Update 914: Costco’s Tariff Rebate Suit

February 13, 2026 | AI, Gerrymandering, Inflation, Nominations, SCOTUS, Tariffs, Update | By

Update 914 — Costco’s Tariff Rebate Suit:
First Big Firm Challenge to Trump Policy

Warehouse retailer giant Costco filed a lawsuit late last Friday to ensure it can secure tariff refunds if the Supreme Court rules against the Trump administration and orders rebates to firms. Last month, the Supreme Court heard oral arguments in a case covering the legality of most of the tariffs and is expected to render a decision this term. In the meantime, businesses are weighing ways to maximize chances of recouping the billions of dollars paid because of Trump’s sweeping tariff regime. 

New data released this morning shows that consumer prices ticked up in September amid the steep tariffs, with inflation rising in September to its highest level on an annualized basis since last March. Also this week, the United States Trade Representative held a 3-day hearing to hear the public’s views on the upcoming review of the United States-Mexico-Canada Agreement. Yesterday, the Supreme Court, in a 6-3 decision, lifted a pause on Texas map implementation ahead of the December 8 candidate filing deadline. 

Good weekends all…

Best,

Dana

Headline

Costco Sues Seeking Tariff Refunds

On Friday, Costco filed a lawsuit against the Trump administration in the U.S. Court of International Trade to challenge Trump’s tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The use of IEEPA to implement tariffs is a favorite tool of the President, and as the world waits for the Supreme Court to rule on a case brought by small businesses and a dozen states, the legality of billions of dollars of paid tariffs hangs in the balance. Costco wants to ensure it gets paid back for tariffs ruled unlawful.

Should the Supreme Court rule against the administration on the use of IEEPA to implement tariffs, there is no guarantee that the ruling will provide concrete guidance on whether or how it can move forward in forcing the government to refund American importers who have paid Customs and Border Protection (CBP) for their tariff bill. The administration will not be in any rush to create a refund system. There remain many legal questions about whether companies not listed in the Supreme Court suit will be guaranteed money back.

Costco is worried that if the CBP finalizes tariff payments before December 15, its ability to claim refunds could be compromised, so it is taking the risk of challenging Trump’s tariffs. Although small businesses – whose suits have reached the Supreme Court – were quick to challenge Trump’s tariffs, companies of Costco’s size have largely stayed quiet. Costco imports a massive amount of its goods; nearly a third of its sales are imported. Amazon flirted with the idea of listing “tariff charges” on its goods to reflect the higher prices as a result of the new duties, but was quickly shut down after outrage in the White House. But Costco is putting itself in the line of fire to ensure it has the best chance possible to get its money back if the Supreme Court rules the tariffs illegal.

Other Developments

Inflation Ticks Up to 2.8% in September

Consumer prices ticked up slightly in September as the Trump administration’s sweeping tariff regime continued setting into the economy. With the annualized increase in prices in September up just 0.1 percentage point from August and the labor market continuing to weaken, the Federal Reserve is expected to once again lower interest rates next week. 

Prices rose 2.8 percent over the twelve months ending in September as measured by the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, according to the September PCE report released by the Bureau of Economic Analysis this morning. Inflation, as measured by the annualized increase in PCE prices, has seen a clear upward trend over the past several months, moving from 2.3 percent in April, to 2.5 percent in May, to 2.6 percent in each of June and July, to 2.7 percent in August, and to 2.8 percent in September. 

Core PCE prices – which strip out food and energy prices – also rose 2.8 percent over the twelve months ending in September. Core inflation, as measured by the annualized increase in core PCE prices, has remained relatively steady over the past several months, remaining within the 2.8 to 2.9 percent range in each month since May. 

On a monthly basis, headline PCE rose by 0.3 percent in September. This is fairly consistent with the rise in prices on a monthly basis in each of the five months prior. Food prices rose by 0.4 percent on a monthly basis in September, after rising by 0.5 percent on a monthly basis in August. Energy prices rose by 1.7 percent on a monthly basis in September, after rising by 0.8 percent on a monthly basis in August and falling by 1.1 percent on a monthly basis in July. Core PCE prices rose by 0.2 percent on a monthly basis in September, consistent with the rise in core prices on a monthly basis in August and July. 

The release of the September PCE report, originally scheduled for October 31, was delayed due to the government shutdown. The report includes the last federal government data on inflation to be released ahead of the Federal Open Market Committee’s (FOMC) meeting next week. 

With the labor market weakening, the rise in inflation in September is likely not enough to push the Committee to hold interest rates steady. But the vast majority of observers and Wall Street expect the Committee to cut interest rates by 25 basis points, after cutting rates by 50 points over prior meetings this year. This would bring the target federal funds rate to the 3.5 to 3.75 percent range at the end of this year. 

The FOMC has been divided in recent decisions, with dissenting members supporting both looser and tighter monetary policy than the majority. Next week’s decision is expected to be similarly divided. Participants are also expected to give varying projections of the path forward for interest rates and the economy at large in economic projections released by the Committee every other meeting. 

SCOTUS Redistricting Decision

In a brief, unsigned opinion, the Supreme Court allowed the new Congressional maps that Texas passed in August — and could result in up to five House seats flipping from Democratic to Republican — to go into effect for 2026 ahead of the December 8 filing deadline. In October, a three-judge panel spent nine days hearing arguments on the new maps and found that challengers of the new maps are likely to prove in a trial that the map violates the Constitution by discriminating against voters based on race. The panel cited a letter from the Department of Justice and multiple public statements by relevant Republican state lawmakers suggesting that their map drawer manipulated the racial demographics of voting districts to eliminate existing districts where Black and Latino voters are the majority.

