The Supreme Court IEEPA Case

What’s Happening: Yesterday, the U.S. Supreme Court heard oral arguments in the highly anticipated case against President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs. This Supreme Court case follows up on the 7–4 decision by the U.S. Court of Appeals for the Federal Circuit and the ruling by the U.S. Court of International Trade that IEEPA tariffs exceed presidential authority. This case specifically applies to the tariffs imposed on “Liberation Day” and the fentanyl-related tariffs imposed on Canada, Mexico, and China. Representing the Trump Administration was U.S. Solicitor General D. John Sauer, while the opposition to IEEPA tariffs included a lawyer for impacted small businesses, Neal Katyal, and the solicitor general of Oregon, Benjamin Gutman. During the oral arguments, both sides were allotted time to make their case for why IEEPA is within – or exceeds – presidential authority according to the constitution and legal precedent while also answering questions from each of the nine justices. The next step in this IEEPA case will be a final decision expected to land in the next few months.

Why It Matters: If the Supreme Court rules against President Trump’s use of IEEPA for tariffs, it would remove approximately $250 billion in annual tariff costs – about 90 percent of the tariffs imposed by the administration in 2025 – according to the Shipment’s updated calculations. Notably, the decision could require tariff refunds for importers that have paid nearly $90 billion in IEEPA tariffs since January. (It appears unlikely that consumers who have paid higher prices would receive a tariff refund.) If a general refund of all IEEPA revenue were to be redistributed back to U.S. firms, there would likely be both a positive and negative market reaction. On the one hand, companies could receive billions of dollars and have lower input costs going forward, which would boost already struggling profit margins. On the other hand, the U.S. government’s budget deficit and long-term debt outlook would worsen. Ever-growing U.S. debt has been a concern for investors and bond markets, with rating agencies downgrading U.S. credit in recent years. It is unclear how the tension between these two factors might play out in practice.

Setting aside the economic implications, the final ruling will mark one of the most consequential decisions for trade law, tariffs, and executive authority in the modern era. At stake in this decision is the separation of powers as well as the role Congress plays in setting trade and tax policy. The case also has significant implications for executive powers and the limits on presidential authority when it comes to foreign policy, declaration of national emergencies, and regulation of U.S. commerce in the name of national security. Article I of the Constitution provides the legislative branch with the power to enact tariffs and The Federalist Papers make it clear that each branch of government should not infringe on the powers of another branch. A counterpoint to this view is the fact Congress has repeatedly delegated both trade and foreign policy to the president by surrendering authority over the decades. Proponents argue that IEEPA provides a loose framework for the president to implement tariffs and other trade measures to respond to a national security emergency or to use as leverage when negotiating with other countries. At the heart of the final ruling is a decision on how much delegation of authority is truly allowed under IEEPA, establishing guardrails for future administrations.

Looking Ahead: If IEEPA tariffs are struck down and this authority can no longer be used to impose tariffs at will, the Trump Administration will still have numerous options. President Trump could urge Congress to lock in current tariff rates in a legislative package of some kind. This option is unlikely to succeed as there is congressional opposition to tariffs that make it a difficult sell. Alternatively, Section 338 of the Tariff Act of 1930 allows the president to impose tariffs of up to 50 percent on any country that discriminates against U.S. goods, although there is no tested implementation process, making it ripe for further legal challenges. Section 122 of the Trade Act of 1974 remains available to impose tariffs of up to 15 percent for 150 days and is specifically designed to address a trade deficit. Another plausible option is for the administration to use Section 232 national security tariffs. It could simply expand the scope of Section 232s through the new “inclusion process” that allows tariffs to hit derivative products, which are products made, at least in part, from the targeted import. This was most recently used in mid-August with the addition of more than 400 steel and aluminum derivatives based on their metal content. In this scenario, a Section 232 action could serve as an anchor tariff with further offshoots to hit derivative products, impacting hundreds of additional imports with hundreds of billions of dollars in value. This approach, combined with the occasional Section 301 tariff, could easily replace the IEEPA avenue going forward, with the only downside for the administration being a longer wait time.

