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US Courts Rule Trump Tariffs Illegal; Refund Process Underway for Importers

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U.S. Supreme Court and Trade Court Strike Down Trump Tariffs

The U.S. Supreme Court and the Court of International Trade have issued multiple rulings declaring that former President Donald Trump's tariffs, imposed under the International Emergency Economic Powers Act (IEEPA) and Section 122 of the Trade Act of 1974, were unlawful. These decisions have invalidated significant portions of the administration's trade policy and triggered a refund process for importers who paid an estimated $166 billion to $180 billion in duties.

Supreme Court Ruling on IEEPA Tariffs

Decision and Legal Basis

In a 6-3 decision authored by Chief Justice John Roberts, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) of 1977 does not authorize the president to impose tariffs. The Court affirmed that the power to levy taxes, including tariffs, is vested solely with Congress under the U.S. Constitution.

The majority opinion was joined by Justices Neil Gorsuch, Amy Coney Barrett, Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson. Justices Clarence Thomas, Samuel Alito, and Brett Kavanaugh dissented.

Scope of the Ruling

The ruling struck down the "reciprocal tariff policy" and "Liberation Day" tariffs implemented by the Trump administration in February and April 2025. These tariffs had imposed rates of 10% to 50% on goods from most countries, with some rates reaching 145% on Chinese goods and 25% on goods from Canada and Mexico.

The IEEPA tariffs, which the Court invalidated, accounted for approximately half of all monthly tariff revenue collected by the U.S. government.

Court of International Trade Ruling on Section 122 Tariffs

Decision and Legal Basis

A divided three-judge panel of the U.S. Court of International Trade in New York ruled 2-1 that the 10% global tariffs imposed under Section 122 of the Trade Act of 1974 are invalid. The majority found that the Trump administration lacked justification for the tariffs, as the law only permits such measures to address "fundamental international payments problems"—a condition the court determined does not currently exist.

Scope of the Ruling

The ruling directly applies to the plaintiffs in the case, which include the state of Washington, spice company Burlap & Barrel, and toy company Basic Fun!. The court did not issue a universal injunction, meaning other importers may still be required to pay the tariffs pending further legal action.

The Section 122 tariffs, set at 10% and scheduled to expire on July 24, were imposed in February after the Supreme Court struck down the IEEPA tariffs. The administration had previously indicated it could raise this rate to 15%, the maximum allowed under Section 122.

Refund Process

Government Obligation

Following the Supreme Court's ruling, the U.S. government is obligated to refund tariffs collected under the IEEPA. The Court of International Trade ordered the government to provide refunds for all illegally collected tariffs, with interest. Estimates of the total amount to be refunded range from $133 billion to $180 billion.

CAPE Portal Implementation

U.S. Customs and Border Protection (CBP) launched the Consolidated Administration and Processing of Entries (CAPE) online portal on April 20 to process refund claims. The system consolidates refunds into single electronic payments. As of April 9, approximately 56,497 importers had completed registration for electronic refunds totaling $127 billion.

Refund Eligibility and Limitations

  • Refunds are directed to the "importer of record" —the entity that paid the duties—not to end consumers.
  • The initial phase of the CAPE portal processes refunds for "unliquidated" entries (estimated duties) and entries liquidated within the past 80 days.
  • Approximately 63% of all IEEPA duties are eligible in this initial phase. The remaining 37% of entries, which involve liquidated entries or goods under protest, are excluded from the initial process.
  • CBP states it will issue refunds for valid claims within 60 to 90 days of approval, though errors in claims may cause delays.

Refund Market

Hedge funds and financial firms are purchasing tariff refund claims from importers at a discount, offering immediate cash in exchange for the right to pursue the full refund through the government process. These trades were valued at approximately 45 cents on the dollar following the Supreme Court ruling.

Administration's Response and New Tariffs

New Tariff Measures

Following the Supreme Court ruling, President Trump announced and implemented a new 10% global tariff under Section 122 of the Trade Act of 1974. He subsequently stated an intention to increase this to 15%, the maximum allowed under that law. These tariffs are limited to 150 days and require congressional approval for extension.

Additional Tariff Authorities

The administration is pursuing longer-term tariffs through other legal mechanisms:

  • Section 301 of the Trade Act of 1974: Requires investigations into unfair trade practices by specific countries. The administration has initiated investigations targeting 16 major trading partners for "excess manufacturing capacity" and over 50 countries for alleged forced labor practices.
  • Section 232 of the Trade Expansion Act of 1962: Permits tariffs on national security grounds, affecting steel, aluminum, and auto imports.
  • Section 201 of the Trade Act of 1974: Allows temporary tariffs to address substantial injury to domestic industries.

