What's at Stake in the Supreme Court Tariffs Case?

Steve Odland: Welcome to C-Suite Perspectives, a signature series by The Conference Board. I'm Steve Odland from The Conference Board and the host of this podcast series, and in today's conversation, we're going to talk about the major tariff litigation, which is now headed to the Supreme Court. This is a big case, and it's going to set precedent for a very long time.

Joining me today is John Gardner, who is the head of our public policy for the Committee for Economic Development. And the CED is the public policy center of The Conference Board. John, welcome.

John Gardner: Thanks very much. Good to be here.

Steve Odland: So John, you're an expert on all things Supreme Court, Washington. You've been around Washington for a long time. But just for our listeners, let's start with you'd have to have been asleep for the past year not to have seen tariffs in the media and so forth. But just give us a little overview about what's going on. When did this start, why is it starting, and what's brought us to this point?

John Gardner: Sure. Let's go back to the beginning of the administration to understand the different types of tariffs that are at issue and why it's been controversial. The president issued an executive order declaring a national emergency because of the importation of fentanyl into the US and the harms, including the deaths of Americans, resulting from that, and he declared this emergency under something called the International Emergency Economic Powers Act, IEEPA.

And because IEEPA gives the power to regulate imports, the president imposed tariffs on Canada, China, and Mexico using this emergency. Then on April 2, the president issued the so-called Liberation Day tariffs after proclaiming another national emergency under IEEPA on the ground of persistent trade deficits.

Following that event, the plaintiffs in these cases, which include 12 states and five importers of goods, sued, claiming the president exceeded his powers in imposing these tariffs.

Steve Odland: Yeah. Now, there's a lot to unpack here. And I think we should point out to our listeners that CED, our public policy center, and The Conference Board in total are completely nonpartisan. So anything that you hear either of us say today, if you think we're coming from the left or the right, we're not. We're just trying to explain what's going on. So that's important. So, John, what's the theory behind the tariffs? I mean, why is this administration using this tool, which hasn't really been used widely since the 1930s?

John Gardner: I think there are basically three reasons, from their perspective. First, they do see persistent trade deficits and think that the US has been at a disadvantage. They want to try to increase US exports. Second, I think they look at tariffs as a source of revenue. And third, I think that they think that over the past several decades, other countries have been able to take advantage of the US in the global trading system, and they're trying to redress some of that balance.

Steve Odland: Yeah, I think that's a great summary. I think part of this, part of the imbalance was supposed to have been taken care of by the WTO, World Trade Organization, and the rubric around that. But you know that that hasn't been a level playing field. So you do have issues there. And everybody agrees that there are issues related to that.

This whole idea of raising revenue though is really interesting, cause we're running a $2 trillion deficit. And their point of view is they need to cut a trillion dollars in spending and then raise a trillion dollars or so from these tariffs. So it's a really interesting way to come at it, which we haven't seen before. Again, we're not endorsing it or criticizing it. We're just saying this is unique, John.

John Gardner: It is. It is a major change in US trade policy, in global economic relations. And it is causing a lot of discussion, obviously, in the US business community, as well as business communities abroad, as businesses try to react to these major changes.

Steve Odland: OK. So, you've got the plaintiffs who have brought this case, trying to block these tariffs and say it's unfair. Describe the case. Who are the plaintiffs? Who is the defendant? And how does this functionally go through the court system?

John Gardner: Sure. The plaintiffs are importers of goods that are subject to the tariffs.

Steve Odland: So US companies, small companies, right?

John Gardner: US companies who are importing the goods, saying they shouldn't have to pay the tariffs because they think that the president exceeded his authority in imposing them. 12 states have also joined that case, arguing that it reduces their revenue on the ground, which you can accept or not, that tariffs raise prices, therefore, consumers will buy fewer goods, and that reduces their sales tax revenue. So far, the states have been allowed to participate in the case, so at least at some level, the court has accepted that argument as to why they have what's called standing to bring these suits against the government.

And the defendant is, of course, the administration.

Steve Odland: OK. And then, this was filed in federal court, and it's gone through a couple levels. Describe that process to date.

