Understanding the Supreme Court’s Tariff Ruling

CFR Experts discuss the Supreme Court’s decision on President Trump’s tariffs and what comes next.

Read more on the results of recent polling CFR conducted with Morning Consult on what Americans really think on tariffs. 

CHANG: Welcome to today’s Council on Foreign Relations media briefing on the Supreme Court’s ruling on tariffs.The contents of this discussion and Q&A will be on the record and a recording of this will be posted online at the conclusion of the discussion. This briefing is a part of the Council’s ongoing mission to inform U.S. engagement with the world, work that also includes the analysis and resources posted across our channels, including ForeignAffairs.com and CFR.org, where you will find the results of recent polling CFR conducted with Morning Consult on what Americans really think on tariffs. So I encourage you to go to CFR.org to see that piece, among others. 

Let me now hand off to Eddie Fishman, senior fellow and director of CFR’s Center for Geoeconomic Studies. Over to you, Eddie. 

FISHMAN: Thank you, Ben. And thank you all for getting on this call on relatively short notice. I know that the Supreme Court decision today really upended all of our calendars, but hopefully we can spend good time together over the next thirty minutes talking about the issue. So I’m going to just give a few comments at the top, and then I’m going to turn to my colleagues. And we’re all sort of going to discuss our own reactions to what happened.  

So I think, as everyone knows, earlier today the Supreme Court delivered a pretty clean decision saying that IEEPA, the International Emergency Economic Powers Act, does not authorize the president to impose tariffs. I think that’s a very important development because many of the tariffs that Trump has put in place are under IEEPA, although, as I think Brad probably will talk about, Section 232, which is a very important part of the tariffs as well, has not been affected by this decision. It sounds like what President Trump’s strategy is right now is invoking Section 122 of the Trade Act, which allows him to impose a 10 percent across-the-board tariff for 150 days. But critically, that can only stay in place for 150 days. And so the administration is very likely to use that time to initiate a multitude of additional investigations under Section 301 and 232 as well, to try to resurrect a lot of the tariffs that are in place now.  

The one point I’d like to make before I turn it over to Brad to talk about some of the implications from his angle, is that I think almost no matter what the administration does in terms of reviving these tariffs under different authorities, I think that this does represent a sea change for how President Trump conducts foreign policy. Over the last year, Trump has used tariffs not just as a way of raising revenue for the government or protecting domestic industries from foreign competition—which is obviously another use case of tariffs—he’s really used tariffs as a catch-all geoeconomic weapon. He’s used tariffs as a stand in for sanctions and export controls, a way to pressure countries to do what the United States wants from a foreign policy standpoint. This is what we’ve seen with secondary tariffs on India for buying Russian oil, or threatening tariffs on trading partners of Iran or Venezuela. 

That is no longer possible. He can no longer credibly threaten to impose tariffs at the stroke of a pen on a country because they’re not doing what he wants them to do. And I think this has really substantial implications, because no matter what happens with the 232s or 301s, they do take quite a bit of time to go through those investigations. And it’s not something he can just do at the drop of a hat. So I think this will very substantially change Trump’s foreign policy. I think it’s quite likely that it means that he starts using sanctions and export controls more than he has in the past, as opposed to tariffs. And I do have some concerns that it makes the use of military force more likely as well, because if Trump doesn’t have his favored tool, which is tariffs, at his disposal, other tools that he very clearly has authority over, like sanctions, like export controls, and like the use of military force, will become more attractive by comparison. 

So with that, Brad, I’ll turn it over to you. 

