A new financial market is emerging around tariff refund claims following the U.S. Supreme Court's ruling that reciprocal tariffs are unlawful, with hedge funds purchasing refund rights from importers in need of immediate cash.
According to Reuters on the 22nd (local time), derivative transactions that "securitize" tariff refund claims have been spreading since late last year. Wall Street hedge funds have been accelerating contact with U.S. importers as expectations grew that the Supreme Court would likely rule the Trump administration's reciprocal tariffs unlawful, following similar decisions in lower courts.
The contract structure involves U.S. importers transferring their "refund claims" to hedge funds in exchange for upfront payments representing a portion of their "potential" refunds. Reuters noted this is not necessarily a bad deal for importers. Even with a final ruling that reciprocal tariffs are unlawful, actual refunds could take years to receive, and importers may need to file lawsuits against the administration to claim them.
For hedge funds, this presents an opportunity to acquire substantial tariff refunds at a discount. While hedge funds also bear risks regarding actual refund amounts and timing, they differ from importers in having abundant cash reserves. Kids2, an Atlanta-based toy and baby products company, sold refund claims for approximately $15 million in tariffs paid through September last year to a hedge fund for $2 million. Reuters described this as "a 'secret market' for trading tariff refund claims," noting that "Wall Street has pioneered a new market for recovering tariff costs."
Such transactions are likely to increase given the significant uncertainty surrounding tariff refunds even after a final ruling of unlawfulness. The refund issue will be decided by the U.S. Court of International Trade (CIT). Ben Bidwell, director of customs at logistics and forwarding company C.H. Robinson, said, "This is the first time tariffs of this magnitude have been ruled unconstitutional. There is much uncertainty about whether the CIT will allow broad refunds, limit them to certain companies, or whether refunds will be possible at all."
Logistics company Kuehne+Nagel advised customers in a Q&A regarding the Supreme Court ruling to prepare all customs documentation needed for refunds, stating: "The CIT is expected to handle refund procedures, but no specific timeline has been set. The large volume of claims could result in delays spanning several years."