Supreme Court Considers Legality of “Liberation Day” and “Fentanyl” Tariffs, Potential “Mess” for Refunds if Court Rules the Tariffs Are Illegal

The Supreme Court on Wednesday heard oral arguments in a challenge to President Trump’s sweeping “Liberation Day” or reciprocal tariffs—duties imposed on imports from nearly every country under the International Emergency Economic Powers Act (IEEPA)—as well as the specific tariffs against China, Mexico, and Canada imposed under the same law based on the fentanyl emergency.  Three federal courts have already ruled the tariffs unlawful—including the Court of Appeals for the Federal Circuit, reviewing the case en banc—finding that the 1977 statute does not give the president authority to impose broad tax measures without congressional approval, although the different courts had different rationales and some lower court judges found that the law did allow tariffs in some cases, just not in the ways imposed by President Trump.

Summary of the Oral Argument – The Merits

Going into the oral argument, it was reasonable to speculate that some or all of the majority nominated by Republican presidents may overturn the lower court decisions and affirm the use of IEEPA to impose wide-ranging tariffs.  Polymarket (the world’s largest prediction market) put that position at or above 40% throughout October—so not expected, but almost a 50/50 position.  As expected, the Justices nominated by Presidents Obama and Biden expressed skepticism that Congress authorized such tariffs when it passed IEEPA. For example, Justice Sonia Sotomayor positioned it as unauthorized tax: “If I’m going to be asked to pay for something as a citizen, it’s through a bill that originates in Congress.”  Justice Sotomayor also stated that imposing tariffs is “a congressional power, not a Presidential power, to tax” because American citizens are paying the government. 

But other Justices also signaled skepticism that IEEPA allows the president to unilaterally reshape international trade and collect billions in duties and questioned whether Congress ever intended to hand the White House such expansive taxing power.  Justice Clarence Thomas was the first to pose a question, asking the Solicitor General why the major questions doctrine does not apply (which the Court has used to strike down various actions recently, on the premise that the Executive cannot use laws for wide-ranging, impactful ways unless Congress explicitly authorized such actions).  Justice Kavanaugh pushed the Solicitor General to explain the legal significance of how President Nixon imposed 10% tariffs under a predecessor law to IEEPA, noting that it is “real important to figuring out this case today” and whether Congress intended to grant such powers when passing IEEPA, especially given that no presidents before President Trump have used IEEPA in this way.  Justice Amy Coney Barrett asked numerous pointed questions on statutory interpretation, focusing on whether the phrase “regulate … importation” does authorize the imposition of tariffs.  And Justice Neil Gorsuch looked at broader Constitutional arguments, forcing the Solicitor General to admit that he had “backed off” his initial position whether Congress can even delegate such broad powers over tariffs (assuming it intended to do so), and asking the Solicitor General if the next President could use IEEPA to impose tariffs for a hypothetical 50% tariff on gas-powered vehicles to combat climate change.  With so many questions, the argument lasted nearly twice as long as expected.  Afterwards, the forecasting market Polymarket saw the likelihood that these IEEPA tariffs are allowed to stand cut in half, to approximately 20%, showing the shift in public perception. 

Summary of the Oral Argument – The Remedies

Moreover, the Justices expressed concern about the ramifications of striking down the tariffs and potential remedies.  The Court could limit refunds to the plaintiffs, allow broader recovery, or craft a narrow ruling that gives Congress time to act.  For example, Justice Barrett called the potential remedy “a mess,” as the Court wrestled with how to unwind them for all importers if struck down, after discussing the customs protest process and potential court litigation.  Many importers are already questioning how they would receive refunds for tariff payments already made.  The Justice Department has acknowledged that refunds would likely be required if the ruling is against the administration, though existing processes already take a year or more, are complex, and may trigger further scrutiny of the imported goods for other trade regulatory violations, such as misclassification, transshipment, or evaded anti-dumping and countervailing duties.  Counsel for the parties challenging the tariffs made clear its position that the potential “mess” should not be a basis for upholding the tariffs.

Preview for a Potential Refund Process: No Action Yet, Unless Import Entries from 2025 Liquidate Ahead of Schedule 

In short, the potential refund process could be a logistical nightmare: Through existing customs refund channels, companies would need to prove what they paid and affirmatively request the refund through administrative protests.  Alternatively or in addition, importers may need to make similar filings with the Court of International Trade.  The standard 180-day window for challenging duty payments starts after “liquidation,” which is typically 10–11 months (314 days) after the actual entry date.  Importers should monitor their entries to ensure that the entries do not liquidate ahead of schedule, which may cause an importer to miss its chance to challenge the duties or seek a refund under any future processes.  Otherwise, if entries liquidate as expected, importers should have a 17-to-18-month window from the date the entry after arrival in the United States to initiate recovery.  That time seems like a comfortably safe window at the moment, but importers can use this time to collect and organize information, while also planning financially for additional delays before actually receiving money back (assuming it becomes an option).  Meanwhile, creative options may emerge: For example, some Wall Street firms have already begun purchasing companies’ rights to potential refunds, betting they will profit if the Court strikes down the duties.

If the Court Strikes Down IEEPA, Do New Tariffs Take Their Place? 

Even if the Court overturns the tariffs, the administration has signaled it would attempt to reimpose duties through other legal mechanisms that offer more explicit tariff authority, though those statutes are narrower and would take time to implement.  In the meantime, the Administration is pursuing several Section 232 investigations that have allowed the imposition of tariffs for specific products or industry sectors, including steel, aluminum, autos, trucks, timber and furniture, pharmaceuticals, and more.  

The Supreme Court rarely moves quickly, but because the tariffs affect a large share of global trade and billions in revenue, the Justices fast-tracked the case.  A decision is expected at the latest by the end of the term in June, although many expect that it could arrive sooner.  It is possible that there may be multiple opinions that form a majority (if the Justice agree that the IEEPA tariffs should be reversed, but they cannot agree why), which may further complicate the schedule as well as available remedies.  In addition to the IEEPA tariffs before the Court, there are several other IEEPA tariff programs now in force, and it is unclear whether those other programs will survive, depending on whether the Court rules that tariffs are not permissible under IEEPA under any circumstances or only in limited circumstances. 

Conclusion

In today’s rapidly changing trade environment, businesses with international operations should evaluate both the financial impact of tariffs and the legal tools available to help manage risk and protect their interests. Many companies have mitigated this year’s increased tariffs through price increases or cost-sharing arrangements.  Companies should examine current pricing arrangements to understand what portion of those increases derive from an IEEPA-based tariff, as price decreases should be expected if IEEPA tariffs are not permissible.

Importers should evaluate those arrangements to understand any related obligations to seek or share the benefits of any refunds that may be available if the ruling provides for IEEPA refunds.  In particular, importers should track the tariffs they have paid and are paying under the IEEPA programs, with subtotals for each program (because the outcomes may potentially vary), and track the liquidation of these entries to ensure that all rights are preserved for the next several months.  Indeed, while there is a 180-day window to dispute duty payments and seek a refund, that window starts as soon as the entry “liquidates,” either by U.S. Customs and Border Protection’s review or within 1 year.  The practical result is that while typically there is an 18-month window to claim a refund for a shipment, the actual time may be less, and importers should be monitoring refund eligibility dates.

If you have questions about the impact of tariffs on your business or supply chain, please contact a member of Honigman’s International Trade Regulatory, Automotive and Manufacturing or Commercial Transactions practice groups, which advise OEMs, Tier 1, and Tier 2 suppliers, and aftermarket companies on supply chain contracts, litigation, risk mitigation, trade compliance and penalties disclosures.