John Gardner: Sure. It was filed in something called the Court of International Trade. And we obviously have the regular US District Courts, where most federal litigation is heard. But the Court of International Trade is a specialized court, which has jurisdiction over cases regarding customs duties and other aspects of international trade. And the idea is, if you have specialized judges who deal with these issues all the time, you get a better and more consistent result.

So the case was filed there, and then in a decision in late May, a three-judge panel of that court said that Congress's grants of power to the president in IEEPA do not include the power to, as they said, quote, "impose unlimited tariffs from nearly every country in the world," unquote.

And then for similar grounds, they enjoined the tariffs imposed under the fentanyl national emergency because they said that these actions regulating commerce don't deal with a quote, "unusual and extraordinary threat," but were instead simply intended to create leverage against foreign governments. And as such, the language of that decision gets to the heart of much of the administration's tariff strategy.

Steve Odland: So the Court of International Trade, that's not an international body. It's a US court.

John Gardner: It's equivalent to a US district court.

Steve Odland: Got it.

John Gardner: It's a court that is equivalent to US District Court. They then put the decision on hold, and it was appealed to a circuit court and appellate court. And for the specialized courts, that's called the Federal Circuit. It's not a regional circuit, like the Second Circuit in New York or the First in Boston. It's a national circuit.

And the Federal Circuit also put the decision on hold, and then they set an expedited briefing schedule. They then held a hearing, including all of the judges on that circuit, on July 31. And then following that, we've seen the decision that was recently released from the Federal Circuit.

Steve Odland: And what was that decision and what was the split?

John Gardner: On August 29, the Federal Circuit largely upheld the lower court stating that a tariff is a tax, and that the Constitution gives the power to tax to Congress, not to the president. As they wrote, quote, "Absent a valid delegation by Congress, the President has no authority to impose taxes."

But they also remanded the case, in part, to determine whether the injunction against tariffs should apply only to the plaintiffs in the case or whether it should apply nationwide. This gets very complicated again, because there is a clause in the Constitution stating that all duties, imposts, and excises are supposed to be uniform throughout the country.

But the US Supreme Court had another decision in June where it set very strict limits on nationwide injunction. So the Federal Circuit then sent this back and said, take a look at your decision in light of this latest decision from the Supreme Court.

Steve Odland: So the challenge here is, from the court standpoint, is whether to rule, as it relates to the companies that were the plaintiffs, the companies that were suing the administration, and the states, or to say that the decision applies to everything, which would invalidate the tariffs entirely. Is that what you're saying?

John Gardner: Yes, that's correct. That's what the lower court has to consider again, but even before the lower court gets to make that decision, the administration appealed the Federal Circuit decision to the Supreme Court, and now the Supreme Court is going to hear this case in early November. So I think even before we get to that point, even before we get to that second lower court decision, I think we'll have a hearing and probably a decision from the Supreme Court.

Steve Odland: OK. But that's still, I mean, that's a couple months away. So that means that we're going to be in limbo on this for some time, and therefore, the uncertainty that we've experienced in the economy and with businesses and cost structure and supply chains, that's going to—this isn't going to be over soon.

John Gardner: No. I mean, it will definitely continue at least through November. One can argue that if it hadn't been put on hold, then you'd have a situation in which tariffs are on, tariffs are off, tariffs are on, tariffs are off, and that could be even more uncertainty. But it does raise the prospect that if the Supreme Court invalidates the tariffs, then the amount that would have to be refunded to people who have paid the tariffs could be even higher, which of course then has some effect on the budget, the federal budget.

Steve Odland: Well, let's unpack the possibilities following a Supreme Court ruling in November. So one possibility is they say, yes, we agree with the plaintiffs, and these tariffs are illegal, and they all have to stop. And that would require some level of refunding, but it also requires some whole, I guess, renegotiations of all of these trade deals with all these countries.

John Gardner: Absolutely. I mean, there's a lot on your question. Let me just start by saying, well, if the Supreme Court were to agree with the plaintiffs, yes, the tariffs would be—well, there are a number of options. The Supreme Court could simply agree with the plaintiffs, a tariff is a tax. Congress has to make it explicitly clear that they wanted the president to have this authority. They did not, so invalidated.

