but that could be weeks or months when we hear them… [It’s] not up to the administration, it is up to the lower court.”
Department of Justice attorneys had earlier declared that “If tariffs imposed on plaintiffs during these appeals are ultimately held unlawful, then the government will issue refunds to plaintiffs, including any post-judgment interest that accrues.” CBP must pay importers of record interest on refunds of customs duties and tariffs, and the current interest rate on overpayments to 6% and is calculated from the entry date to the date paid.
The U.S. Court of International Trade will play a key role, but it appears the administration could expedite the lawfully required reimbursement of all the IEEPA duties collected over the past year—or complicate it. As a reminder, tariff refunds are not at all unusual (e.g., after a tariff preference program lapses and is reauthorized retroactively), and CBP has recently shifted to an entirely electronic refund process. The Chamber has published a fact sheet on refunds for small businesses. It will be some days before next steps here are better understood.
Where the Tariffs Fall: Given the breadth of tariff exceptions, the Section 122 tariffs apply to approximately 34% of U.S. merchandise imports (per the Tax Foundation) or as high as 37% by other estimates. Goods imports subject to Section 232 tariffs or investigations represent another 17%, and goods imports from China subject to Section 301 tariffs represent about 6% of all U.S. imports. A little more than 40% of goods imports thus enter the U.S. market duty-free or at MFN rates (two-thirds of which are USMCA-compliant goods from Canada and Mexico).
What Will Be Different? The White House may be able to recreate many of the IEEPA tariffs under other authorities—for a few months or more durably. However, IEEPA appealed to the executive as an easy-to-use, point-and-shoot tariff tool——what one commentator has called his “magic tariff Sharpie.” However, it proved “too good” to be true.
The administration has not issued new tariffs since September, but the president has issued at least a dozen tariff threats in that time, and all appeared to depend on IEEPA (e.g., tariffs on any country “doing business” with Iran or on any country selling oil to Cuba). Other tariff statutes generally have procedural guardrails such as requirements for notice and comment, and this represents a useful period for assessment and reflection. As a result, the loss of IEEPA as a tariff tool may signal a less volatile tariff regime. Time will tell.
Source: https://www.uschamber.com/
