WASHINGTON (AP) — The U.S. Supreme Court on Friday struck down President Donald Trump’s biggest and boldest tariffs. But the justices left a $133 billion question unanswered: What will happen to the money the government has already collected in taxes on imports that have now been declared illegal?
Companies have been waiting to receive refunds. But the path forward could be chaotic.
When the situation is clarified, according to trade lawyers, importers will likely recover the money, eventually. “It’s going to be a bumpy ride for a while,” warned business attorney Joyce Adetutu, a partner at the firm Vinson & Elkins.
The refund process is likely to be determined by a combination of the U.S. Customs and Border Protection agency, the International Trade Court in New York and other lower courts, according to a note to clients from attorneys at the Clark Hill firm.
Court invalidates Trump tariffs
“The amount of money is considerable,” Adetutu said. “The courts are going to have a difficult time. Importers are going to have a difficult time.”
“It’s going to be really difficult not to offer some kind of refund option,” he added, given how forcefully the Supreme Court rejected Trump’s tariffs.
In its 6-3 ruling Friday, the court ruled that Trump’s attempt to use an emergency powers law to impose the levies was invalid. Two of the three justices appointed by Trump joined the majority to annul the first major measure on the agenda of his second term that reached the Court.
The case revolves around the double-digit tariffs that Trump imposed last year on almost every country in the world, using the International Emergency Economic Powers Act of 1977 (IEEPA). The Supreme Court said the law does not authorize the president to tax imports, a power that falls to Congress.
Refund for tariffs
The U.S. Customs Agency had collected $133 billion in IEEPA tariffs as of mid-December. But consumers expecting a refund are unlikely to be compensated for the rise in prices when companies passed on the cost of the tariffs. Most likely, that money will go to the companies themselves.
In a dissenting opinion, Justice Brett Kavanaugh chided his colleagues for avoiding the issue of refunds: “The Court is silent today on whether, and if so how, the government should proceed to refund the billions of dollars it has collected from importers.”
Borrowing a word used by Judge Amy Coney Barrett — who sided with the majority — during the case’s hearing in November, Kavanaugh warned that “the refund process is likely to be a ‘disaster.’”
“I guess we’re going to have to litigate this over the next two years,” Trump told reporters at a news conference Friday, in which he criticized the court’s decision and said he was “absolutely ashamed” of some judges who ruled against his tariffs. “We’re going to end up in court for the next five years.”
Tax refund
Ending the IEEPA tariffs could help the economy by easing inflationary pressures. Rebates — like other tax refunds — could spur spending and growth. But the impact is likely to be moderate.
Most countries still face high US tariffs in specific sectors, and Trump aims to replace the canceled taxes using other options. Refunds will take time to materialize, between 12 and 18 months according to TD Securities estimates.
The US customs agency has a tax refund process for when importers can prove that there has been an error. It could try to rely on the existing system for reimbursing IEEPA fees, said business attorney Dave Townsend, a partner at the law firm Dorsey & Whitney.
There is precedent for court-ordered refunds in commercial cases. In the 1990s, courts declared a port maintenance fee on exports unconstitutional and established a system for exporters to request a refund.
Millions of tariff refunds
But neither the courts nor US customs have had to deal with a situation like the current one: thousands of importers and tens of billions of dollars at the same time.
“Just because the process is difficult to administer does not mean the government has the right to keep fees that were illegally charged,” said trade attorney Alexis Early, a partner at the Bryan Cave Leighton Paisner law firm.
Ryan Majerus, a partner at King & Spalding and a former U.S. trade official, said it’s difficult to know how the White House will handle the huge demand for refunds. You could try to streamline the process, perhaps creating a special platform where importers can claim their returns.
But Adetutu warned that “the government is well placed to make it as difficult as possible for importers. I can imagine a scenario where as much responsibility as possible is shifted to the importer”, perhaps forcing them to go to court to claim the money.
Refund claims
Many companies, including Costco, Revlon and canned food maker Bumble Bee Foods, filed refund lawsuits even before the Supreme Court ruling, aiming to put themselves first on the list if the tariffs were lifted.
More legal battles are likely in the future. Manufacturers could, for example, sue to receive a portion of rebates granted to suppliers who raised the price of raw materials to cover tariffs.
“We may see years of continued litigation in multiple jurisdictions,” Early said.
What is unlikely, however, is that consumers will enjoy those returns. The price hike they have had to bear could be difficult to attribute to a specific tariff. Should they still request refunds? Early acknowledged that while he wouldn’t advise wasting money on legal fees, “in the United States we have the ability to sue for anything we want.”
Claims to Trump
Illinois Governor JB Pritzker, a Democrat at odds with Trump, is demanding a refund on behalf of his state’s 5.11 million households. In a letter addressed to the president and released by his re-election campaign, he stated that the tariffs cost each Illinois household $1,700 – about $8.7 billion in total. Pritzker warned that non-payment will lead to “additional actions.”
Nevada Treasury Secretary Zach Conine submitted a $2.1 billion payment request to the federal government to recover costs associated with the tariffs, his office announced Friday.
“As Nevada’s chief investment officer, I have a responsibility to try to recover every last dollar that the Trump administration takes from Nevada families,” Conine said in a statement.
Leave a Reply