Summary
Earlier today, the Supreme Court of the United States held that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the President to impose tariffs. The Court characterized the authority exercised by the President as “the extraordinary power to unilaterally impose tariffs of unlimited amount, duration, and scope,” and concluded that nothing in IEEPA’s text confers that power. The Court’s ruling rested on several grounds, most notably: (1) the Court held that the word “regulate,” as used in IEEPA’s authorization to “regulate . . . importation,” does not encompass taxation (a term which has long been understood as including tariffs); (2) the Court observed that Congress, when it has done so, has consistently granted tariff authority through express statutory terms, which the Court concluded are absent from IEEPA; and (3) the Court noted that in IEEPA’s 50-year history, no President had previously interpreted IEEPA to authorize Presidential tariffs. The Court further noted that because the President possesses no inherent peacetime authority to impose tariffs and must rely entirely on statutory delegation, the absence of any such grant in IEEPA’s text was dispositive.
Background
IEEPA was enacted in 1977 and has been used on many occasions since then principally as an economic sanctions authority invoked to block assets, or prohibit transactions, and restrict or prohibit dealings with designated persons, countries, or entities. The central question presented in the case decided by the Court was whether the IEEPA phrase “regulate . . . importation” supplied the President with authority to impose tariffs on goods being imported into the United States.
Shortly after taking office, President Donald J. Trump issued executive orders invoking IEEPA related to two separate declared national emergencies, each producing a distinct tariff regime. The first emergency was premised on the influx of illegal drugs from Canada, Mexico, and China, which the President determined had created a public health crisis. Pursuant to that declaration, the President imposed a 25 percent duty on most Canadian and Mexican imports and a 10 percent duty on most Chinese imports, subsequently increased to a total of 20 percent. The second emergency was premised on what the President described as “large and persistent” trade deficits, which he determined had hollowed out the American manufacturing base and undermined critical supply chains. Pursuant to that declaration, the President imposed what the Administration characterized as “reciprocal” tariffs on imports from all trading partners at a baseline rate of at least 10 percent, with substantially higher rates imposed on dozens of nations.
Two sets of plaintiffs challenged these tariff regimes as unauthorized by IEEPA. Five small businesses and 12 States filed suit in the U.S. Court of International Trade (CIT), and two small businesses filed suit in the U.S. District Court for the District of Columbia. In the district court proceedings, the court denied the Government’s motion to transfer the case to the CIT and issued a preliminary injunction concluding that IEEPA did not authorize the challenged tariffs. In the CIT proceedings, that court granted summary judgment for plaintiffs on the merits. The Federal Circuit, sitting en banc, affirmed, holding first that the CIT had exclusive jurisdiction under 28 U.S.C. §1581(i)(1) because the challenges arose out of laws “providing for . . . tariffs,” namely, modifications to the Harmonized Tariff Schedule of the United States, and second, on the merits, that IEEPA’s authority to “regulate . . . importation” did not authorize tariffs that were “unbounded in scope, amount, and duration.” The Supreme Court granted certiorari in both cases, consolidated them, and resolved both in a single opinion.
Opinion
The Court grounded its analysis in the constitutional framework, stating that Article I of the U.S. Constitution vests in Congress the power to “lay and collect Taxes, Duties, Imposts and Excises,” that the tariff power is “very clear[ly] . . . a branch of the taxing power,” and that statutes delegating authority to the Executive are not to be lightly read to transfer so fundamental a fiscal power. Against that backdrop, the Court held that IEEPA’s text simply does not contain the necessary grant of authority. The Court held that the statute’s lengthy enumeration of Presidential powers that may be invoked in an emergency makes no mention of “tariffs” or “duties,” and the word “regulate,” whether read narrowly as “to direct by rule or restriction” or more broadly as “to govern,” does not ordinarily encompass taxation. The Court further stated that reading “regulate” to include tariff authority would render IEEPA partly unconstitutional, as the identical logic would imply authority to tax exports, which the Constitution expressly forbids.
The Court rejected the Government’s contention that a tariff is merely a lesser form of a trade prohibition, which IEEPA authorizes. Tariffs are “different in kind, not degree,” the majority held, because they “operate directly on domestic importers to raise revenue for the Treasury” and fall “outside the spectrum entirely” of transactional controls. The Court reinforced this conclusion by reference to Congress’s consistent practice across other trade statutes of expressly conferring tariff authority to the Executive in specific terms and subject to defined procedural and substantive constraints, concluding that “Congress knows how to grant the Executive the power to impose tariffs when it wishes to do so.” The Court concluded that the absence of comparable language in IEEPA, combined with the fact that no President had previously invoked the IEEPA to impose tariffs since its enactment, settled the question. The Court noted the possibility that other trade statutes, such as Section 232 of the Trade Expansion Act of 1962, may allow for tariffs similar to those at issue, but at the same time referenced the procedural steps that those statutes require.
