The Court Rules on Tariffs – But What Will Change?

In language at times strongly worded, the Supreme Court issued its decision in Learning Resources v. Trump, the tariffs case, holding that the President does not have power to impose tariffs under the International Economic Emergency Powers Act (IEEPA). But the decision did not contain procedures for refunds, and attention now turns to the questions of refunds for those affected and the imposition of other tariffs.

• The Court ruled 6-3 that the President has no power under IEEPA to impose tariffs; in peacetime, this power belongs exclusively to Congress.
• Much of the decision and separate opinions concern the “major questions doctrine,” with implications for how the Court will rule in other regulatory cases.
• The decision did not discuss refunds; attention now turns back to the Court of International Trade, which must rule on the issue.
• Foreign countries will need to consider their reactions: to treat the framework trade agreements as valid in the face of higher tariffs, even if those agreements were negotiated under the threat of tariffs now invalidated, or to challenge them?
• Despite the clear ruling, business therefore faces a continued period of uncertainty on tariff policy and in some cases, actual tariff rates and the possibility of higher rates.

Background

The Supreme Court ruled 6-3¹ that the President does not have the power to impose tariffs using the language of IEEPA “to regulate . . . importation” of goods. The Court thus upheld the earlier opinion of the Federal Circuit that the tariffs are unconstitutional. The decision concerns both the fentanyl-related tariffs imposed on Canada, China, and Mexico and the “Liberation Day” tariffs imposed on virtually every country in the world, each imposed under a national emergency the President declared under IEEPA.

The majority reaffirmed that the tariff power rests exclusively with Congress, except in cases where Congress has clearly delegated that power to the President in limited circumstances (for instance, in statutes such as Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974). But the decision itself was complex, with several Justices joining only parts of the principal opinion and issuing separate opinions. The Court ruled 107 days after oral argument – a relatively quick decision for such an important and complex subject.

The Decision

Unsurprisingly for such an important case, the Chief Justice delivered the principal opinion of the Court. Consistent with his view in oral argument, he noted that Article I, Section 8 of the Constitution gives the exclusive power to tax to Congress and criticizes the Government’s assertion of a “sweeping delegation of Congress’s power to set tax policy” including tariffs of “unlimited time and duration, on any product from any country.”

Much of the opinion (and of Justice Gorsuch’s concurrence) concerns the “major questions doctrine” articulated in the earlier case of West Virginia v. EPA (which ruled that EPA did not have power to promulgate regulations on greenhouse gas emissions). The Chief Justice quoted West Virginia v. EPA as to why ambiguous statutory authority cannot be used to justify sweeping delegations of Congressional powers, noting that here, the case concerns the “core congressional power of the purse.” In other cases where Congress had delegated tariff authority to the President, the delegation included “explicit terms and [is] subject to strict limits.”

The Government’s principal argument rested on language in IEEPA that conferred, in a declared emergency, the power to “regulate . . . importation” (separated by 16 words in the statute). The Chief Justice was clear that this limited grant of power does not include tariffs or taxes:

[T]he Government cannot identify any statute in which the power to regulate includes the power to tax. . . .  While taxes may accomplish regulatory ends, it does not follow that the power to regulate includes the power to tax as a means of regulation. Indeed, when Congress addresses both the power to regulate and the power to tax, it does so separately and expressly.

Further, a “contrary reading would render IEEPA partly unconstitutional” as the power to impose taxes or tariffs is “different in kind, not in degree, from the other authorities in IEEPA.”

Continuing the theme, Roberts writes “[t]here is no exception to the major questions doctrine for emergency statutes. Nor does the fact that tariffs implicate foreign affairs render the doctrine inapplicable. The Framers gave ‘Congress alone’ the power to impose tariffs during peacetime.” As the Chief Justice noted, the US “is not at war with every nation in the world.”

Indeed, for the Chief Justice, the very importance of the question argued against the President’s interpretation of the statute: “In the President’s view, whether we are a ‘rich’ or ‘poor’ nation hangs in the balance. These stakes dwarf those of other major questions cases.” Thus, only Congress has the power or, if Congress sought to delegate the power (which might itself be subject to constitutional challenge under the nondelegation doctrine), it had to do so clearly rather than using “highly ambiguous language[.]”

