On Friday February 20th, SCOTUS finally came out with a decision and overturned Trumps tariffs, declaring that the president does not have the authority to impose any tariffs under IEEPA (International Emergency Economic Powers Act).  This was a 6 to 3 decision, and the judges on the winning side had a variety of reasons.  (The reason is took so long was that every judge had a written opinion, which had to be commented on and debated…). Generally, they stated that there was no textual basis in IEEPA for tariffs, affirming a lower court ruling that the President misused the statute. The ruling invalidated “reciprocal” and country-specific tariffs (e.g., related to fentanyl) imposed by the administration.

Trump’s Response

Within two hours of the announcement, President Trump announced that he would be imposing 10% tariffs on all countries, citing Section 122 of trade law. This is a section that is left over from the 1970’s, which was used because of the balance of payments crisis issue during that period, which is not applicable in the age of flexible interest rates. Section 122 can impose tariffs for up to 150 days, but can also be re-announced for another 150 days at the end of that period. Tariffs were initially set at 10% but were then escalated to 15% over the weekend. 

The Impact

At midnight tonight IEEPA ends. But experts really don’t know what happens next.  Perhaps no tariffs will apply for a short couple of days because in transit goods don’t have tariffs.  And we will see if Congress approves Section 122. Customs and Border Patrol will likely be providing more information in a few hours with forthcoming documentation.

One thing you can also be sure of. Lawyers will be having a field day, as the volume of contractual disputes arising from this shift in tariffs will generate lots of lawsuits. Especially when it comes to deciding how refunds will be allocated…

Refunds

One of the biggest challenges that arises from these events is the issue of refunds. SCOTUS was silent on how refunds were to occur, even though some judges issued guidance in their opinions which did not come out in the decision. The government has collected more than $200B of tariffs since the IEEPA tariffs were announced. As the country transitions from IEEPA to not IEEPA, the US Treasury will need to cut checks to issue refunds collected through the CBP. The refund process is likely going to go to the Court of International Trade to sort it out – but could wind up being very unpleasant for many companies.  The majority of these refunds will go to importers and distributors, as well as third party carriers such as FedEx, UPS, and DHL. This is because the refunds will be issued to the importer of record on the bill of lading. But here’s the catch. These companies – UPS, FedEx, small distributors – don’t want to hold onto these refunds!  They collected them and now will have to figure out how to give them back to consumers who paid them! These consist of millions of transactions for very small dollar amounts, so this will be a very expensive and time consuming and complex process. 

What Will Likely Happen Next?

The de minimis restriction also used IEEPA to be justified under law. Because the IEEPA tariffs were overturned, the administration rushed a new Executive Order to still suspend the de minimis exemption. In addition, there have been multiple “deals” made between many countries and the Administration, many drawn up on “the back of a napkin”. In some cases, the tariff negotiated is greater than 10% or 15 % – the administration is saying that everything still stands – “you agreed to it, we had a deal, and that is the deal that stands”. This is problematic, as some countries like Indonesia agreed to 14% but if the new tariffs are at 10%, they pay 4% more than other countries. The UK was at 10% in their deal, but may now go up to 15%! And so on…So there is a lot of activity that will come up in the next few hours, and paperwork will be rushed for CTPAT to start collecting new tariffs…

It is very likely that the Trump administration will want to move from Section 122 to expanded Section 232 tariffs. Section 122 will also likely have a number of “carve outs” for special categories of products. Section 232 tariffs are used for security purposes, and are already being applied for many categories of goods deemed to be a national security risk, including semiconductors, pharmaceuticals, automobiles, and others, as well as a long list of derivatives list which could get huge.  The administration will also start issuing Section 301 tariffs for unfair trade practices – probably starting with the EU.  Once a 301 tariff is declared a process has to be followed with comments. But once issued, the than the administration can do anything they want under a 301 tariff for any reason. So it is likely that 301’s will be rushed into place – and we will thus be transitioning from 122 to 232’s and 301’s.  The latter set of tariffs can last a very long time – it very hard to overturn those, and they remain sticky between administrations. So we can expect very high tariffs going forward for the foreseeable future.