Update 907 — SCOTUS Kicks Tariff Tires:
Extent of Exec. Trade Authority at Stake
Yesterday, the Supreme Court heard oral arguments in what Trump this week called “the most important case ever,” as the Court weighs the constitutionality of Trump’s tariffs, relying on the International Emergency Economic Powers Act (IEEPA) as a legal basis. Even some of the conservative justices expressed skepticism about Trump’s use of the 1977 law and voiced concern regarding the President’s overreach in taxing Americans.
The ruling in this case, expected within months, will likely not fall along ideological lines, with Barrett, Gorsuch, and Roberts voicing concerns. At stake are billions of dollars of revenue and much of the President’s signature economic tool, but given the shaky ground on which these tariffs stand, the administration is surely readying a Plan B.
Best,
Dana
On Wednesday, the Supreme Court heard oral arguments in a case that implicates the legality of a centerpiece of President Trump’s economic agenda. The central question is whether or not President Trump can rely on the International Emergency Economic Powers Act (IEEPA) as a constitutional basis to implement his sweeping tariff regime. For more details on this Presidential power and the President’s tariff actions, take a look at our past analyses on Trump’s border security and Liberation Day tariffs.
The administration has made crystal clear the significance of this case, warning of economic calamity if the justices vote against the claimed statutory basis for Trump’s tariffs. On Truth Social, Trump wrote, “our Country could be reduced to almost Third World status — Pray to God that that doesn’t happen!” At stake is nearly $100 billion in revenue brought in by tariffs thus far and dozens of handshake trade deals struck using high tariff rates as leverage. American businesses continue to hold their breath as bottom lines shrink and consumers brace for higher prices.
Solicitor General John Sauer represented the administration. He faced immediate pushback from almost all of the justices, most notably from Conservative Justices Neil Gorsuch, Amy Coney Barrett, and, to some degree, John Roberts. Representing the plaintiffs were Supreme Court veteran Neal Katyal and Oregon’s solicitor general Benjamin Gutman.
Source: The Wall Street Journal
The arguments heard and subsequent questions from the bench made it unlikely that this decision would fall along a usual 6-3 decision. Instead, Justices Barrett, Gorsuch, and even Chief Justice Roberts – dictated in orange circles along with the liberal justices in the graphic above – signaled their skepticism about the legality of Trump’s trade moves. The central concerns, which we delve into below, include a lack of clarity in the IEEPA’s statutory language, the implications for separation of powers, and, surprisingly, Justice Barrett even questioning the merits of tariffing all countries, even our closest allies.
Background
The President laid the groundwork for his tariffs through Executive Orders declaring national emergencies related to trade deficits in April and fentanyl trafficking in January. In doing so, the President then unlocked the power to use IEEPA and assign tariffs to nearly every country. IEEPA grants the President sweeping powers to regulate international commerce to address “unusual and extraordinary threats.”
The tariffs in question are Trump’s worldwide and border security tariffs:
- Worldwide/Reciprocal Tariffs: The President claims “persistent” trade deficits are dangerous for America. Trump paints the United States as a victim of decades of mistreatment in the global economy by referencing the United States as being “ripped off” by trading partners for 50 years and blaming past American presidents for their lack of leadership. He believed the Liberation Day tariffs, announced in April, would usher in a “Golden Age” for America.
- Trafficking Tariffs: He first exercised this power in a February announcement of tariffs on Canada, Mexico, and China by declaring a national emergency at America’s borders – citing an influx of illegal immigrants and fentanyl.
Overview of Lower Court Rulings
Soon after tariffs were announced and American businesses began to face uncertainty, legal challenges began. Lower courts agreed with small businesses and a coalition of states that filed suit, arguing that the President overstepped his authority.
The case presented before the Supreme Court is a result of the consolidation of a few cases:
- Learning Resources v. Trump: Two educational toy manufacturers, Learning Resources, Inc. and hand2mind, filed a suit against the Trump administration on the grounds that IEEPA does not authorize the President’s tariffs. This case was first filed in the US District Court for D.C. which found that the Constitution grants Congress the power to tax and impose duties.
- V.O.S Selections v. Trump: A group of five small and mid-sized businesses that rely on imports challenged the President’s tariffs, arguing that the tariffs exceed the statutory authority of the President. The plaintiffs also challenge the underlying justification of bilateral trade deficits as an “unusual and extraordinary threat” to the United States as the basis for the claim of an emergency. The case was heard by the United States Court of International Trade (CIT), a three-judge panel that specializes in trade disputes, and it unanimously found that the President exceeded his authority in implementing the tariffs. This case was heard alongside a case brought by a dozen states, State of Oregon v. US Department of Homeland Security, in the US Court of Appeals for the Federal Circuit, where the CIT’s decision was upheld with a 7-4 split.
- State of Oregon v. US Department of Homeland Security: A coalition of states, led by Oregon, was represented before the Supreme Court by the state’s solicitor general, Sauer. The states sued the Trump administration, arguing that the President did not have the power to impose and collect taxes, and that power belongs to Congress. This case was consolidated with V.O.S. Selections.
Oral Arguments
Statutory Language
The most foundational question presented is whether or not the phrase “regulate… importation” in IEEPA gives the President the authority to impose tariffs. Solicitor General Sauer argues for the government that “regulate … importation” “plainly embraces tariffs, which are among the most traditional and direct methods of regulating importation.” The justices were not quick to accept that argument on its face.