The Court determined that the District Court made two serious errors: 

  • The Lower Court “failed to honor the presumption of legislative good faith by construing ambiguous direct and circumstantial evidence against the legislature”,
  • The Lower Court did not require an alternative map drawn without racial reasons.

The order also states that the Lower Court violated the rule against altering election rules on the eve of an election. 

Justice Kagan, joined by Justices Sotomayor and Jackson, declared that, “This Court reverses that judgment based on its perusal, over a holiday weekend, of a cold paper record.” She disputed the “eve of election” argument. 

In August, we wrote about the implications of the Texas redistricting arms race in the wake of Democrats fleeing the state. Here’s a quick review of the electoral implications of current redistricting efforts:

Republican Pickups (Total: 9)Democratic Pickups (Total: 6)
Texas: 5California: 5
Ohio: 2Utah: 1
North Carolina: 1
Missouri: 1

Florida and Indiana could still enter the fight for the Republicans, but at this point, no plans are in action. The status of Virginia and Maryland redistricting can be found in our recent Election Update. 

Though Republicans lead the Democrats on the redistricting map, Democrats hold the advantage heading into the 2026 election, with recent polling giving Democrats a 14-point lead over Republicans on a Generic ballot. 

State AI Regulation Bar Dropped from NDAA 

An attempt from the White House and GOP leaders to attach a controversial ten-year moratorium on state regulations of artificial intelligence to the National Defense Authorization Act (NDAA) was abandoned this week, as leaders such as House Majority Leader Steve Scalise admitted to the press that the provision was not going to make it to the final bill. This was just the latest attempt to pass such a moratorium this year: Senator Ted Cruz (R-TX) attempted to include a similar provision in the One Big Beautiful Bill Act, only for the effort to fall through as many GOP senators broke ranks to oppose the provision on states’ rights grounds. This same opposition played a role in dooming the latest attempt, as well, with Senator Josh Hawley (R-MO) going so far as to celebrate its removal on Twitter/X. 

This will not be the last we hear of this moratorium, however. Big Tech companies have pushed especially hard for a way to stem the tide of AI regulations, as states have stepped in to pass legislation addressing anxieties surrounding AI, while Congress has remained largely inactive. Scalise himself stated that GOP leaders are “looking at other places” to include the provision after admitting that this most recent provision failed. The question, then, is how they plan on getting reluctant Republicans on board with the provision in their next attempt.

Hearings

USTR Hosts Public USMCA Extension Hearing

This week, the U.S. Trade Representative hosted a 3-day public hearing in which trade groups, academics, and other interested parties provided input ahead of a statutory review of the U.S.-Mexico-Canada Trade Agreement in July — a formal part of the Agreement extension process. Canada and Mexico are America’s top trading partners. In November, Mexico overtook Canada as the top buyer of American goods. North American economies have grown increasingly intertwined and interdependent, and while Trump is toying with the idea of reversing that trend, this hearing was an opportunity for the public to voice their support or concerns about extending the deal. 

Those testifying presented a range of perspectives, many of which called for a renewal of the agreement. The comments were not without some calls for improvement of the deal, but many remained concerned about the President’s threats to leave the agreement, which any party is allowed to do with six-months notice. Dozens of groups spoke, including the Chamber of Commerce, Business Roundtable, American Soybean Association, Public Citizen, and Progressive Policy Institute. 

The three countries are set to meet in July for a formal review. In this review, all three countries must agree to maintain the deal. If a three-way agreement is not reached, then the agreement will enter into annual reviews for three years. 

Source: CSIS

But just this week, the President floated the idea of leaving the USMCA altogether next year, ignoring the annual reviews that would kick in if no agreement were reached. U.S. Trade Representative Jamieson Greer acknowledged this week in a podcast that the U.S. has the option to leave the USMCA and approach Mexico and Canada under separate trade agreements. 

Trump-Appointed Banking Regulators Face HFSC

The Trump-appointed officials leading the administration’s rollback of banking regulation appeared before the House Committee on Financial Services on Tuesday. Appearing before the committee were:

  • Federal Reserve Vice Chair for Supervision Michelle Bowman, 
  • Federal Deposit Insurance Corporation (FDIC) Acting Chair Travis Hill,
  • Comptroller of the Currency Jonathan Gould, and 
  • National Credit Union Administration (NCUA) Board Chairman Kyle Hauptman.

The officials discussed recent supervisory and regulatory activities undertaken by their respective agencies in recent months to weaken regulation designed to protect the safety and soundness of the U.S. financial system. 

The hearing highlighted regulators’ ongoing rulemaking to lower capital requirements for the nation’s banks. Capital functions as a cushion against losses a bank may face during periods of stress. The Fed, FDIC, and OCC finalized their joint proposal to adjust the enhanced supplementary leverage ratio last week, effectively lowering capital requirements for the nation’s largest banks. The Fed also recently proposed adjustments to the Community Bank Leverage ratio, which would effectively lower capital requirements for community banks. 

According to Bowman, the supplementary leverage ratio is one of four pillars of the capital framework currently under review, with additional pillars under review including the Basel III framework, the global systemically important banking organization (G-SIB) surcharge, and stress testing. The Fed, FDIC, and OCC are currently working to repropose a rule implementing the Basel III Endgame agreement. The Fed recently proposed disclosure of the stress test models, the framework for designing stress test scenarios, and the scenarios for the 2026 stress tests. As former Fed Vice Chair of Supervision Michael Barr noted in his statement opposing the proposal, “Disclosure of the models and scenarios will make the stress test weaker and less credible.”

Look Ahead

Tuesday, December 9

  • Federal Open Market Committee meeting (Day 1)

Wednesday, December 10

Thursday, December 11

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