SETSER: Well, thanks, Eddie. I very much agree that this is an important decision that takes away the unique style which Trump has deployed tariffs in his second term, because it doesn’t—you know, the IEEPA statute, as Trump had interpreted it, had become a mechanism for putting tariffs at any rate on any country over a weekend. And so it had become this catch-all tool for leverage. All the other tools that are available limit the president’s flexibility in various ways. So Section 122 doesn’t allow the same scope for exemptions and exclusions. They have to be based on a balance of payments rationale. It’s limited to 15 percent. Not as threatening. And, at least in principle, it goes away after 150 days. Section 301, which is a(n) investigation into countries’ bad trade policies, requires an investigation. And it requires identifying the policies that you would like your trading partner to change. It can’t just be used because of an unrelated foreign policy issue. And Section 232, which is a sectoral tariff, at least in theory there has to be an investigation that shows—not just in theory; I mean, there has to be an investigation that lays the legal basis for arguing that imports in that sector are a threat to national security. So the timing, the cadence, of trade policy will change. *Correction: product categories may be exempted under Section 122 tariffs. 

I think the structure of the tariffs will also necessarily evolve. There are a set of countries that had substantial tariffs under the IEEPA authority, whether it was a reciprocal tariff or a fentanyl tariff, and those countries that had tariffs way above 10 percent right now will see those tariffs drop even if Section 122 is used to impose an across-the-board 10 percent tariff. 

Conversely, and I think this is going to be an important question to learn more about, there is the possibility of excluding countries that don’t contribute to a balance of payments problem from the Section 122 tariffs. It’s not clear if you can exclude products, so some of the electronics, some of the pharmaceuticals that have been coming in pretty close to tariff free may temporarily have higher tariffs. That’s, at least, a possibility. I think, you know, serious lawyers will be quickly commenting on that.  

And then it is possible that it may be difficult to exclude a country like Taiwan, which has a 20 percent tariff, but most of the chips that it produces and electronics it produces are coming in under an exclusion so the effective tariff is much lower. An across-the-board tariff—but Taiwan has a clear surplus with the U.S., a big global surplus. It’ll be interesting to see if you can exclude Taiwan or if some products from Taiwan will face a higher tariff temporarily.  

So I think there’s a lot of technicalities that are important here, and for many, many countries the reciprocal, the fentanyl tariffs, were the most important, but for some countries the Section 232 sectoral tariffs were equally or as important. That is certainly true for a big auto exporter because the auto 232 was a substantial 25 percent tariff on many countries. They got negotiated down to 15 (percent) for those that did deals, 10 (percent) for the U.K. Those countries like Korea, like Japan, they’re going to breathe a sigh of relief that the reciprocal tariff is gone but they are still under substantial tariff threats and I think that will influence how they view the maintenance of the various deals that have been struck. I would say the same is true with respect to Europe because of the importance of autos and also because there remains an open 232 investigation into pharmaceuticals, which is a huge European export, a huge Irish export, which currently isn’t tariffed but the ability to tariff is there.  

And then I think it’s significant to talk about how this impacts China because China, on one hand, had, after the Busan deal a 20 percent additional tariff on top of the, roughly, 10 percent effective tariff from Trump’s first term. That now goes down to 10 percent, which is actually 25 percent on a lot of tariffed products and zero on a lot of others. That 10 percent broad effective tariff will be topped up by the 122 10 percent, but the tariff on China will go back down to around 20 percent, which is, I think, significant because China is one of the tariff peaks.  

And I think it’ll be interesting to see if the Section 301 cases quickly go after China. There is a very strong legal basis for doing so. The 301 from Trump’s first term hasn’t been settled in a legal sense. The phase one deal was never implemented. So it is relatively straightforward to put new tariffs on China. Will those new tariffs just replicate the 122 10 percent after 150 days? Will they try to replicate the 20 percent? And how will China react if it is sort of singled out for additional tariff treatment the first 301 ahead of the Trump-Xi summit?  

I think these are sort of significant issues that the administration will be forced to clarify in relatively short order.  

FISHMAN: Thanks very much, Brad, for your always very insightful comments.  

I’ll now turn the floor over to my esteemed colleague Rebecca Patterson.  

PATTERSON: Thank you, Eddie. Thank you, Brad. I enjoyed hearing your comments, too. 