Legal Challenges to New Tariffs

The Section 122 tariffs have been challenged by 24 U.S. states and companies in the Court of International Trade. The core legal question is whether a trade deficit qualifies as a "fundamental international payments problem" under the law. Critics note the provision was designed during the Bretton Woods era when the U.S. dollar was tied to gold. The U.S. Justice Department previously argued in a 2023 court filing that Section 122 did "not have any obvious application" for addressing trade deficits.

Political and Congressional Reactions

Presidential Statements

President Trump criticized the Supreme Court's decision and the justices who joined the majority, including his appointees Neil Gorsuch and Amy Coney Barrett. He stated that the ruling made his tariff powers "more powerful" and that he would pursue tariffs through alternative legal avenues. He also suggested companies that do not seek refunds would be remembered favorably.

Congressional Actions

  • The House of Representatives passed a joint resolution to end the 35% tariff on Canadian goods.
  • The Senate passed three bipartisan resolutions rejecting the tariffs.
  • Congressional Democrats, including Senators Ed Markey, Elizabeth Warren, Peter Welch, and Cory Booker, have introduced legislation to establish a government system for processing refunds, with priority for small businesses.
  • Republicans have requested investigations into Australian and New Zealand lamb imports and proposed a bill for a 30% tariff on sheep products from those countries.

International Reactions

  • China's commerce ministry called on Washington to lift the tariffs and initiated a "comprehensive assessment" of the court ruling's impact.
  • The European Union paused ratification of its trade deal with the U.S., seeking clarity on tariff intentions.
  • Australia stated the tariffs are inconsistent with the free trade agreement.
  • French President Emmanuel Macron noted the importance of counterweights to power in democracies.
  • German Chancellor Friedrich Merz anticipated an easing of burdens on German companies.

Economic Impact Assessment

Tariff Revenue and Refunds

  • In the first five months of the fiscal year, $151 billion was collected from tariffs, nearly four times the amount from the same period a year prior.
  • The Yale Budget Lab estimates that refunding IEEPA tariffs would cost the government $1.2 trillion in revenue through 2035.
  • The average effective U.S. tariff rate is estimated at 11.8%, which would increase under new tariffs.

Manufacturing and Investment

  • U.S. factories employed 89,000 fewer individuals in February compared to April of the previous year when tariffs were widely imposed.
  • Foreign direct investment totaled $288 billion last year, a slight decrease from the previous year and below the 10-year average.
  • The manufacturing sector experienced a downturn, with a reported loss of 108,000 jobs in 2025.

Inflation and Consumer Prices

  • Inflation in February was 2.4%, remaining above the Federal Reserve's target.
  • Federal Reserve Chair Jerome Powell stated that elevated readings in the goods sector largely reflect the impact of tariffs.
  • Economists note that tariffs function as a domestic tax on consumption and that consumer prices are unlikely to decrease significantly following refunds, due to "price stickiness" and anticipation of new tariffs.

Trade Deficit

  • The goods trade deficit increased by approximately 2%, reaching $1.24 trillion.
  • Imports totaled $3.4 trillion (a 4% increase), while exports reached $2.2 trillion (a 6% increase).

Tariff Rate Changes

  • The average tariff rate peaked at over 21% following initial implementation.
  • As of February, the Tax Foundation estimates the average tariff at approximately 10%, roughly half its peak but four times higher than pre-administration levels.
  • Tariff rates changed more than 50 times, creating volatility for businesses.

Company and Consumer Impact

Major Beneficiaries

Analysts from Citi provided estimates for potential refunds to specific companies:

  • Walmart: ~$10 billion
  • Target: ~$2 billion
  • Nike: ~$1 billion
  • Apple: $2.5–$3.3 billion
  • Ford: $1.3 billion
  • General Motors: $500 million
  • Home Depot: >$500 million

Company Responses

  • FedEx, UPS, and DHL have announced they will file for refunds on behalf of their customers and pass refunds to those who paid tariff fees directly.
  • Costco stated it would turn refunds into "lower prices and better values" for consumers.
  • Some companies, such as Fabletics, explicitly listed tariff surcharges on customer receipts.
  • Class-action lawsuits have been filed against companies like Costco, Nintendo, FedEx, UPS, and DHL seeking consumer refunds for tariff-related price increases.

Consumer Refund Prospects

Analysts at Goldman Sachs stated that consumer prices are unlikely to decline soon due to the refunds and that the odds of consumer savings are "likely to be negligible."

  • The Tax Foundation estimates the tariffs increased the average American household's tax payments by $1,000 last year.
  • Determining individual consumer tariff costs is described as "literally impossible" by some experts due to complex supply chains and cost absorption by multiple parties.