Uncertainty abounds following US Supreme Court strike-down of Trump tariffs

On Friday (20 February EST), the US Supreme Court ruled that president Donald Trump did not have the authority to impose far-reaching tariffs using emergency economic powers, in a significant blow to the US administration’s signature trade policy.

In a 6-3 ruling, the Supreme Court found that the International Emergency Economic Powers Act of 1977 (IEEPA), a law that allows the executive branch to “regulate … imports” during national emergencies, did not authorise the president to impose tariffs.

Previously, Trump used IEEPA to impose sweeping ‘Liberation Day’ tariffs in response to US trade deficits, which he claimed were an “unusual and extraordinary threat” to the US. He similarly used the powers to impose tariffs on Mexico, Canada and China by declaring a “national emergency” related to the cross-border flow of fentanyl.

Following the Supreme Court ruling, the US administration quickly invoked a different trade law - Section 122 of the Trade Act of 1974 - to temporarily impose 15 per cent tariffs on all countries, valid for a period of no longer than 150 days. In the meantime, US officials flagged that they would investigate alternate legal avenues to impose tariffs.

Alex Joiner, chief economist at IFM Investors, told Accounting Times the imposition of 15 per cent tariffs was “disappointing” for global trade.

“Just when we had thought things were coming down in the tariff space, this comes to destabilise things again. While we all knew the Supreme Court ruling was coming we did not know the response of the administration,” he said.

In practical terms, lead economist at Oxford Economics Australia Ben Udy said the Supreme Court decision and subsequent reaction had led to a higher tariff impost on Australian exporters to the US - for now, at least.

“The biggest implication is that tariffs for Australian businesses exporting to the US have increased on most goods,” he told Accounting Times.

“Australia's previous baseline tariff was 10 per cent and now Trump has responded to the Supreme Court striking down the IEEPA tariffs by imposing 15 per cent tariffs on all countries.”

Previously, Australia had enjoyed competitive advantages under US tariff settings, facing relatively low rates of 10 per cent while other exporters faced ‘reciprocal’ tariffs as high as 50 per cent.

However, Udy said this advantage had already waned prior to the Supreme Court decision. The US had previously given tariff exemptions to particular sectors, including agriculture, which accounted for a large portion of Australia’s exports to the US.

“A lot of that competitive advantage had already disappeared. In particular, agricultural exports and beef in particular, at the end of last year were given an exemption from tariffs. And so Australia went from having by far the cheapest beef available to the US to having beef just as cheap as everywhere else,” he explained.

These exemptions remained in place under the new tariff settings, meaning that nothing had changed for a notable portion of Australia’s exporters. However, Udy said Australian firms would need to keep a keen eye out for tariff developments, given the current uncertainty.

“It's just really important for Australian businesses to understand the competitive landscape that they find themselves in now, and watch the news and try to stay on top of the latest tariff developments to assess how things may change,” he said.

That being said, Udy anticipated that future changes would be slower and less volatile than they previously had been, given most of the remaining tariff powers available to Trump required investigations.

“A lot of the tariff changes that Trump still has available to him require an investigation before they're imposed. Not all of them, but a lot of them do require an investigation, so that would allow businesses a little bit more warning time before tariffs come into place,” he said.

Dr. Felicity Deane, professor of trade law and taxation at QUT, similarly told Accounting Times that it would be difficult for Trump to impose sweeping tariffs at the scale of ‘Liberation Day’ under remaining legal avenues.

“These current tariffs are only in place for 150 days and they are based on a section of the Trade Act where the President does have authority to act,” she said.

“The administration will have to find authority under another act such as s 301 (which they have suggested they will use). This is not straightforward and in my opinion it will be very difficult to introduce tariffs across the board as the IEEPA tariffs were.”

She added that the possible refund process had the potential to be “very messy,” and anticipated that there would be a process to consider claims en-masse, rather than individually.

In striking down the tariffs, the Supreme Court noted that Trump’s unprecedented interpretation of IEEPA would have entailed a “transformative expansion” of the president’s authority over tariff policy. They argued that Congress would not have delegated such “highly consequential power” to the executive branch through ambiguous language.

IEEPA states that the President is permitted to “regulate … importation” to directly address an “unusual and extraordinary threat” to the United States in the context of a national emergency, but does not directly refer to tariffs.

“Against that backdrop of clear and limited delegations, the Government reads IEEPA to give the President power to unilaterally impose unbounded tariffs and change them at will. That view would represent a transformative expansion of the President’s authority over tariff policy,” the court noted.

“In IEEPA’s half century of existence, no President has invoked the statute to impose any tariffs, let alone tariffs of this magnitude and scope. That “‘lack of historical precedent,’ coupled with the breadth of authority” that the President now claims, suggests that the tariffs extend beyond the President’s “legitimate reach.””