The Supreme Court could also say, agreeing with the dissenting opinion in the Federal Circuit that well, this is a very interesting case, but we don't think it should have been decided on summary judgment, we think they should have had a trial to decide whether the administration was right or the plaintiffs were right. So we're going to send the whole thing back to the Court of International Trade to have a trial, and that would be an even longer period of time, even more uncertainty for business.

And then, I think the third option would be that the Supreme Court could simply agree with the administration, and that would, of course, end the litigation.

Steve Odland: Now, the major argument from the plaintiffs is that, I mean, I'm summarizing it, and this is lay terminology, but tariffs are a tax. The administration can't do a tax. It's got to come out of the Congress. Well, you know, the Congress is controlled by the same party as the administration, both houses. Why don't they just put a bill through that says that we approve the administration's taxes? Check, House, Senate, President signs it. Doesn't that cure all the issues?

John Gardner: I think if they did that it would in fact cure the issues, at least in the mind of the Supreme Court. One of the interesting arguments that was made in the concurring opinion in the Federal Circuit, from four judges who agreed with the majority but said they didn't go far enough, is precisely that—that in 2019, during his first term, President Trump asked Congress to pass a bill clarifying that the president had the power to issue reciprocal tariffs. Congress didn't do that. So the four concurring judges said, well, to us, this is persuasive evidence that it doesn't currently exist in the statute, and therefore these tariffs cannot go forward.

Steve Odland: Now, so do we hear anything? I mean, you're sitting there in Washington. Do you hear anything from Congress, from either the House side or the Senate side, that suggests that they would, that they're considering anything like that?

John Gardner: There has been one bill that would restore, actually, Congress's authority in this sense. Senator Grassley and a few other Democrats, and he's a Republican from Iowa. But some other Democratic senators have been interested in this bill, as well. It's gone nowhere. There has not been a bill, either, to expand the president's authority, so Congress really has not done very much on this issue.

Steve Odland: But they don't have to expand the authority permanently in order to make this happen. And this goes to a lot of the executive orders. The executive branch in the last several administrations, both Democrat and Republican, have used the power of the pen simply because there's nothing coming out of Congress. Congress is so closely divided, it's hard to get anything through.

But in this case, where you've got all in the same party, you could take all these executive, you could put one bill in place that says, we approve the tariffs as recommended. That doesn't give up their authority for the future. And you could say, by the way, we agree to these hundred executive orders, or whatever it is. And just do a check the box, which just validates all of it and ends the court cases. But they're not doing that.

John Gardner: That's correct. And I wonder if they are worried about pressures from their constituents who may see some of the higher prices coming in as a result of the tariffs, or some companies in their districts that rely on products coming in from Canada or China or the European Union. Maybe they're feeling some pressure, and they don't want to go in that direction of ratifying the tariffs, but nor did they want to go in the other direction of invalidating the tariffs themselves. Everyone would probably, at this point, rather just wait for the Supreme Court to rule. And that may or may not be a good way to conduct public policy, but I think that's where things are right now in Washington.

Steve Odland: Now let's take the opposite case. Let's just say the Supreme Court agrees with the lower courts and just invalidates the tariffs. That could blow up, and as you said, they could have to reimburse all the tariffs. On the other hand, we now have at least verbal or framework agreements with many countries, most of our major trading powers and our trading partners. And we also have the USMCA, which is nominally under renegotiation itself next year, anyway. And so couldn't you also end up with a case where they say, well, the tariffs are not valid, but you've already cut trade deals, which include tariffs, and they are valid. Right?

John Gardner: Well, I think that's one of the arguments the administration would make. I think if the court invalidated the tariffs, two things would have to happen. There would have to be a process to provide some refunds, simply because the court has said this is not valid. But then second, I think that there would be this question about the legal validity of the framework and final agreements they've negotiated with these other countries.

Right after the Federal Circuit decision, the president suggested they might have to quote, "unwind"— his word—these agreements if the court rules against it, but I think they're also working right now to try to put strong pressure on countries to keep the agreements in place, claiming that somehow they are separate legally from how they were imposed under IEEPA.

