Trump's Tariff Lawsuit Heads to Supreme Court: What's the Case & How the Ruling will Impact Trade with US?

The U.S. administration’s sweeping tariffs, spearheaded by the current President Donald Trump, is now facing a critical test from the country’s Supreme Court.

The Trump administration could be forced to refund billions of dollars collected from American companies if the Court upholds the lower court ruling that struck down the tariffs. Speaking to NBC, U.S. Treasury Secretary Scott Bessent acknowledged that it might be a possibility and indicated the enormous fiscal and political implications of the case. He also pointed out at a backup plan and his remarks at this time indicate that the Trump administration is getting ready for a possible setback at the apex Court.

As the deadline for October 14 comes near and the Supreme Court is expected to give a decision by September 10 on whether it will hear the case, the outcome could have a huge impact not only on Trump’s trade legacy but also in terms of understanding the limits of presidential power in economic policy. The setback can also lead to huge reputational loss for the President globally, especially after his harsh tariffs on all major trading partners of the US.

Why Trump's Tariffs Stand on Shaky Grounds

In order to understand why Trump’s tariff regime has landed in front of the Supreme Court, it is necessary to note that the U.S. President has used the International Emergency Economic Powers Act (IEEPA), a 1977 law traditionally used to impose sanctions during national emergencies. He took help of the IEEPA in order to impose what he called "reciprocal" tariffs, aimed at correcting trade deficits and curbing the flow of fentanyl and other illicit drugs into the US.

However, the law has never been used to levy tariffs before. Looking back one can see that it has been used as a tool for freezing assets or sanctioning hostile foreign actors. According to critics, the Trump administration has stretched the law beyond its intended scope. Moreover, the authority to levy taxes rests with the US Congress.

How the Matter Reached the Supreme Court?

The legality of Trump’s move was challenged through two lawsuits, one filed by small importers and the other by a coalition of 12 Democrat-led states. The arguments in the lawsuits were centered on the US Constitution, which gives Congress, not the president, the power to set tariffs and taxes. Even the delegation of this power must be clear and limited and as per their arguments, the delegation was neither.

In a 7-4 decision, the US Court of Appeals for the Federal Circuit rejected Trump's argument that the tariffs were permitted under an emergency economic powers act and called them "invalid as contrary to law".

In a 127-page judgement, the US Court of Appeals for the Federal Circuit said the IEEPA "neither mentions tariffs (or any of its synonyms) nor has procedural safeguards that contain clear limits on the president's power to impose tariffs". The Court further mentioned that the power to impose taxes and tariffs thereby continues to belong to Congress and the IEEPA did not override this.

In addition to that, “it is unlikely that when Congress passed the law in 1977 it intended to "depart from its past practice and grant the president unlimited authority to impose tariffs,” the court noted."Whenever Congress intends to delegate to the president the authority to impose tariffs, it does so explicitly, either by using unequivocal terms like tariff and duty, or via an overall structure which makes clear that Congress is referring to tariffs," the judges wrote.

Further, the appeals court allowed the tariffs to remain in effect through October 14, thereby giving the Trump administration an opportunity to appeal the decision to the Supreme Court.

Why the Supreme Court can Rule against Tariffs

The U.S. administration led by Trump has approached the Supreme Court urging a fast-track review. By September 10, the Justice Department wants a decision with oral arguments to follow in November, if the case is accepted.

On the surface, Trump might appear to have an advantage. There is a 6-3 conservative majority at the court and three justices were appointed by Trump himself. However, recent instances show that Trump-appointed justices have not automatically ruled in his or his administrations' favour. In two significant cases since 2020, Trump-nominated justices had taken sides with the majority in rulings that went against his interests. Additionally, conservative justices have increasingly focused on restoring power to Congress in the face of decades of executive branch expansion.

Thus, despite the Court's ideological composition, there's a real possibility that the justices give a ruling against Trump’s tariffs on the grounds that they represent an unconstitutional expansion of presidential power, especially if they see IEEPA’s use here.

What's the Impact if the Supreme Court Agrees with the Lower Court’s Ruling?

The Supreme Court’s decision regarding this matter is being widely watched. Secretary Bessent has clarified that the federal government would be required to refund tariffs collected under the invalidated policy, which amounts to billions of dollars. "This isn’t about the dollars. This is about balance," he said, while warning that a loss would "diminish President Trump’s negotiating position" on the global stage.

In addition to that, the President himself has issued extreme warnings, saying that without tariffs, the US could become a "Third World country," and also hinted at "unwinding" existing trade deals if the Court doesn't side with him.

Even if Trump loses at the Supreme Court, his administration could turn to Section 232 of the Trade Expansion Act of 1962, which allows the president to impose tariffs on imports that threaten national security Bloomberg News reported. This tool was used by Trump in his first term to justify tariffs on steel and aluminum.

Section 232 gives the president industry-specific authority, meaning he could still target sectors like steel and aluminium, semiconductors and wind turbines. However, this is a narrower and more legally vulnerable path. On the other hand, if the Supreme Court strikes down tariffs, Treasury Secretary Bessent said, “But there are numerous other avenues that we can take. They diminish president Trump’s negotiating position. This isn’t about the dollars. This is about balance. The dollars are an after amount.”