At times, the opinion became somewhat pointed. Criticizing the Government’s argument, the Chief Justice wrote that “[o]n this reading, moreover, the President is unconstrained by the significant procedural limitations in other tariff statutes and free to issue a dizzying array of modifications at will. All it takes to unlock this extraordinary power is a declaration of emergency, which the Government asserts is unreviewable. And the only way of restraining the exercise of that power is a veto-proof majority in Congress”. Following the Government’s view would “replace longstanding executive-legislative collaboration [on tariffs] with unchecked Presidential policymaking.”

The Chief Justice also quoted Justice Robert Jackson from the Youngstown Steel seizures case under the Truman Administration that emergencies “can afford a ready pretext for usurpation” of congressional power” and stated that “the fact that no President has ever found such power in IEEPA is strong evidence that it does not exist.”

A separate opinion from Justices Kagan, Sotomayor, and Ketanji Brown Jackson agreed with the result but highlighted their differences with the major questions doctrine. Justice Barrett wrote a concurrence offering her perspective on the doctrine, and Justice Jackson wrote one giving her views in favor of using legislative history to decide the case (an approach rejected by originalists such as the Chief Justice, Justice Gorsuch, and others in the dissent here). The various opinions in favor of the result show a desire to focus on the core issue – that the tariffs are not constitutional – but a desire to achieve the broadest possible majority.

Dissents

Justice Thomas wrote a dissent giving his views that Congress could broadly delegate “the power to impose duties on imports” (he wrote that he declined to call tariffs “taxes” here).

Justice Kavanaugh wrote the principal dissent, joined by Justices Thomas and Alito, in which he stated that tariffs are a “traditional and common tool to regulate importation.” He also noted the President’s broader powers in foreign affairs. More directly, he also criticized the majority for saying “nothing today about whether, and if so, how the Government should go about returning the billions of dollars it has collected from importers. He noted that “The United States 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.” He also highlighted an important future complexity: “the decision’s effect on the current trade deals. Because IEEPA tariffs have 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.”

Justice Gorsuch’s concurrence

Justice Neil Gorsuch wrote a long and important concurrence principally focusing on the major questions doctrine, contrasting his views with those of the other Justices and noting that it is “an interesting turn of events” how some Justices, both in the majority and dissenters, voted in this case based on their views of the doctrine in their past decisions. Beyond affirming that the tariffs are unconstitutional, his purpose in writing is to argue that “skeptics owe the major questions doctrine a second look.”

While the subject at issue was tariffs and the extent of legislative and executive power, the language of the concurrence with respect to the Justices in the majority (particularly Justice Barrett) will likely be important for clues as to how the Court may decide other cases on regulatory policy using the major questions doctrine.

The concurrence is particularly important with respect to his treatment of the dissenters. Justice Gorsuch argues that there is no “contemporaneous and consistent executive interpretation [of the statute] that would advance the dissent’s cause,” and he states that powers in foreign affairs, so important to Justice Kavanaugh’s dissent, are not “relevant here” because “the President relies entirely on power derived from Congress, and that means the major questions doctrine applies in the normal way.” Otherwise, virtually any issue concerned with Congress’ powers could be construed as touching foreign affairs, and the exception would swallow the rule. (The concurrence also includes a hypothetical relating to Congress permitting the President to “borrow and spend money as he sees fit . . . But if an enterprising executive could also use the law as a ‘tool’ for affecting the behavior of ‘allies . . . or enemies,’ the dissent seemingly would have us exempt it from the major questions doctrine.” It is possible this is signaling that Gorsuch may view other broad assertions of executive power skeptically.)

Refunds and Framework Trade Agreements

Refunds and the Uniformity Clause

As Justice Kavanaugh noted, the principal opinion did not include language on refunds. Presumably importers will continue to file suit in the Court of International Trade (CIT) seeking either a hold on Customs and Border Protection (CBP) liquidating the funds for payment of tariffs to the Treasury or actively seeking refunds. This will become a major focus of litigation. Nor did the Supreme Court directly address the question of the Uniformity Clause, requiring that all tariffs, duties, and imports be uniform throughout the United States. It simply upheld the decision of the Federal Circuit, which broadly upheld the decision of the CIT except for remanding to it the question of the applicability of the Uniformity Clause in light of Trump v. CASA, which broadly overturned the practice of nationwide injunctions. The CIT will now have to rule on this question; presumably it will endorse the applicability of the Uniformity Clause, but the need for another opinion may cause some delay, and the Government could appeal an unfavorable opinion, potentially delaying refunds.

