Port authority: Answering questions on the upcoming supreme court tariff ruling

Summary

After almost a full year of trade policy announcements, the annual effective tariff rate has risen roughly tenfold since the start of this year, an escalation that has redefined America's role in global trade. While the tariffs themselves create uncertainty, the judiciary has questioned the very basis of the legal authorization granting the power to impose some of the most far-reaching universal tariffs, an issue we first raised after Trump's election victory in a publication titled "On What Authority."

The Supreme Court is set to begin hearing arguments on that question in its current term, raising important questions. In this piece we do our best to provide answers to some of the most pressing ones:

• What tariffs are currently in effect and under what authority were they imposed?

  • Tariffs currently cover around 65% of imports and fall largely into two buckets, product-level and universal, with different legislation used by President Trump to impose them.

• What is the Supreme Court considering in November, and how is it likely to rule?

  • The Court is considering President Trump's legal authority to impose universal tariffs under the International Economic Emergency Powers Act (IEEPA). It's unclear how the Court will rule, and, although a verdict could take weeks or even months, we may be able to gauge the Justice's leanings when opening arguments begin in early November. Prediction markets suggest it's more likely the Court strikes the tariffs down.

• If some tariffs are ruled illegal, what happens to tariff payments previously made?

  • Collected funds would need to be refunded to the U.S. importers or businesses who paid them. This would take time and therefore not be a windfall of cash for businesses at the time of the verdict. The ultimate total size of refunds depends on a few factors but is somewhere in the ballpark of $70-$90 billion, and is rising.

• Could President Trump then rely on other legislation to re-impose tariffs?

  • Yes, there is other legislation Trump could rely on to impose tariffs, but we are not aware of anything that grants the President the same broad power with immediate effect as the IEEPA, likely somewhat limiting the scope of additional tariffs but not completely dismissing them.

• What are the economic implications if the Supreme Court rules IEEPA tariffs illegal?

  • The likely knee-jerk reaction to removing tariffs is to remove uncertainty and the stagflationary-shock from the economy, but it's not that simple. Continued uncertainty around what tariffs may come to pass could be a headwind to growth generally, and more specifically the fear of looming changes to tariffs could leave businesses reluctant to cease cost pass-through.

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