In a huge blow to the executive branch’s authority over global commerce, the Supreme Court handed down a 6-3 decision today declaring President Trump’s sweeping use of emergency powers to enact tariffs fundamentally illegal. The ruling immediately imperils the cornerstone of the administration’s economic strategy, transforming America’s negotiator-in-chief into a leader stripped of his most potent leverage.
This is because the majority of Trump’s tariffs were deployed under the International Emergency Economic Powers Act (IEEPA), which the administration used to justify a vast network of reciprocal tariffs applied to most trading partners under the pretext of a “balance of payments emergency.” Additionally, it levied distinct, targeted tariffs against Canada, China, and Mexico, citing a “drug trafficking emergency.” The Supreme Court’s decisive ruling concluded that utilizing the IEEPA for these purposes was unlawful.
Since Trump’s “Liberation Day,” when he enacted most of these tariffs in April 2025, the U.S. Treasury has accumulated an astounding $240 billion in revenue from customs duties, according to a note by Capital Economics’ chief North America analyst Paul Ashworth. This figure represents a $180 billion increase compared to the same timeframe in 2024. Based on 2024 import weights, Ashworth continued, the theoretical effective tariff rate skyrocketed from a mere 2% in 2024 to approximately 14%, but nine percentage points of this dramatic hike are directly attributable to the now-illegal IEEPA tariffs.
With the tariffs struck down, the Treasury will face demands for massive refunds to importers. Current estimates suggest the refund bill could run to about $120 billion, representing a full 0.5% of the U.S. GDP. While the Supreme Court’s majority opinion did not explicitly outline a repayment protocol, dissenting Justice Brett Kavanaugh highlighted the looming administrative disaster. He noted that the court remained silent on “whether, and if so how, the Government should go about returning the billions of dollars,” but he plainly acknowledged that the unprecedented process is guaranteed to be a “mess.”
Ashworth also laid out Trump’s playbook on recreating much of the tariffs that were just struck down. In short: it’s a lot more limited.
Trump’s bad hand left to play
Beyond the fiscal nightmare, the ruling fundamentally cripples Trump’s bilateral diplomatic strategy. Ashworth predicted the president will be forced to pivot to Section 122 of the 1974 Trade Act. That particular law explicitly concerns the powers that Congress gives the executive branch in order to deal with “large and serious” balance of payments deficits, but it’s pretty restrictive, Ashworth said, capping the maximum tariff rate at 15% and limiting a tariff to just 150 days, unless Congress approves otherwise. This tariff must also be “non-discriminatory,” setting one tariff rate for all trade partners. This means Trump’s Liberation Day strategy is out the window, as he was using IEEPA to set different rates for different partners, seemingly every day.
“Trump will no longer be able to honor many of the ‘deals’ he has negotiated” with individual nations, Ashworth explained.
The administration’s alternative legal avenues appear equally bleak. Trump may attempt to revive Section 338 of the antiquated 1930 Smoot-Hawley Tariff Act, which theoretically allows the president to hit discriminatory countries with tariffs of up to 50%, but Ashworth sees courts ruling that the explicit provisions of the 1974 Trade Act would take legal precedence.
This leaves Trump reliant on older, more cumbersome statutory “workhorses.” He could turn to Section 232 of the 1962 Trade Expansion Act, for instance, which relies on national security justifications and has already been used extensively by his administration for product-specific tariffs on steel, aluminum, lumber, semiconductors, and autos. He might also leverage Sections 201 and 301 of the 1974 Trade Act on anti-competitive grounds. Unfortunately for a president who favors swift, unilateral action, these statutes mandate notoriously “time-consuming investigations” before any tariffs can be legally applied.
Meanwhile, the clock is ticking on the midterm elections. And based on voter anger about higher electricity bills, job-threatening AI technology, and shouldering the burden of tariffs that largely turned out to be illegal for much of the last year, it’s unlikely that a much more Democratic-leaning Congress would approve any tariffs after November.
