The U.S. Supreme Court Friday will rule on tariffs issued by the Trump administration under the International Emergency Economic Powers Act, holding the fate of tariffs on China, Canada, the European Union, and other major economies in its hands. Lower courts have ruled against the president’s use of the IEEPA to enact his country-specific tariffs. But experts say if the Supreme Court were to side with the Trump administration, it could lend the president the power to tax with the same authority and broad swaths as he did with the tariffs in question.
“The law at issue here—IEEPA—doesn’t only apply to imports; it authorizes the president to regulate imports, exports, sales, use, holding, a whole bunch of activity,” Timothy Meyer, professor of international business law at Duke University, told Fortune. “If the government were to win just on this interpretation of this law, the president would have the ability to tax, to impose sales taxes, he could impose property taxes.”
Meyer explains that since the principle of the case hinges on the president’s authority to regulate imports, and the government argues regulation includes the power to impose tariffs in order to influence behavior, the same logic would allow the president to use taxes to pursue regulatory goals.
“If the president has the ability to impose taxes on the basis of a law that doesn’t mention taxes,” Meyer said, “we really are in a world in which there is very little that the president is not going to feel empowered to do based on broadly-worded statutes.”
The case is the latest test on the president’s executive authority, marking the first major Supreme Court decision of the new year. While it is unclear exactly how the justices will rule, a win for the Trump administration could have long-term and wide-ranging implications for the executive branch’s power.
However, some legal experts and investors are anticipating a partial or full refutation of the president’s IEEPA tariffs, as the justices showed skepticism during arguments about the president’s authority to levy such taxes without Congressional approval.
How the Supreme Court may rule
This decision would throw a wrench in Trump’s tariff plan, and could be positive for markets as it implies the average effective tariff rate would sink further, down from the current estimated 12%.
Some experts, though, don’t believe stripping the tariffs would move the market significantly.
“The basic tariff regime is not going to change dramatically based on this decision,” Benn Steil, the director of international economics at the Council on Foreign Relations, told Fortune.
Even if the IEEPA taxes are overturned, the administration has alternative authorities to impose levies, including on goods the president deems a national security threat, as well as through short-term levies. Trump aides for months have hinted the administration would seek other executive levers to implement the president’s tariff plan. That means that regardless of the Supreme Court’s decision, it’s possible not much changes.
But implementing tariffs to replace the IEEPA levies would be tedious. The administration would need to individually impose tariffs on each country and for each specific commodity, rather than the sweeping tariffs as were levied under the IEEPA.
“The main difference is going to be that those other laws all have limits of some kind,” Meyer said. “They often require at least some minimal investigation and findings by an administrative agency before the president can act.”
How reimbursements could play out
It is unclear exactly when refunds could reach individuals should the Supreme Court strike down the tariff plan. The timeline for IEEPA tariff reimbursements could be delayed should the government slow walk their rollout as a way to evade payment.
“The Supreme Court is not going to dictate how the government does the repayment,” Steil said. “The government could conceivably make it as difficult as possible to claim repayment.”
Business leaders have knocked the refund idea as “very complicated,” as it would require a long and arduous process of calculating what recipients are owed.
Something else to watch for in the justices’ decision is who will qualify to receive reimbursement. During oral arguments, Justice Amy Coney Barrett cast doubt on the government’s obligation to reimburse all parties affected by tariffs, raising instead the possibility only the case’s plaintiffs be reimbursed. Although this would be unusual, Steil says such a decision could prevent substantial market movement.
“That would be historically unusual, but that would ameliorate any concerns that Wall Street might have about the fiscal implications,” Steil said.
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