So I guess a couple things for me. One is kind of what do we know, what do we still not know, and, I mean, obviously, now we have the Supreme Court decision on IEEPA. The president doesn’t have the authority to levy tariffs under the Emergency Economic Powers Act. And we know from the press conference that new tariffs are coming, starting with the ones—the balance of payments, Section 122, in the coming days, followed by others. So we have clarity on some things. 

In terms of areas where I think there’s still a lot of uncertainty that is going to, I believe, continue to cause businesses to tread carefully, frankly, in the U.S. and overseas. One is that the Supreme Court did not mention refunds. That’s something President Trump was very vocally unhappy about during his press conference today. And he, the president, suggested that there could be years of litigation for refunds to come through. I think that is a significant amount of uncertainty. If companies don’t know when or if they’ll get their money back, how should they plan for new hiring, new business investment? So that’s one set of uncertainty that I look forward to having a little more color on, clarity on.  

Another issue that I think is important to keep watching is what does this mean for all of the agreements that have been put in place over the last year? My perspective would be that countries most likely are going to want to just keep their heads down, see what tariffs President Trump and the White House push forward in addition to the Section 122, which seems a certainty. But, you know, you have to look at things like Japan. In the last week, Commerce Secretary Lutnick announced that the first tranche of Japanese investment, $36 billion in three different U.S. companies. Do all those things still go forward? All this promised foreign direct investment into the United States, which is very important to support jobs in the United States, does that get slow walked? Is it happening on schedule? What happens if companies or countries decide to take a step back? So that’s another area I’m going to be watching pretty closely.  

And then I guess the third area, which is a little more tangential to what we learned today from the court, is USMCA. So we have another huge, huge trade negotiation going on this year, the review of USMCA, the former NAFTA agreement. That review is expected to be done, I believe, by July 1st. And talks have already started. They’re well underway. And there’s a question whether we get just a full renewal, a renewal with some changes, or if there is not a formal renewal, in which case this becomes basically a zombie deal and you have to have annual approval processes for it and, in theory, it could sunset after sixteen years. Now, to me, it feels like our three economies are so deeply integrated it’s almost hard to believe that anyone would let this deal lapse. But between now and then, and then, again, is going to be July, I can imagine we’ll have some drama in the negotiations. And that could create volatility and, again, feed into uncertainty.  

So I guess my bottom line is that even though we have gotten clarity today from the Supreme Court on the IEEPA tariffs, we’re far from having certainty on a broader basis on trade. And so while we are seeing the U.S. economy supported substantially by technology related investment in capex and wealth creation that’s happened through a stronger stock market, last year primarily from AI-related stocks, it’s a question today how much support are we going to get from business investment and hiring, given this lingering pool of issues that create uncertainty. So I would start with that.  

The last thing I’d say, just for everyone here, if you haven’t had a chance to see it yet, we, CFR, partnered with Morning Consult to do a quite in-depth poll looking at affordability issues in the United States, looking at trade issues in the United States. And to me personally, the biggest surprise was the lack of difference between the Democrat and Republicans answering the questions on how they felt about tariffs and affordability. I would recommend you take a look at the research note. There’s a lot of great data in it. But the fact that both parties, a plurality of respondents, saw tariffs as increasing their affordability challenges made me wonder if the administration might try to slow walk new tariffs to try to reduce that perception and help the Republican Party into the midterm. It remains to be seen, but I think that’s an important angle of this trade conversation, is that we do have an important midterm election getting closer by the day. 

CHANG: Rebecca, we put the link in the chat for everyone to that work that you just cited. 

PATTERSON: Great. Thank you. 

FISHMAN: Thanks so much, Rebecca. Really appreciate those thoughts.  

Chris, over to you.  

MCGUIRE: Thanks, Eddie. And thanks, Brad and Rebecca. 

