US tariffs ruling creates immediate business uncertainty and casts doubt on recent US trade deals

Dr Totis Kotsonis of Pinsent Masons was commenting after the US Supreme Court ruled (170-page / 738KB PDF) that US president Donald Trump cannot rely on the International Emergency Economic Powers Act (IEEPA) to unilaterally impose tariffs on US imports. The ruling means tariffs Trump has imposed in this way since returning to office last year are unlawful under the US Constitution. The court said the measures required the approval of Congress. 

Over the past 13 months, the position with US tariffs has been volatile. Following initial ‘liberation day’ announcements, Trump has in some cases withdrawn, re-imposed, and/or modified a series of tariffs he introduced that impact a vast array of goods being imported from across the globe. Some countries have subsequently managed to negotiate agreements with the US government to minimise or negate the impact of the tariffs. 

The Trump administration has previously estimated that the imposition of tariffs would enable it to reduce the US’ national trade deficit by $4 trillion and that international agreements reached in reliance on the tariffs could be worth $15 trillion.  

“The immediate question that this ruling poses for businesses in the process of importing goods is what rate of tariff will they now have to pay at the US border” said Kotsonis. “Given that IEEPA tariffs have been declared to be unlawful, strictly and legally speaking they no longer apply. However, until US Customs and Border Protection updates its procedures to cease collecting the IEEPA tariffs, they might yet be payable, although presumably capable of recovery.” 

“Businesses disadvantaged by the imposition of the IEEPA tariffs are likely to consider their options for obtaining compensation now those measures have been declared unlawful. A bill of an unprecedented size could soon be landing on desks at the US Treasury,” he said. 

“Crucially, the ruling also raises questions over the status of the trade agreements and deals that the US has struck in which it leveraged the imposition of IEEPA tariffs in negotiations with the likes of the UK, EU, Japan, Mexico and Canada.  To the extent that those deals incorporate provisions for the payment of reduced IEEPA tariffs, one would expect that those bespoke tariff arrangements should also now be deemed to be unlawful,” Kotsonis said. 

“Whilst businesses might in principle welcome the Supreme Court’s decision, at the same time they might consider less welcome the fact that the Supreme Court’s judgment provides for yet another layer of legal uncertainty. Indeed, it is unclear at this stage how president Trump might choose to respond. Previously, it was suggested that he could pursue other legal routes to impose his tariffs if the IEEPA route was struck down as it has now been. For better or worse, there’s no guarantee that such other routes won’t be challenged anew by states or affected businesses, leading yet to more legal uncertainty,” he said.   

"Ultimately, the key lesson for businesses is the importance of reviewing their contracts to ensure that they make adequate and clear provisions as to who carries the risk in the event of yet further changes to US tariff policies.” Kotsonis said.