The Court then turned to a review of the precedents on which the Government principally relied. The Court characterized a prior appeals court decision in United States v. Yoshida Int’l, Inc., 526 F.2d 560 (CCPA 1975), upholding a temporary importation surcharge imposed by President Nixon in 1971 under the Trading With The Enemy Act’s identical “regulate . . . importation” language, as a single and expressly limited intermediate court decision. The Court also held that Algonquin SNG, Inc. v. Federal Energy Administration, 426 U.S. 548 (1976), which approved “monetary exactions” under Section 232 of the Trade Expansion Act of 1962, was inapposite given that Section 232 and its surrounding provisions expressly referenced “duties,” language absent from IEEPA.
Chief Justice John Roberts, Justice Neil Gorsuch, and Justice Amy Comey Barrett joined a separate plurality opinion applying the so-called “major questions doctrine” as an additional ground for decision. The plurality reasoned under that doctrine that courts should decline “to read into ambiguous statutory text” delegations of authority of vast “economic and political significance.” The plurality further held that this principle applies with heightened force where the claimed delegation would transfer a core fiscal power from Congress to the Executive, and that no exception to this doctrine exists for emergencies or foreign affairs. “Emergency powers,” the plurality cautioned, “tend to kindle emergencies.” Justices Elena Kagan, Ketanji Brown Jackson and Sonia Sotomayor, who joined the opinion of the Court, concluded that the text, context, structure, and historical practice were fully sufficient to resolve the case without invoking a heightened clear-statement requirement.
In dissent, Justice Brett Kavanaugh, joined by Justices Clarence Thomas and Samuel Alito, argued that tariffs are “a traditional and common tool to regulate importation” and that the answer to the question of whether IEEPA authorized them is “clearly yes.” The dissent placed principal weight on Yoshida and Algonquin, and noted that it would be implausible to conclude, for example, that the President may prohibit imports entirely and yet may not impose “even a $1 tariff.”
Implications
The Supreme Court’s decision is likely to significantly alter the course of the Trump Administration’s tariff and trade agenda, in that it removes IEEPA as a basis for tariffs, but it is still highly uncertain what its ultimate implications will be for that agenda, international trade activity, and the U.S. and world economies. Companies with an interest in these issues should keep in mind the following:
First, it remains unclear what practical impact this ruling will have on international trade and on existing or pending trade agreements with various countries. During a press briefing to discuss the Supreme Court’s tariff decision, President Trump announced that he will immediately impose a 10% global tariff pursuant to Section 122 of the Trade Act of 1974. Section 122 empowers the President to impose temporary duties of up to 15% or quotas for up to 150 days to address “large and serious” trade deficits. The Court’s majority opinion mentioned Section 122 in connection with its reference to Yoshida and discussion of other statutes on which the President may rely to impose tariffs. Indeed, the Administration could rely on a number of other trade statutes to impose new tariffs, including Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974. President Trump also emphasized that the tariffs currently in place based on non-IEEPA authorities, including those imposed under Section 232, will remain “in full force.” Existing tariffs already in place under the authority of statutes other than IEEPA were not at issue in this case.
Second, the Court’s decision is notably silent on the question of whether the government must pay refunds to importers, who have collectively paid more than $133 billion in IEEPA tariffs, and if so, the process for and mechanics of such refunds. Practically speaking, the immediate next steps for potential refunds will likely be determined by the Administration, including U.S. Customs and Border Protection (CBP). Although CBP has existing administrative and regulatory processes that permit importers to request and receive refunds of tariff overpayments in the ordinary course, it is not yet clear how, if at all, the “ordinary” processes will apply in the context of IEEPA tariffs. Justice Kavanaugh, in his dissenting opinion, asserted that the refund process is likely to be “a mess,” with significant consequences for the U.S. Treasury. He also noted that other trade statutes, such as the Trade Expansion Act of 1962 (Section 232 — National Security), the Trade Act of 1974 (Section 301 — Unfair Trade Practices), and the Tariff Act of 1930 (Section 338 — Unfair, Discriminatory, or Restricted Practices) “authorize the President to impose tariffs and might justify most (if not all) of the tariffs at issue in this case.”
Third, companies should not interpret the Supreme Court’s decision to signal an end to the currently-heightened U.S. enforcement climate surrounding customs, trade, and supply chain compliance issues. The Trump Administration, including the U.S. Department of Justice, made clear in recent months that it is prioritizing efforts to identify and penalize tariff evasion and customs fraud. Although the Court’s decision held that IEEPA does not authorize tariffs, U.S. law enforcement and regulatory authorities of course may pursue aggressive enforcement of tariffs and trade statutes and regulations that were in place under authorities other than IEEPA and remain in place. Companies should therefore continue to evaluate their compliance programs as applied to trade- and supply chain-related issues. Indeed, one implication of the Court’s decision could be an even more aggressive approach to tariff enforcement, especially if the U.S. government must make significant refund payments as a result of the decision.