So I wanted to pick up on the point that Eddie made at the top about how this is significant for economic statecraft design generally, which I very much agree to—agree with. Tariffs have been the go-to tool the administration for economic statecraft. They’ve been the easy button, and they have—you know, it’s a chainsaw that has a very significant impact on a lot of countries. But the impacts are also very broad, which makes them very coercive, but also inherently a little bit untargeted. I think it’s just important to realize that I don’t think this means that we’re just going back to an era of, you know, free trade or globalization. I think that the way that the administration sees those issues is not going to change. And they do have other tools at their disposal to effectuate their policy goals. And I very much agree with Eddie’s take at the top that I think it means that it’s likely that we will just see other tools used more so. In particular, I think export controls, also import controls that the administration hasn’t made great use of, but very much could, and sanctions could be used more liberally.  

Many of these are authorized under IEEPA, but it’s—I think it’s interesting that the decision was very, very clear that licenses are still permitted under IEEPA. It is fees that are not. And the president was explicit about his frustration with this. But the decision was unambiguous that this is—these are still permitted under IEEPA, and actually export controls are separately permitted under a separate statute as well, the Export Control Reform Act. So these controls are more specific, but they do—just to—it’s important for people to keep in mind, they give the administration, like, really massive leverage that, yes, you know, many countries and industries are very dependent on the U.S. market, hence the importance and effectiveness of tariffs as a coercive tool. But there—but countries are also very dependent on U.S. technologies. And they’re also very dependent on the U.S. dollar. And that dependence does, you know, retain the ability to use these. 

So I think that ultimately I could see this cutting three different ways. I could see the use of these tools, you know, in a kind of broad-based threats to kind of cut countries off from goods as just a kind of equivalently broad weapon. I could see specific threats being used to just influence countries on targeted things. And I could also see a pivot to, especially on the technology front, a move where there’s kind of a real structured regime where actually, you know, there’s a real give and take here, and that countries that are recipients of U.S. technology kind of do make promises on a lot of the economic statecraft fronts. And then that creates a more—kind of a permissive technology regime within a certain set of countries. I think that could be an interesting side effect here, and actually is in line with some of the things that OSTP Director Kratsios said in India just yesterday. So I think much to watch on that front. But I think we are kind of moving into a different era on the slate of these tools, and the secondary effects here will be really significant.  

There’s one last thing I’d say on China. I think it will be interesting to see—you know, obviously there’s the—President Trump also announced that he’s going to China in the end of March. Those negotiations, I imagine, will persist throughout the year. But what this also means, the ruling, is that if negotiations were to break down we’re not going to see threats of 100 percent tariffs again. What we would see is something else. And when the Chinese rare earth controls went into place, obviously the administration threatened tariffs. But the other thing that they threatened was export controls on critical U.S. software. And that was purposefully very ambiguous and very broad, because critical U.S. software could be anything. And U.S. software is in everything. So I think that’s a little bit of a teaser for where we could go in a world where we’re starting to just pivot to other tools as coercive instruments of statecraft and diplomacy. 

FISHMAN: Great. So I know we have a handful of questions that we’re happy to take. Does Lilly—do you—do you have who’s raising their hands?  

OPERATOR: We will take the first raised hand from Farooq Kathwari. 

Q: Can you hear me now? Yeah, OK. This Farooq Kathwari. I’m CEO of Ethan Allen.  

My question relates to south of the border. You know, most of our manufacturing is in the United States. Twenty years back we decided to supplement it by establishing manufacturing in Mexico and Honduras, major manufacturing. And now, and in the last few years, we have higher tariffs in Mexico than even in East Asia. How does this, what is now being discussed, going to impact south of the border? 

PATTESON: I mean, one—I’m sure my colleagues here have additional thoughts, but maybe I can just start off. 

I think one issue to keep an eye out on with the USMCA negotiations—so that’s separate from IEEPA—is right now the USMCA talks about rule of origin, what country something comes from. I think going forward one possible change that we’re hearing more discussion around is the company it originates from. So, for example, you mentioned Mexico, or Latin America more generally. If something is coming from there but the—but the part, let’s say, coming into the U.S. or the good coming into the U.S. is overseen by a company that originates in China, for example, that might be something that gets more attention than it had in the past. So that is one possible change that could affect how people are thinking about producing south of the border from the United States, that they might be looking more not just at location but also the supply chain, and the specific companies, and where those companies originate. 

