The U.S. Supreme Court has heard arguments concerning the legality of tariffs implemented by the Trump administration, with significant financial implications and potential impacts on future presidential trade authority. Challenges brought by small businesses and several states contend that many of these tariffs are unlawful, arguing they exceed presidential power under the International Emergency Economic Powers Act (IEEPA) of 1977. The Court's decision, anticipated between January and June, could necessitate refunds of billions of dollars in collected import taxes and influence the scope of executive authority in trade policy.
Judicial Scrutiny During Oral Arguments
During the hearing, several justices, including conservatives, questioned the broad application and legal basis of the tariffs. Justice Amy Coney Barrett inquired about the justification for applying a "reciprocal tariff policy" to numerous countries, asking for clarification on why nations like Spain and France were included. Chief Justice John Roberts highlighted the potential scope of presidential power if the administration's arguments were accepted, noting it could allow tariffs "on any product from any country in any amount, for any length of time."
Justice Neil Gorsuch raised concerns about the separation of powers, questioning if such an interpretation would permit Congress to abdicate its responsibility to regulate foreign commerce. Justice Sonia Sotomayor stated directly to the administration's solicitor general, "You want to say that tariffs are not taxes but that's exactly what they are." Conversely, Justice Brett Kavanaugh questioned the practicality of granting the president power to block trade entirely but not to impose a minor tariff.
Legal Framework and Competing Arguments
The core of the case revolves around the interpretation of the 1977 International Emergency Economic Powers Act (IEEPA). This law grants the president authority to "regulate" trade in response to an emergency. The Trump administration first invoked IEEPA in February to impose tariffs on goods from China, Mexico, and Canada, citing drug trafficking as an emergency. In April, the act was used again to levy tariffs ranging from 10% to 50% on goods from most countries globally, citing the U.S. trade deficit as an "extraordinary and unusual threat." These tariffs were implemented intermittently over the summer as trade agreements were negotiated.
Solicitor General John Sauer, representing the administration, argued that the power to regulate trade under IEEPA includes the authority to impose tariffs. He contended that the nation faced "country-killing and not sustainable" crises necessitating emergency presidential action and warned that invalidating these tariff powers could lead to "ruthless trade retaliation" and "ruinous economic and national security consequences." Sauer stated that the power to raise revenue through tariffs was "only incidental" to their regulatory purpose.
Lawyers representing the challenging states and private groups asserted that the IEEPA law does not explicitly mention "tariffs." They argued that Congress, under the U.S. Constitution, holds the sole authority to establish taxes and that it did not intend to grant the president such expansive power to override existing trade agreements. Neil Katyal, arguing for private businesses, stated that while the law allows the president to impose embargoes or quotas, a revenue-generating tariff exceeded this authority. The justices primarily focused on the text and legislative history of IEEPA; former President Trump was the first to use the act for tariffs, while previous presidents utilized it for sanctions.
Financial and Business Implications
The ruling has implications for an estimated $90 billion worth of import taxes already collected, representing approximately half of the U.S. tariff revenue through September this year, according to Wells Fargo analysts. Administration officials cautioned this sum could increase to $1 trillion if the court's decision is delayed until June.
Businesses have reported experiencing significant costs and disruptions due to the changing tariff policies. Learning Resources, a U.S.-based toy seller, anticipated incurring $14 million (£10.66 million) in tariffs in the current year, a seven-fold increase from 2024, and has relocated the manufacturing of hundreds of items. Cooperative Coffees, a Georgia-based co-op, reported paying approximately $1.3 million (£975,000) in tariffs since April, noting operational disruptions, securing additional lines of credit, increasing prices, and managing reduced profits. Businesses have indicated they would seek to recoup payments if the government is compelled to issue refunds. Over 1,000 companies have filed lawsuits seeking such refunds.
Context and Presidential Authority
President Trump has stated that an unfavorable ruling would restrict his ability in trade negotiations and pose a threat to national security, characterizing it as a potential "weakened, troubled, financial mess." Members of Congress from both parties have affirmed that the Constitution assigns responsibility for creating tariffs, duties, and taxes to the legislative branch. Over 200 Democrats and one Republican, Senator Lisa Murkowski, submitted a brief to the Supreme Court arguing that IEEPA does not grant the President power to use tariffs as a bargaining tool. The Senate passed three bipartisan resolutions rejecting the tariffs, including one aimed at ending the national emergency declared by the President, although these resolutions are not expected to pass in the House. Three lower courts previously ruled against the Trump administration on this issue.
The Supreme Court's decision will address the scope of presidential power. Legal analysts suggest the outcome is difficult to forecast. The Court has previously invalidated significant policies on grounds of White House overreach but has also shown deference to the President in other recent disputes and historically on matters of national security.
Potential Outcomes and White House Preparations
The final decision from the justices is anticipated within months, potentially by January, though it could extend until June. The court could potentially determine the tariffs unlawful but apply the ruling only to future collections, allowing the government to retain previously collected funds.
The White House has developed a "backup plan" should the Supreme Court invalidate the existing tariffs. White House National Economic Council Director Kevin Hassett stated that President Trump intends to immediately impose 10% tariffs to largely offset the impact. These tariffs would likely be established under Section 122 of the Trade Act of 1974, which permits presidents to impose duties of up to 15% for up to 150 days to address trade imbalances, serving as an interim measure. More lasting tariffs targeting specific industries or countries would be pursued under other statutes, which would require formal notices, offering more time for deliberation.
The ongoing case has also introduced complexities into the White House's trade agreements, including a deal reached with the European Union in July. The European Parliament is currently reviewing this agreement and is not expected to act on it until the Supreme Court's decision is released.