Justices across the bench questioned that, if Congress meant for IEEPA to authorize the use of tariffs, why wouldn’t it say so? Justices Roberts and Barrett were skeptical of the position that the phrase unambiguously means tariffs. Roberts pointed out that IEEPA had never been used to impose tariffs and questioned why Congress specifies the use of duties or tariffs in other provisions and not here. He seemed uncomfortable with the leap from an inference of an authority to such a major power given to the President, “to impose tariffs on any product from any country, in any amount, for any length of time.”
Justice Barrett, a Trump appointee, also pushed Sauer, asking, “Can you point to any other place in the Code or any other time in history where that phrase together, ‘regulate … importation,’ has been used to confer tariff-imposing authority?”
Article I Taxation Authority
Diving deeper into the implications of IEEPA authorizing tariffs is the question of whether the President even has the power to tax Americans was concerning for almost all of the justices.
Are Tariffs a Tax?
Sauer attempted to characterize these tariffs as “regulatory tariffs” rather than revenue-raising tariffs. On its face, it is hard to reconcile that line of reasoning out of the government with the president’s continual barrage of praise for how much money tariffs raise and how he plans to spend it (i.e., paying down the deficit, covering food assistance programs, bailing out farmers, replacing the income tax). Sauer tried to frame the revenue as simply “incidental.”
Liberal Justices Elena Kagan, Sonia Sotomayor, Ketanji Brown Jackson, and even Chief Justice Roberts pointed out that tariffs are a tax, even when Sauer attempted to paint them as “foreign-facing.” To be clear: Americans pay for tariffs, whether that be an American importer who foots the bill, or a consumer who has to pay more when importers raise prices to cover the cost of tariffs. Kaytal crystallized the plaintiffs’ view by arguing that “Tariffs start the tax bill,” which is felt by Americans, and that “Tariffs are taxes. They take dollars from Americans’ pockets and deposit them in the U.S. Treasury.”
What About the Separation of Powers?
Article I states that Congress holds the sole power of the purse. The justices highlighted that when Congress intends to hand over the power to tariff or impose duties, it does so explicitly and with guardrails. Justice Sotomayor questioned Sauer on how the statutory language of IEEPA could be assumed to include tariffs, especially when the language does not imply any verb that would be synonymous with raising revenue. She also stated early in the questioning that she had in mind over a dozen laws to show that “when Congress intended ‘regulate’ to mean taxing, that it used taxes.”
Kagan echoed Sotomayor by saying that any time in the Code that Congress clearly states tariffs be used, it also refers to the taxing power. Without reference to the revenue raising, some justices did not wholly accept the premise that IEEPA includes the authority to use tariffs that inevitably raise revenue.
Trump appointee Gorsuch sharply questioned Sauer throughout arguments over Congress’s sole authority to tax. He pointed to the “constitutional assignment of the taxing power to Congress, the power to reach into the pockets of the American people is just different, and it’s been different since the founding and the navigation acts that were part of the spark of the American revolution.” He struggled to accept that Congress could ever cede such a foundational power over to the President and appeared even more skeptical when he pushed the broad interpretation further to ponder, if “Congress decides tomorrow, well, we’re tired of this legislating business. We’re just going to hand it all off to the President. What would stop Congress from doing that?”
Gorsuch also questioned whether Congress meant for IEEPA to be interpreted so expansively because if given the green light, Congress could never practically rein this power back in, given how rare the supermajority is that would be needed to overturn a President’s declared emergency. He refers to the retrieval problem for Congress, “Congress can’t take that back without a super majority. And even — you know, even then, it’s going to be veto-proof. What president’s ever going to give that power back?”
Definition of an Emergency
The Court gives broad deference to the President on matters of emergency, especially as they relate to foreign affairs. While the justices did not delve deep into this issue, justices on both sides of the bench hinted at skepticism about the breadth of the emergencies.
Unsurprisingly, Justice Kagan poked at the question regarding such expansive definitions of emergency as have been framed by President Trump, stating, “And, in fact, you know, we’ve had cases recently which deals with the President’s emergency powers, and it turns out we’re in emergencies everything all the time about, like, half the world.”
Much more surprisingly, Justice Barrett joined in on the uncertainty around the means to deal with alleged “threats” from persistent trade deficits: “And so is it your contention that every country needed to be tariffed because of threats to the defense and industrial base? I mean, Spain, France? I mean, I could see it with some countries, but explain to me why as many countries needed to be subject to the reciprocal tariff policy as are.” This pointed question revealed she may hold deep skepticism about the emergencies that justify the sweeping tariffs.
Court Ruling and Consequences
What lies ahead is far from certain. The justices’ queries and comments in the oral argument suggest a vote that will not fall entirely along the usual ideological lines, as the sharp questioning of Justices Barrett, Gorsuch, and Roberts is being closely studied. A decision is expected within a couple of months.
In any case, the President has backup plans. Ahead of the arguments on Wednesday, Treasury Secretary Scott Bessent pointed to the other tariff authorities held by the President. If the tariffs are ruled down, he specifically pointed to Sections 232 and 301, which are regularly used and legally tested. In the event the tariffs are deemed unconstitutional, the government may be forced to refund the money it has collected. Justice Barrett herself declared refunds would be a “mess,” but it is unlikely that the Court will specify exactly how the government will proceed with that process.
As American businesses and trading partners await the outcome of this decision, one thing is certain: the President will continue to try to implement his unprecedented pressure campaign on the global economy through his favorite tool: tariffs.