Today, in a 6-3 decision authored by Chief Justice John Roberts, the Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not provide authority to impose tariffs. The Chief Justice was joined by Justices Sotomayor, Kagan, Gorsuch, Barrett, and Jackson. Justices Thomas, Kavanaugh, and Alito dissented.

The decision strikes down tariffs imposed under IEEPA on goods from Canada, Mexico, and China, as well as global 10% and country-specific tariffs. The decision also invalidates the potential for tariffs pursuant to executive orders related to Venezuela, Russia, Iran, Brazil, and Cuba. The decision does not strike down the national emergencies declared by the President, who could still invoke IEEPA to impose other measures that "regulate commerce" or otherwise address the national emergency.

Majority decision, in short

In its decision, the majority concluded that a tariff is a tax, falling squarely within Congress's authority under Article I, Section 8 of the Constitution. The Chief Justice reasoned that "[w]hen Congress has delegated its tariff powers, it has done so in explicit terms, and subject to strict limits." But under the Government's reading of IEEPA, the President has "power to unilaterally impose unbounded tariffs" and "is unconstrained by the significant procedural limitations in other tariff statutes and free to issue a dizzying array of modifications at will" — resulting in a "'transformative expansion' of the President's power over tariff authority."

The Court disagreed, noting that no other President has invoked IEEPA "to impose any tariff — let alone tariffs of this magnitude and scope." Instead, IEEPA has been invoked to impose other measures, but never to impose tariffs. It further said that "[t]he President's assertion here of broad 'statutory power over the national economy' is extravagant by any measure" and "the economic and political consequences of the IEEPA tariffs are astonishing." Given the stakes, the Chief Justice wrote that it is not reasonable to expect that Congress would delegate such vast authority to another branch of government.

In short, the Chief Justice wrote: "The President asserts the extraordinary power to unilaterally impose tariffs of unlimited amount, duration, and scope. In light of the breadth, history, and constitutional context of that asserted authority, he must identify clear congressional authorization to exercise it. IEEPA's grant of authority to 'regulate … importation' falls short."

Silence on refunds

While the Court strikes down the tariffs, as anticipated, it does not address next steps in terms of how companies that have paid the tariffs might recoup them. Justice Kavanaugh, in his dissenting opinion, criticized the majority on this point: "[t]he Court's decision is likely to generate other serious practical consequences in the near term. One issue will be refunds. Refunds of billions of dollars would have significant consequences for the US Treasury. The Court says nothing today about whether, and if so how, the Government should go about returning the billions of dollars that it has collected from importers. But that process is likely to be a 'mess,' as was acknowledged at oral argument."

Companies hoping for clarity on next steps to recover duties paid will have to wait for additional developments.

Decision limited to IEEPA tariffs, but other tariff authorities are still available

The decision does not impact any tariffs imposed by the administration under Section 232 of the Trade Expansion Act of 1962 or Section 301 of the Trade Act of 1974. Tariffs imposed under those authorities remain in place.

It is widely expected that the administration will move quickly to invoke other available authorities to impose tariffs and maintain continuity in the tariff policy. In addition to sections 232 and 301, other authorities could include Section 122 of the Trade Act of 1974, which allows the President to adjust import duties of up to 15% for up to 150 days in response to trade imbalances, or Section 338 of the Trade Act of 1930, which allows the President to increase tariffs up to 50% or block imports if a trading partner is discriminating against US goods or commerce. Because tariff continuity is expected, we further expect US trading partners to remain committed to implementation of bilateral trade deals reached over the last few months.

What about Congress?

The decision takes pressure off Congress, which was set to vote on more disapproval resolutions overturning the national emergency declarations on U.S. trading partners that have resulted in tariffs. It is unclear whether Congress will continue to pursue those votes since today's decision only invalidates the tariffs, not the actual national emergency declarations. We may also see certain Members of Congress seek to advance legislation to replicate the overturned tariffs.

On Wednesday, February 25, at 12 p.m. EST, EY will air its webcast, "Tariffs after IEEPA | What the Supreme Court's decision means for your business." This webcast will explore what the decision means, which tools may be used next and how businesses can prepare for continued trade-policy volatility. Register here.