Countries are assessing the implications of the U.S. Supreme Court's ruling on May 20 that declared certain tariffs unlawful. The court determined that taxation is an exclusive power of Congress, meaning refunds must be pursued through individual corporate litigation. The 15% tariff imposed by the Donald Trump administration immediately after the ruling is based on a law valid for only 150 days, suggesting additional product-specific tariffs will follow.
Q. What was the basis for the Supreme Court's ruling?
The Supreme Court ruled IEEPA-based tariffs unlawful because the Constitution designates taxation as Congress's most important exclusive power. IEEPA, enacted in 1977, grants the president authority to control economic transactions when foreign situations pose extraordinary threats to the United States. The Trump administration had argued that IEEPA's "import regulation" provisions include tariffs. However, the court stated that "considering the scope of authority, history, and constitutional context, tariff imposition requires congressional approval," specifying that "regulation" under IEEPA does not mean taxation. The court also noted that no one had previously used IEEPA to impose tariffs and criticized the law's predecessor for not limiting taxation targets, amounts, or duration. It emphasized that the executive branch should not unilaterally decide policies with significant national impact.
Q. Which tariffs were invalidated?
All reciprocal tariffs and fentanyl tariffs based on IEEPA lost their validity. In February last year, President Trump announced tariffs claiming China, Canada, and Mexico were tolerating fentanyl smuggling—this basis has now been eliminated. Tariffs on steel, aluminum, automobiles, and parts under Section 232 of the Trade Expansion Act remain valid. Non-steel and non-aluminum derivative products previously subject to reciprocal tariffs are now invalid.
Q. Who is eligible for refunds and what is the process?
Experts expect the U.S. Court of International Trade (USCIT), which handled the initial case, to address refund issues. More than 1,000 companies including Costco have filed refund lawsuits, with China's BYD and Korea's Taihan Electric Wire reportedly joining. New tariff litigation and court proceedings are expected to intensify.
Companies are demanding swift refunds. The National Retail Federation (NRF) and U.S. Chamber of Commerce emphasized that "refunds will help stimulate the economy and support business operations and reinvestment." However, President Trump warned that litigation "will probably take two years to fight," suggesting final court decisions could take years. Economists at the University of Pennsylvania's Penn Wharton Budget Model estimate refund claims could reach $175 billion.
Q. What is Section 122, the basis for the 15% tariff?
Section 122 of the Trade Act of 1974 allows the president to impose special measures including tariffs and import quotas when "fundamental international payment problems" require import restrictions. These problems include large and serious international trade balance deficits or significant and imminent dollar depreciation in foreign exchange markets. The president can impose tariffs up to 15% and activate import quotas for a maximum of 150 days; extension requires congressional legislation.
However, legal disputes have already emerged. Critics argue that Section 122 was created to urgently address balance-of-payments imbalances during the 1970s dollar and exchange rate crisis, questioning its applicability today. The Wall Street Journal reported that additional lawsuits related to Section 122 could follow.
Q. What about Section 301 and Section 338 as future options?
President Trump announced he would investigate unfair trade practices of various countries through Section 301 of the Trade Act while Section 122 remains in effect. Investigations can be initiated through industry petitions or directly by the U.S. Trade Representative (USTR), followed by consultations with the target country. During his first term, President Trump conducted six Section 301 investigations and actually imposed tariffs on China and the European Union.
The administration could also raise product tariff rates or expand coverage under Section 232 of the Trade Expansion Act. Section 338 of the Smoot-Hawley Tariff Act, which allows tariffs up to 50% on countries taking discriminatory measures against the United States, is also mentioned as an alternative.