Policy Backgrounders

Tariffs: On to the Supreme Court and New Executive Order

September 10, 2025

On September 5, the President signed an Executive Order modifying certain tariff rates and setting out procedures for implementing framework and final agreements on tariffs, now termed “Trade and Security Agreements.” The Order offers potential relief for tariffs on some goods—but strict considerations for lowering tariffs in the context of a framework or final agreements with US trading partners.

• The new Executive Order addresses the “Liberation Day” tariffs and certain sectoral tariffs but does not address the fentanyl-related tariffs on Canada, China, and Mexico.
• It modifies the list of exemptions to the Liberation Day tariffs and includes a list of items potentially exempt from tariffs if a final agreement is negotiated with a trading partner. However, it does not promise zero tariffs on those items in a final agreement.
• The Order states that only in rare circumstances will tariffs be lowered before a final agreement with a trading partner. It delegates powers to agencies and suggests that refunds will only be given after a final agreement is in place.
• One way to read the new Order is that the Administration is taking a harder position seeking to pressure trading partners into continuing negotiations to secure (potential) tariff reductions and final agreements before the Supreme Court rules on the case.

The New Executive Order

On September 5, the President signed the Executive Order “Modifying the Scope of Reciprocal Tariffs and Establishing Procedures for Implementing Trade and Security Agreements.” The Order has several purposes. Most basically, the Order modifies Executive Order 14257 from April 2, which announced the “Liberation Day” tariffs. These are the subject of litigation in the Federal Circuit on appeal to the Supreme Court. (This Order does not address the fentanyl-related tariffs on Canada, China, and Mexico, also at issue in the Federal Circuit litigation.)

The April 2 Executive Order included an annex of exemptions from the tariffs the Order otherwise imposed (which were later delayed to August 1). Now, this recent Order modifies that annex as “necessary and appropriate to deal with the national emergency” on persistent trade deficits. According to the order, these rates are being modified because “some trading partners had signaled a willingness to undertake meaningful economic and national security commitments with the [US] designed to combat the emergency [.] The new Annex II is a broad list, including many minerals, chemicals, certain types of wood, and other products. 

A separate Annex III to the new Order on “Potential Tariff Adjustments for Aligned Partners” provides a long list of products “potentially eligible to be exempt from duties . . . for each trading partner that has concluded an agreement on reciprocal trade, based on the scope and nature of that trading partner’s commitments under that agreement.” The list includes many items of food, flowers, spices, edible oils, minerals, industrial oils and concentrates, and chemicals (many of which relate to the pharmaceutical industry). It also includes some limitations on scope relating to aircraft and pharmaceuticals (both subject to Section 232 sectoral tariff investigations).

However, Annex III is not a commitment to more open trade. While it potentially excludes items from tariffs, essentially, the list addresses products that cannot be produced in the US in quantities that satisfy domestic demand, plus certain agricultural products, aircraft and aircraft parts, and “non-patented articles for use in pharmaceutical applications.” In addition, the Order does not promise that items on the list will receive a zero tariff as part of a final agreement nor that the rates of tariffs on these products will be the same in every final agreement.

The structure of the Order also suggests that the Administration regards the fentanyl-related tariffs (imposed under a separate national emergency) as separate from the Liberation Day tariffs. While somewhat speculative, there could be at least two separate reasons to do so. First, that the Supreme Court might seek to separate the rationales for tariffs under the two emergencies in deciding the appeal from the Federal Circuit, giving greater deference to a clearer nexus to national security (imports of illegal fentanyl driven by cartel activity) than to persistent trade deficits. Second, Canada, China, and Mexico are the US’ three largest trading partners, and the Administration, which even back to the campaign considered the three countries separately in discussing potential tariffs, may wish to conduct these negotiations on a separate track (very high tariffs on China remain on hold until November, with the standard rate on Chinese goods (including a reciprocal tariff and fentanyl-related tariff) at 30%, other than special tariffs imposed under Section 232), and the USMCA trade agreement is scheduled for renegotiation next year unless a member first denounces the agreement.

Tariffs Under Framework and Final Agreements

The Order provides steps to reduce tariffs under “certain current and forthcoming” “framework” and “final” agreements with US trading partners, such as the agreements reached with the EU and Japan. The Order describes these as “trade and security framework agreements,” thus making an explicit connection to security as well as trade (likely to provide greater support for the argument that the President is using IEEPA powers validly as well as the requirement of a connection to national security under Section 232 of the Trade Expansion Act of 1962). It also addresses the interaction between the “Liberation Day” tariffs and sectoral tariffs imposed under Section 232 under Proclamations relating to steel, aluminum, autos and auto parts, and copper.

