Trump's Tariffs Deemed Illegal - What Now?

The Plain Bagel: US Supreme Court Ruling on Trump Tariffs - A Detailed Summary

Key Concepts:

• International Emergency Economic Powers Act (AIPA): A 1977 law granting the President powers to restrict trade in national security emergencies.
• Major Questions Doctrine: Requires clear Congressional authorization for executive branch actions with significant economic and political consequences.
• Section 232 Tariffs: Tariffs imposed under the Trade Expansion Act of 1962 on steel, aluminum, and other goods, justified by national security concerns.
• Section 122 of the Trade Act of 1974: Allows the President to impose tariffs up to 15% for 150 days to address balance of payments deficits.
• Section 201 & 301 of the Trade Act of 1974: Sections allowing tariffs based on import injury to domestic producers or violations of trade agreements, respectively.
• Section 338 of the Tariff Act of 1930: Allows the President to impose tariffs up to 50% on countries discriminating against US trade.
• USMCA: United States-Mexico-Canada Agreement, a free trade agreement.

I. Supreme Court Ruling & AIPA’s Limitations

The US Supreme Court ruled against Donald Trump’s use of the International Emergency Economic Powers Act (AIPA) to impose tariffs, upholding a lower court decision. The case, Learning Resources v. Trump, was brought by Learning Resources (a toy company), VOS Elections (a liquor company), and 12 US states. The plaintiffs successfully argued that AIPA does not authorize the President to impose tariffs, a power constitutionally reserved for Congress.

The Court’s 6-3 decision, with three conservative justices dissenting, hinged on the “major questions doctrine.” This doctrine stipulates that actions by the executive branch with significant consequences require explicit Congressional authorization, not ambiguous language within a law. The justices noted that no previous president had used AIPA to impose tariffs, and Trump’s actions were akin to “handing out tariffs like Oprah Winfrey.” As Justice Roberts stated, “The president must point to clear congressional authorization to justify his extraordinary assertion of that power. He cannot.”

II. Impacted Tariffs & Revenue Implications

The ruling specifically impacts two main sets of tariffs:

• Fentanyl-Linked Tariffs: The 10% tariff on Chinese goods, 25% on Mexican goods, and 35% on Canadian goods initially implemented to combat fentanyl trafficking.
• Country-Specific Reciprocal Tariffs: The broader tariffs announced on April 2nd (dubbed “liberation day”) and subsequent updates, targeting numerous countries. These tariffs, previously applied to countries identified on “bristle board posters,” are now effectively rescinded.

However, sectoral tariffs imposed under Section 232 of the Trade Expansion Act of 1962 (steel, aluminum, auto parts, etc.) remain in effect. While these tariffs represent only about a third of the revenue generated by Trump’s tariffs in late 2025, the AIPA tariffs accounted for the “lion’s share.”

The ruling raises the question of the approximately $175 billion in tariff revenue collected under AIPA. While a refund is expected, the ruling provides no guidance on how this should be done, leaving the decision to lower courts like the US Court of International Trade. Litigation is anticipated, and a full reimbursement is unlikely. Trump and his administration have indicated they will fight the matter in court. Historically, US consumers bore the brunt of tariff costs through price increases, so refunds are likely to go to importing companies. Larger companies like FedEx and Costco have already filed lawsuits seeking reclamation of tariffs.

III. The President’s Response & New Tariffs

Despite the ruling, Trump immediately announced a temporary 10% tariff on most goods from all countries under Section 122 of the Trade Act of 1974, later increasing it to 15%. This section allows tariffs up to 15% for 150 days to address balance of payments deficits. As of February 24th, only the 10% tariff is in effect.

The White House included exemptions to the 10% tariff for:

• Critical minerals and metals
• Energy products
• Natural resources and fertilizers
• Agricultural products
• Pharmaceuticals
• Electronics
• Passenger vehicles
• Aerospace products
• Information materials
• Goods already subject to Section 232 tariffs
• Goods covered by USMCA or DR-CAFTA (Dominican Republic-Central America Free Trade Agreement)

IV. International Reactions & Trade Deal Implications

The tariff changes have varying impacts internationally. Canada, largely covered by USMCA, is less affected. However, countries like Brazil see a meaningful reduction in tariffs.

The new tariffs have also caused discontent among countries with existing trade deals with the US, such as the UK and the European Union, who were not granted carve-outs. The EU has delayed ratification of its own trade deal due to this uncertainty. US trade representatives have reassured partners that existing deals will be honored, but Trump’s history of reversing course raises concerns.

V. Future Tariff Options & Potential for Escalation

The Supreme Court ruling doesn’t necessarily signal the end of tariffs. Trump has several other legal avenues to reimpose or increase them:

• Section 232: Allows for tariffs based on national security concerns, requiring a Department of Commerce investigation.
• Section 201 of the Trade Act of 1974: Allows tariffs when increased imports cause injury to domestic producers.
• Section 301 of the Trade Act of 1974: Allows tariffs when trade deals are violated or unfair trade practices occur. Trump announced an investigation under this section alongside the new 10% tariff.
• Section 338 of the Tariff Act of 1930: Allows tariffs up to 50% on countries discriminating against US trade, though this could face legal challenges.

Trump has warned countries against “playing games” with trade deals and threatened renewed tariffs if they don’t adhere to negotiated terms. He also suggested replacing income taxes with tariffs during his State of the Union address.

VI. Conclusion

The Supreme Court ruling is a significant blow to Trump’s tariff agenda, limiting his ability to impose tariffs unilaterally under AIPA. While the ruling reduces tariffs for many countries and necessitates a potential refund of $175 billion in collected revenue, Trump has already responded with new tariffs under different legal authorities. The future of US trade policy remains uncertain, with Trump retaining multiple options for imposing tariffs. The ruling mitigates his ability to act on a whim, but doesn’t eliminate the possibility of future trade conflicts. The impact on US foreign relations and the willingness of other countries to negotiate trade deals will be closely watched.

Notable Quote:

“The president must point to clear congressional authorization to justify his extraordinary assertion of that power. He cannot.” – Justice Roberts, regarding the use of AIPA to impose tariffs.