So that is—that is one possible change I would keep an eye out on. But I’m not sure, Brad, Eddie, Chris, if you have other things you’d add to that. 

SETSER: And I’ll toss in a couple of things because I think—I think Mexico and Canada are one of the biggest sources of uncertainty about the new 122 tariffs that in principle are coming in. 

Mexico and Canada benefit from the USMCA exclusion, which exempted most—not all; certainly not autos, obviously for your company not all of your goods, I guess. But most of Mexican and Canadian imports were exempted from the reciprocal tariffs and the fentanyl tariffs, so the effective tariff on Mexico and Canada was well below 10 percent. I think it will be interesting to see if the administration maintains that exclusion or if it can maintain that exclusion under Section 122. 

With respect to Mexico in particular, our bilateral trade deficit with Mexico is now quite big. I don’t think that’s a problem. Mexico’s global trade is balanced. It’s just a function of the way supply chains have developed. But it is the case that there’s a big bilateral deficit. And if the bilateral deficit is defined to be part of the balance of payments imbalance, it would be a little strange to exclude Mexico from the 122 tariffs. Now, there may be legal avenues that allow that to happen, but to me that is the most important uncertainty. 

And then I think the next question becomes, well, does the 122 10 percent tariff go away after 150 days? During that 150 days, Mexico and Asia may be on pretty close to equal playing. But then for furniture, for example, would there be a furniture 232 that effectively replaces sectoral tariff, the interim balance of payments tariff? And under Section 232, the administration has complete discretion to adjust tariffs up or down inside that sector based on negotiations, deals, preferences, companies’ arguments. So I’d be watching very closely how the structure of tariffs with respect to Mexico evolves. 

And to Rebecca’s point, this is conceivably laying—you know, it’s the first part of the USMCA renegotiation and how the administration wants to play it. These are—to me, those are some of the most important questions that come up. How are those countries that had the least tariffs—not zero tariffs, but the least tariffs—under the reciprocal IEEPA tariffs going to fare under this new regime? 

FISHMAN: All right. Let’s go to the next question. 

OPERATOR: We will take the next question from Tracy Moran (sp). 

Q: Hello. Can you hear me? OK. Thank you. 

Well, you’ve already talked a little bit about the Section 122 tariff. I guess my question was whether or not it’s ever been tested, whether the president could revoke its use after five months and then reimpose it even without Congress extending it. 

SETSER: Incredibly good question. I don’t think so, but I’m not a lawyer. But some people are saying he could. 

FISHMAN: Yeah. This is—we don’t have a precedent for it. But I’m personally skeptical that that would be viable, but it is an—it is an important question and something to keep an eye out for. Technically, you know, after the 150 days you can’t renew it unless, you know, Congress supports it. But at the same time, could he revoke it beforehand and then reissue it later? TBD. 

OPERATOR: We will take the next question from Kelly Malone (sp).  

Q: Hi. So you had mentioned that 122 you might not be able to exempt products—you’d have to exempt a whole country. I am still waiting for a lot of those USMCA questions from the White House today. 

But it strikes me as interesting to think what would the impact be, say, on the United States having this 10 percent tariff. I think of the Midwest and Alberta’s oil. So if they’re unable to exempt products, do you think this will hold when you have potash, uranium, and oil all becoming 10 percent more expensive?  

SETSER: I can see Congress trying to find some capacity to grant exclusions for precisely that reason. I think you’ve just highlighted the centrality of that question. You, clearly, can’t exclude countries if they’re not contributing to the balance of payments problem. Beyond that, I think we’re going to find out. Maybe Eddie is—he’s a real lawyer. He will know. *Correction: product categories may be exempted under Section 122 tariffs.  

FISHMAN: Yeah. No, I don’t have much to say on that other than I do think that you’re hitting on something quite important where a true across-the-board tariff on a country like Canada is not viable from an economic standpoint in the United States.  