The Order notes that “[e]xcept in rare circumstances, I will refrain from narrowing the scope of the reciprocal tariff or any relevant [sectoral] tariff before the conclusion of a final trade and security agreement . . . with the foreign trading partner.” Further, the President stated that

My willingness to reduce the reciprocal tariff to zero for a given import or to modify tariffs imposed under section 232 will depend on numerous factors, including the scope and economic value of a trading partners commitments . . . in its agreement on reciprocal trade, the national interests of the United States [and the factors in the Liberation Day Executive Order and the Section 232 proclamations].

In other words, the tariffs will mostly remain in place pending the conclusion of final agreements, although this Order does modify tariffs on the EU from the “Framework Agreement” it recently concluded, essentially treating this as a final agreement even as a number of issues – notably, digital services – remain unresolved from the Administration’s perspective. Keeping the tariffs largely in place provides an incentive for trading partners to continue negotiations.

Delegation of Powers and Continuous Monitoring

The Order delegates power to the Commerce Department and to the US Trade Representative (USTR) not only in determining whether the US needs to take action to fulfill commitments under framework and final agreements (only after US trading partners have taken promised action) but also to take “necessary and appropriate actions” to implement US commitments. This includes adopting “rules, regulations, or guidance” and power “to employ all powers granted to the President, including those granted by IEEPA and section 232”; these powers may also be redelegated within Commerce and USTR.

Section 5 provides that the two agencies should monitor the agreements and any US actions under them continuously, including with respect to the “trade deficit, the lack of reciprocity in our bilateral trading relationships, disparate tariff rates and non-tariff barriers, US trading partners’ economic policies that suppress domestic wages and consumption imports, the strength of our domestic manufacturing base, the strength of our defense industrial base, and any other relevant factors.” This broad list of factors offers no reassurance that even final agreements may lead to final tariff rates; the Administration is in essence retaining the right to reimpose tariffs, particularly if the Supreme Court upholds the use of tariffs under emergency powers.

Refunds

The Order provides that if an agreement with a foreign trading partner “requires a refund of duties collected,” US Customs and Border Protection shall provide the refund to the extent consistent with law.” This seems to cabin refunds to formal agreements with trading partners, putting pressure on trading partners to continue to negotiate with the Administration as the tariff litigation continues despite two losses in court. And while one may read “consistent with law” and a later reference to “applicable law” to include court decisions, the Order does not contain a specific procedure to ensure refunds in the event of an adverse court decision. While Annex III contains a list of items potentially subject to lower or zero tariffs, the Order is not self-executing in this regard; separate modifications will have to be made to reflect each final agreement (presumably by Commerce and USTR because of the delegations discussed above).

The Order and the Court

The Order weaves together the Liberation Day tariffs at issue in the current litigation with the Section 232 tariffs. This makes sense only if the Liberation Day tariffs are constitutional – the very point at issue in the litigation, on the ground that the Federal Circuit wrote that “[s]etting tariff policy” is a “core Congressional function” and that tariffs are a tax and the taxing power lies with Congress, not the President.

Earlier, the President suggested that the US might have to “unwind” the agreements on tariffs with the EU, Japan, and other partners if the Supreme Court rules against the Liberation Day (and fentanyl-related) tariffs. One way to read the new Order is that the Administration is taking a harder position: seeking to pressure trading partners into continuing negotiations to secure (potential) tariff reductions and final agreements before the Supreme Court rules and also trying to pressure “Aligned Partners” that sign final agreements into keeping the tariffs on their goods even if the Supreme Court rules that the President did not have emergency authority to impose the Liberation Day tariffs. In support of this view, the new Order limits tariff refunds to those required by framework or final agreements without specifically making clear that a court order qualifies as “applicable law.” Thus, the Order may be seen as an effort attempt both to reduce some tariffs now, to give trading partners an incentive to keep negotiating, and as a vehicle to offer the Administration greater flexibility if it loses the Supreme Court appeal.

Of course, the Administration takes the position that the tariffs are valued and should be upheld. As the Federal Circuit litigation proceeds to the Supreme Court for hearing in early November, the Administration may also be considering ways to keep tariffs in place should it lose at the Supreme Court. Whether through pressure on trading partners to keep the agreements or face higher tariffs, through expanded use of Section 232 authority, or other means, it seems clear that the Administration will continue to press on with tariffs as a core of its economic policies and will not concede or give up easily.