(Not So) Fun Fact: Despite IEEPA tariffs being struck down, President Trump has already replaced a significant portion of the previous tariff regime using other authorities.

The Death of IEEPA

What’s Happening: On February 20, the Supreme Court held in a 6-3 decision that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose tariffs. This ruling has thrown President Trump’s trade agenda into a state of disarray as the administration must now utilize other tariff authorities to replicate the IEEPA tariff regime. In a press conference following the decision’s release, President Trump expressed his discontent with the Court and laid out next steps for the administration’s trade agenda. Effective February 24, a 10-percent tariff was imposed on most U.S. imports through Section 122 of the Trade Act of 1974 – an untested tariff authority that can be used to address significant balance-of-payment deficits. The president stated on Truth Social the following day that this tariff would increase to 15 percent (the maximum allowed by this authority); Customs and Border Protection’s official guidance cites only a 10-percent tariff rate, however. It is expected that in the coming days the tariff will be modified to match the president’s 15-percent threat. As laid out in the Section 122 statute, these tariffs will expire after 150 days unless Congress votes to renew them.

Why It Matters: Before discussing the economic ramifications of ending IEEPA tariffs (see story below), it is important to highlight some key points of the Court’s decision. The Court pointed out that the framers of the Constitution did not provide any part of the taxing power to the executive, and that Congress alone has the power to impose such tariffs during peacetime. Additionally, it exceeds historical precedent and executive power to read IEEPA as authorizing the president to impose unlimited tariffs for any amount of time on any product from any country. The decision’s opening also covers why some of the arguments in favor of IEEPA tariffs are unpersuasive. Most notably, the question is not whether tariffs can ever regulate commerce but instead if Congress gave that power in the text of IEEPA. In every other instance of presidential tariff authority, Congress clearly confers that power with constraints attached.

This case can best be summarized by Justice Gorsch’s concurring opinion in which he discusses each of the other justice’s rationale and why IEEPA does not confer the authority to tariff. For historical context Gorsch mentions that “Americans fought the Revolution in no small part because they believed that only their elected representatives (not the King, not even Parliament) possessed authority to tax them,” and that for most of U.S. history taxing and tariff power were the same. Gorsuch pointed out that some who concurred in this case – narrowly interpreting the language in IEEPA – have dissented in past cases where they argued that broad statutory language granted vast executive power. Gorsuch also noted that the dissenting opinions laid out a broad exception for IEEPA tariffs in the context of foreign affairs that would not fit with existing precedents set by the Court. The Shipment highly recommends giving Gorsuch’s concurrence a read.

Looking Ahead: The final ruling marks one of the most consequential decisions for trade law in the modern era as it upholds the separation of powers as well as Congress’ intended role in setting trade and tax policy. While IEEPA has been struck down, President Trump will continue to impose tariffs – albeit through different avenues that take more time to fully implement. As Section 122 is both untested and being legally stretched to its limits, it is highly likely that its use as a tariff band aid will be challenged in the courts.

Resurrecting the IEEPA Tariff Regime

What’s Happening: On February 20, President Trump signed an executive order (EO) imposing a 10-percent tariff on most U.S. imports citing Section 122 of the Trade Act of 1974. This temporary, 150-day tariff has no historical precedent and can be utilized by the president under three circumstances: to deal with a large and serious balance-of-payments deficit, to prevent a substantial depreciation of the U.S. dollar, or to correct an international balance-of-payments disequilibrium in cooperation with other countries. The EO justifies Section 122 by stating that “sometimes, the United States faces fundamental international payments problems” and lists each of the use-cases mentioned above. President Trump also signed an EO that continues to suspend the de minimis tariff-free pathway for low-value shipments and signaled that Section 301 and Section 232 tariffs will help rebuild the IEEPA tariff regime. During the State of the Union, President Trump reaffirmed that he maintains tariff authorities and that trade deals remain intact. The status of these deals appears unclear, however, because U.S. trade partners may regard them as a violation of previously agreed upon tariff rates. The European Union (EU) has paused work on its deal, the United Kingdom (UK) warned it will take reciprocal action if their deal is reneged upon, and China warned it will retaliate if the U.S. imposes new tariffs.

Why It Matters: Before the IEEPA tariffs were struck down by the Court, they raised costs for U.S. consumers and businesses to the tune of $230 billion annualized. Section 122 is far more limited than IEEPA as it has a maximum tariff rate of 15 percent – reducing tariffs for many U.S. trade partners – alongside hundreds of billions of dollars in exempted imports. The Shipment estimates that a 10-percent Section 122 tariff would raise just under $25 billion over 150 days while a 15-percent tariff – which President Trump has threatened – would raise a little over $35 billion. The Tax Foundation’s revenue estimates range from $25–$33 billion, the Yale Budget Lab estimates roughly $30 billion, and the Tax Policy Center has a range of $22–$33 billion. On an annual basis, a 10-percent tariff would increase costs by approximately $58 billion while a 15-percent tariff would increase costs by close to $83 billion. Section 122 represents an effective tariff rate of between roughly 3–5 percent, with countries such as China, Vietnam, and Brazil benefiting from lower tariff rates.

While the Section 122 tariff regime is less drastic than IEEPA, it also penalizes many of the trade partners the United States has made deals with over the last year, including the UK, EU, South Korea, and Japan. It is unclear whether the Trump Administration will stack the Section 122 tariffs on top of existing tariffs, thereby increasing the overall tariff rates beyond agreed upon 15-percent caps. For the time being, some U.S. trade partners such as Japan and South Korea seem to be treading lightly as to not provoke President Trump, maintaining that their trade and investment deals will continue largely unchanged.

Looking Ahead: As has been expected for months, that the Trump Administration is continuing down the tariff path. The only clear distinction that should provide a glimmer of hope for U.S. importers is that this regime has guidelines and rules that extend the implementation process. This allows months of time for stakeholders to voice their concerns, provide comments to the administration, and prepare in advance for higher costs. Unfortunately, the question of tariff refunds still must be settled which leaves U.S. businesses – particularly small businesses – in a state of uncertainty until lower courts begin to order this money paid back. Furthermore, miscommunication or misunderstanding the path forward could easily reignite trade wars, especially with China as further Section 301 tariffs had been a red line for the country back in October. Despite the end of IEEPA and a constitutional victory, the Shipment expects choppy trade waters ahead.