I think if there’s one important lesson about American economic statecraft over the last year it’s that the U.S. has quite a low pain tolerance for even small dips in the stock market or, certainly, inflation and cost of living as we approach a midterm election.  

So I would—I would imagine that a 10 percent tariff on oil coming in from Canada that is going to come into the U.S. anyway wouldn’t be a particularly politically popular thing in the United States.  

OPERATOR: Take the next question from Shri Shrivasan (ph).  

Q: Hi. I would like to just ask about what happens with places like India where they, you know, give all these concessions, and what’s going to happen with that? What do you think is going to happen with that? 

And this new 10 percent on top of whatever is there, is that—I mean, with Trump we have to often wait to see what’ll happen, but do we have time for that? And I just saw that Pritzker sent an $8.6 billion invoice on behalf of those citizens of Illinois to Trump.  

SETSER: Look, I actually think India is, relatively speaking, a winner, at least in the short run, because the—you know, first of all, there was the possibility this deal could break down and we go back to the 50 percent tariffs.  

Second of all, the new tariff was still going to be 18 (percent) and 10 (percent) is lower than that. You know, you have to adjust for exemptions and exclusions, but in some sense the deal for India in the short run got better, and then I think it would be difficult, for example, to launch a new 301 investigation targeting India after India has just done this deal.  

So the way I would think of it is that India negotiated the tariff down to 18 (percent) and they ended up getting a better deal at 10 (percent).  

FISHMAN: OK. I think we only have about a minute or two. So Brad and Chris, I wanted to see if either of you have any parting thoughts before we break.  

SETSER: I’ll just note that Bessent—Secretary Bessent said that he thought that the new tariff structure would replicate the revenue of the old tariff structure; there wouldn’t be a falloff in revenue.  

There is at least a possibility that in the next hundred and fifty days we would get more revenue if you did a broad 10 percent across-the-board tariff, which is undoubtedly the revenue maximizing tariff. Any exemption or exclusion makes it more politically tenable, but you’re giving up some of the revenue.  

And then I do think it is important to note that at the end of the hundred and fifty days it is extremely unlikely that we would end up with the exact same tariff structure that we had under IEEPA and the reciprocal tariffs. We may get the same amount of revenue, but it’s not going to be from the same set of products or the same set of—or from imports from the same set of countries.  

So there is going to be an evolution, and as my colleague Rebecca said, that itself is a bit of a source of uncertainty.  

MCGUIRE: Yeah, and I’d just say, especially on the China side, that just to note what most of the areas where we’d see the kind of most acute concern on Chinese products—things like EVs, things like legacy semiconductors, things like that—nothing changes on those fronts, right? Those are—those already have 301s. And I think that you’re probably going to see those expand out to a variety of products. Maybe on things like kitchen cabinets and stuff, it’s going to be—your 232s there are going to be a little more—a little more complicated. But I think on the China front they’re going to find a bunch of ways to kind of capture a large number of products and kind of modulate the tariff type. But I do think that the kind of longer-term trend here on economic statecraft tools is really one thing to look at. 

FISHMAN: I think the final point I’ll make, and then we can break, is if you listen to Trump’s remarks that he gave during the press conference earlier today, it was quite clear that he was kind of incredulous by the fact that the International Emergency Economic Powers Act does authorize him to completely cut off trade with a foreign country, but it doesn’t authorize him to charge a 10 percent tariff. In some ways, Trump—that makes sense, from a logical standpoint. But what—the important take home, I think, is that IEEPA does provide the president with quite sweeping authority on financial sanctions, on export controls, on import controls, as Chris mentioned. And so I don’t think by any means this is the end of Trump’s weaponization of economic power for foreign policy and economic gain, but it does mean that there will be a pivot, I believe, from one tool to others. 

OPERATOR: Thank you all for attending today’s media briefing. If you have any additional questions for our panelists or any other experts at CFR, please reach out to [email protected]. And, as a reminder, this event was on the record, and a recording and transcript will be posted on our website momentarily. Thank you, again. 

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This is an uncorrected transcript.