Steve Odland: Now let's just keep going down this road. If that happens, and the Supreme Court overturns it or agrees with the lower courts and overturns the tariffs. The administration says, OK, but we've got all these trade deals already, including tariffs, and so they go forward. Could you then have country by country or regions that, like the EU, who have cut these deals—could you have them challenge this in US courts?

John Gardner: I think it would be more likely that a US importer of goods from the EU would challenge the agreement in court rather than the EU itself. But yes, you absolutely could have litigation about the validity of these agreements in the absence of the tariffs under which they are imposed. And the other thing the administration could do, of course, is simply look at imposing other types of tariffs—either sectoral, tariffs, for instance, in pharmaceuticals or semiconductors or critical minerals or other areas, under a statute called Section 232.

Or they could try to use even another statute called Section 301, and that refers to the Trade Act of 1974. Use authority in that statute claiming that countries themselves are discriminating against US products. One is sectoral, one is country by country. So I don't think the administration is going to give up its tariff strategy, even if the Supreme Court rules against it on these tariffs.

Steve Odland: We're going to take a short break and be right back with more of our conversation about the tariff issue.

Welcome back to C-Suite Perspectives. I'm your host, Steve Odland from The Conference Board, and I'm joined today by John Gardner, the vice president of public policy for the Committee for Economic Development, which is the public policy center of The Conference Board. John, welcome back.

John Gardner: Thanks very much, Steve.

Steve Odland: Now, the other thing you have to take into consideration, and you've pointed this out many times, is that you've got the political backdrop here. Essentially, the midterm elections start, the campaigning and the serious candidacies start in January, which is, gosh, it's right around the corner. It's just after this ruling is going to happen. And so right after the holidays, boom, we're back into the midterms, with the elections in November of '26. Typically, there's pressure on a sitting administration, they typically lose seats in the House. It's not unthinkable that one or both houses of Congress could flip to the Democrats.

So you could have a situation, depending on what happens then, that even in November of '26, once the results are in, then there's nothing to lose cause the election's over, and then maybe Congress acts. It's a year later. But that could throw things back up into the air.

John Gardner: Absolutely. I mean, there is a tremendous amount of uncertainty here regarding these tariffs, other potential tariffs that could be imposed, what the rates would be, whether there would be exemptions from the tariffs. Last week, the president signed an executive order giving a list of goods that could be exempt in the case of an agreement and another category of goods that was, prima facie, exempt. Things we don't really make in the United States like palm oil and this sort of thing. So there is a lot of uncertainty, and I think it's going to continue no matter what the court.

Steve Odland: And two of our major trading partners are Canada and Mexico. EU is a huge bloc in total, en masse. But in terms of countries, these are the two biggest countries, Canada and Mexico. And that USMCA, US, Mexico, Canada, which is the NAFTA subsequent deal, is up next year. And so on top of all of this, you could have a renegotiation of USMCA, which has some tariff level or at least changes the framework here to deal with some of the issues that the administration's trying to deal with. So that would put a big check mark behind two really important trading partners. And so that's outside of all of this and in addition to it.

John Gardner: It is. I mean, there are certain goods that are imported from Canada and Mexico that are exempt from these current tariffs because of USMCA. But there are other sectors, for instance, autos, where the president has used authority under Section 232 to say, well there is a national security concern because of our imports of autos and auto parts from Canada and Mexico, and therefore we're going to go ahead and put tariffs on those sectors. So it's a highly uncertain policy environment. You're right, USMCA would have to be renegotiated in 2026, or else it will expire. And I think that's going to become a major focus for the administration in the next couple of months.

What do they want to do about USMCA? Do they want it to continue? And I think there are large segments of the US business community that would like it to continue. And then if so, what changes would they try to make, whether that be Mexican energy or Canadian energy or agriculture or other areas that are not exempt. Either trying to make it more comprehensive or making it less comprehensive if the administration wants to have more tariff authority.

Steve Odland: And it appears that the administration does want to continue the USMCA. They want a more favorable deal, however. And it appears from a negotiating strategy, although the administration points out that they're not going to announce what their strategy is, their negotiation strategy to the public. And so therefore, we can only guess. But it appears that what they're trying to do is do unilateral negotiations with each country to see if they can establish a deal that becomes the basis for the other country, and therefore the totality of it.