Breaking Down the IEEPA Arguments

What’s Happening: The oral arguments began with Solicitor General Sauer making the Trump Administration’s case for why IEEPA tariffs are in line with the Constitution and delegated executive authorities. Each of the justices asked thought-provoking questions, with many pushing back against IEEPA’s authorization to impose tariffs due to a lack of precedence and the subversion of Congress’ revenue-raising authority. The lawyer, Neal Katyal, followed by the Solicitor General of Oregon, Benjamin Gutman, then made the case against IEEPA tariffs, representing a group of impacted small businesses and 12 U.S. states. Their case relied heavily on the constitutional separation of powers where Congress has the sole jurisdiction to levy taxes on the American people, emphasizing that the word “tariff” does not appear in IEEPA. While most reporting suggests that the Supreme Court is “skeptical” of the IEEPA tariffs, the justices also asked difficult questions of Katyal and Gutman in order to fully understand the decision’s implications for executive authority during an emergency and in regard to foreign policy.

Why It Matters: Sauer’s opening statement stressed the important role IEEPA tariffs play when negotiating trade agreements and addressing “country-killing” emergencies such as the fentanyl epidemic and trade deficit. He went on to state that the president is within his right to use these tariffs under Article II of the Constitution, which grants the executive branch wide authority over U.S. foreign policy. Throughout the questioning period, it became clear that the administration’s argument is heavily reliant on the phrase in IEEPA granting the authority “to regulate or prohibit, directly or indirectly…importation,” insisting that this language implies the use of tariffs based on a “historical pedigree” of tariffing power being equivalent to import regulatory power. Embracing this argument forced Sauer to stick to the claim that the current IEEPA tariffs are not, in fact, revenue-raising tariffs but foreign-facing regulatory tariffs that coincidentally raise government revenue. Ironically, Sauer admitted that this tariff policy would be “by far the most effective if nobody ever pays the tariffs” as long as the administration’s goals of stimulating domestic manufacturing and reducing the trade deficit are met. This argument has significant weak points, notably that the Trump Administration has continually highlighted the revenue brought in by tariff policy. Additionally, because IEEPA does not specifically address tariffs, it sets no specific constraints on how tariffs are used.

In Katyal’s opening statement, he emphasized that tariffs are taxes on Americans and that the president bypassed Congress’ taxing power despite there being no clear language to do so within IEEPA. As has been the case with other tariff authorities, Congress clearly outlines when the executive branch can utilize tariffs by providing guidelines that limit their scope and use, which is lacking in the case of IEEPA. Katyal pointed out that by allowing IEEPA to operate this way, it set a potentially dangerous precedent as a future administration could declare any emergency and impose tariffs at will with no regard for the current U.S. tariff or trade structure. He also noted that the word “regulate” has never been used in place of “tariff” and that the administration could have implemented quotas to regulate imports. This would avoid the contentious argument surrounding tax authority while still addressing the administration’s trade policy objectives. While this argument has greater constitutional backing, there were several weak points exposed by the justices that trade analysts should not ignore. For one, Justice Alito raised a hypothetical question regarding Congress allowing the National Park Service to impose a fee to regulate entry into the park. While Katyal implied that this would not be permitted if it went beyond the cost of operation, it may cede that regulation permits the imposition of a fee – although tariffs are clearly raising revenue. Furthermore, Justice Kavanaugh poked at the interpretation of IEEPA to allow for a complete trade embargo or quota but not a one-percent tariff to regulate imports. While this perspective does limit the range of presidential authority, it may also make practical sense since an emergency calls for drastic measures to be taken. A final point is that Justice Gorsuch pointed out that the Constitution provides the legislative branch the ability to “regulate commerce,” which has been understood to allow the power to tariff. This is similar to IEEPA’s language, although Katyal held that the context in which IEEPA was written is far different because Congress had explicitly outlined the tariff authority it delegates to the president up to the point IEEPA was written.

Looking Ahead: It is still too early to tell whether the Supreme Court will uphold President Trump’s IEEPA tariff authority. A majority of its justices are originalists who typically interpret the Constitution within the context of the time it was written rather than apply a more fluid interpretation to fit the modern era. A more originalist perspective would suggest Congress holds the reins on tariff policy, meaning the Court may rule against the Trump Administration’s use of IEEPA on the grounds that it overstepped the legislative branch’s taxing authority. On the other hand, recent Court rulings have affirmed the power of the executive branch in other areas and reaffirmed various executive privileges. It is not completely out of the question that defenses of executive power on the basis of national security, foreign policy, or some combination of these arguments could stretch the interpretation of IEEPA to allow for tariffs in certain circumstances. Just as it was too early for tariff enthusiasts to celebrate “zero” inflation, it is too early to firmly say the Supreme Court will strike down IEEPA tariffs.