Trade Deals

The more immediate question concerns the application of the various framework agreements, again as Justice Kavanaugh noted. While he implicitly highlighted the role of the IEEPA tariffs in reaching these deals, presumably the US will take the opinion that other countries freely negotiated these deals with the US and therefore the tariffs they contain remain valid. This question will almost certainly be tested in litigation, but with no prospect of a quick result. For now, other countries will need to consider how hard they wish to push the Administration: do they say that the deals are not valid, particularly if they have never been formally incorporated into the domestic laws of foreign countries? Or do they comply, hoping for a favorable judicial outcome later or fearing the prospect of even higher tariffs imposed under various other US statutes if they do not comply with the framework deals? Recently the President pressured South Korea to incorporate the framework agreement into its domestic law or face higher (25%) tariffs; this strategy could be repeated. In either case, foreign exporters and US importers continue to face great uncertainty.

Business Impact

Most immediately, there seem four principal impacts on business.

First, the Court ruled that all relevant cases must be brought in the CIT rather than in regular US District Courts. (Somewhat ironically, the case the Supreme Court dismissed for lack of jurisdiction on that ground is the Learning Resources v. Trump case; the Court’s decision pertains to the case consolidated with it, V.O.S. Selections.) This is consistent with the statute setting up the CIT. Already many companies have filed suit in the CIT; now, its docket will grow considerably as additional importers seek refunds and as earlier suits may be modified to reflect the Supreme Court’s decision. The CIT will be under some pressure to rule quickly given the volume of cases, but there is no guarantee of quick decisions. It will also come into focus as the President has recently nominated a new member to it, who must face Senate confirmation.

Second, the President has already announced that the Administration will continue its tariff policy through expanded imposition of tariffs under other statutes including Section 122 of the Trade Act of 1974 (a global 10% levy which will require a vote in 150 days in Congress to renew), Sections 232 (sectoral tariffs) and 301 (“unreasonable discrimination”) discussed above, and Section 338 of the Tariff Act of 1930 (which has never been invoked, and which may involve the US International Trade Commission). Even leaving aside the new global levy (which essentially replaces the 10% baseline “Liberation Day” tariff), some of these provisions offer the prospect of higher tariff rates on particular goods than may have been imposed through the framework agreements with other countries.

Third, some smaller- and medium-sized businesses in particular may seek to accelerate orders of goods that they had placed on hold pending the Court’s decision. But in some cases, the reality of continued or expanded tariffs may also delay imports that had been planned.

Fourth, consistent with this, aggressive use of tariff policy, and the prospect of higher tariffs in some cases than under the framework agreements, may encourage continued diversion of trade or modification of supply chains.

Conclusion

Both because the President retains significant tariff powers in other statutes where Congress has delegated the authority clearly and because the Administration has promised to continue its tariff policy, it is perhaps best to think of the decision as an important reaffirmation of the separation of powers and particularly of Congress’ exclusive power of the purse. It is now up to Congress how it seeks to use that power, whether in tariff policy or elsewhere.

Justice Gorsuch’s concurrence illustrates the point elegantly, addressing those disappointed by the decision: “the deliberative nature of the legislative process was the whole point of its design. Through that process, the Nation can tap the combined wisdom of the people’s elected representatives, not just that of one faction or man. There, deliberation tempers impulse, and compromise hammers disagreements into workable solutions.” And, Gorsuch added, “laws tend to endure, allowing ordinary people to plan their lives in ways they cannot when the rules shift from day to day.” Business’ hopes for greater certainty in tariff policy remain deeply uncertain, but Congress has an opportunity to introduce that greater certainty if it wishes.

Endnotes

1. Learning Resources v. Trump, 607 U.S. __. (In this Backgrounder, all internal citations are omitted from quotations from the opinion.)