But who knows? I mean, there's as you said, there's a lot of uncertainty in moving parts here. I think the thing that is different about Canada and Mexico is because NAFTA has been in place since the '90s, we've really integrated our supply chains, and automobiles are one example of it. So you have a US-produced Ford F-150, which is the number one light vehicle sold in the United States. We think of that as a domestic vehicle, but a lot of the parts and assembly come from Mexico. They come from Canada. They cross multiple times. You might have it start in the US, go to Mexico, cross the US, go up to Canada, get finished, and come back and get assembled.

So it crosses all these geographies as these components and subsections of a car get manufactured and assembled. So it's a very complex thing. So it can't just shut this off or just say, we're not dealing with Canon and Mexico because we couldn't have a domestic—there is no such thing as a domestic vehicle when you come right down to it.

John Gardner: No, I agree. I mean, even the Tesla, there is a factory for Teslas in Mexico, and they actually have a dedicated lane at one of the border crossings into Texas for the parts going back and forth from the factory, to come into the United States without having to wait in that whole big line with all the trucks carrying produce or other goods from Mexico. So it does show the integration of these supply chains.

And there are any number of examples of this. Pharmaceuticals, for instance. Some US pharma companies have operations in Ireland, and they might make some of the chemicals there. They could be made into final products, either there or in the United States or in some other countries. So many products obviously have this complex, border-crossing supply chain that the tariffs do at least influence, if not disrupt, in some cases.

Steve Odland: Yeah. And you know, Conference Board's done work, and we've been very public that critical minerals are important to electricity, both generation but also electric vehicles and other componentry, in order to try to meet, carbon reduction goals and therefore environmental goals. We have those minerals under our soil, but we're not producing it, so therefore, we're buying most of those from China.

But therein lies the whole overlay of national security. So most of the advanced chips in the world are made in Taiwan. You've got China rattling sabers over Taiwan and said that they're going to take it back, which all of the chips used in our military advanced spy activities, communication, and so forth are made on that island.

So you have that. Most of our critical minerals are coming from China, and so you can't run our economy with all of these blocking all of these things. And so you can't run a military, you can't do transportation, you can't do communication. You can't produce weapons. In other words, you can't defend yourself if you don't have the means to supply and manufacture some of these critical things. And that's part of the thinking, although that's not well-articulated. I don't think they want to demonstrate how weak we are or in what a weakened position we are because of our supply chains, and they don't want to scare people.

But all of these things are factors that come into the consideration set when it comes to these tariffs.

John Gardner: Oh, absolutely. And I think that Taiwan and semiconductors is a good example. Taiwan now has this reciprocal tariff rate of 20% on its goods. There's also been pressure, I think, on Taiwanese companies, including TSMC, to try to reshore some of their production to the United States, which they were doing and have accelerated. But you have this Liberation Day tariff on Taiwanese goods, but the administration is also looking at Section 232 authority for semiconductors, so you could have potentially an even higher rate, which would encourage even more production coming into the United States.

Or you take a country like Malaysia, which I think is a 19% tax rate. A lot of that is actually trade within the semiconductor supply chain, of a portion of the semiconductor supply chain from US companies, is made in Malaysia by a subsidiary of that US company, then comes back to the United States. But it is subject to a tariff simply because that portion of the production didn't take place in the United States.

So, as you know, this is highly complex, and for companies that have tried to build these integrated supply chains that are now facing decisions as to whether they will move production or how they're going to address the tariffs more generally in their operations.

Steve Odland: All right, it's a real can of worms and the Supreme Court is going to have to deal with this. We'll see what happens by November. But it sounds, from what you're saying, that even if that gets kicked back, there's still a lot of other avenues that can be considered, all the way through 2026. And so this issue is not going to go away. It's certainly not going to be settled soon, but it's not going to go away, regardless of what happens here from the Supreme Court.

So, more to come on this, and we'll keep an eye on it, and we'll continue to share our insights with our listeners, John Gardner from our Committee for Economic Development, thanks for being with us today.

John Gardner: Thanks very much. Pleasure to be here.

Steve Odland: And thanks to all of you for listening to C-Suite Perspectives. I'm Steve Odland, and the series has been brought to you by The Conference Board.