Trump's Tariffs Ruled Illegal: What Happens Next

The Supreme Court Just Struck Down Trump's Tariffs — Here's What It Actually Changes

In a 6-3 ruling, the US Supreme Court declared that the tariffs Donald Trump imposed under the International Emergency Economic Powers Act (IEEPA) are unconstitutional. The decision — stemming from a case brought by Illinois-based toy company Learning Resources, liquor brand VOS Selections, and 12 US states — effectively invalidates the legal foundation behind the most sweeping tariffs of Trump's second term. That includes the fentanyl-linked levies on China, Mexico, and Canada, as well as the sweeping "Liberation Day" reciprocal tariffs announced on April 2nd.

For a few hours, it looked like a landmark rollback. Then Trump held a press conference.

Rather than accept the ruling, the administration announced a replacement 10% baseline tariff on most trading partners under a different legal authority — Section 122 of the Trade Act of 1974. Days later, that rate was revised upward to 15%. As of publication, the 10% rate took effect on February 24th, with the 15% figure still pending.

The net result: tariffs are lower for many countries than they were under IEEPA, but they have not gone away. Understanding the mechanics of this ruling — and the legal toolkit Trump still has available — matters enormously for businesses, investors, and consumers trying to plan ahead.

Why the Court Ruled IEEPA Tariffs Are Unconstitutional

The justices' core argument hinges on two constitutional principles: the separation of powers and what's known as the major questions doctrine.

IEEPA, passed in 1977, grants the president broad authority to regulate international transactions during a declared national emergency — think freezing foreign assets or restricting exports to adversarial regimes. It was never used to impose across-the-board tariffs before Trump's second term. That historical gap mattered to the court.

The majority opinion argued that the power to tax — including via tariffs — is explicitly reserved for Congress under Article I of the Constitution. IEEPA's language about blocking or restricting transactions doesn't clearly authorise taxation, and under the major questions doctrine, executive actions of significant national consequence require unambiguous congressional authorisation. Because IEEPA contains no such explicit language on tariffs, the court ruled 6-3 that Trump's use of it exceeded executive authority.

Three conservative justices dissented, though the ruling notably did not provide clear direction on how illegally collected tariff revenue should be handled — a gap that opens the door to years of further litigation.

Key takeaway: The ruling doesn't ban presidential tariffs. It invalidates this specific legal justification. The distinction is critical.

Which Tariffs Are Gone — and Which Ones Remain

Not every Trump-era tariff falls under IEEPA. Here's how the landscape breaks down:

Struck down by the ruling:

• 10% tariff on Chinese goods (fentanyl-linked)
• 25% tariff on Mexican goods (fentanyl-linked)
• 35% tariff on Canadian goods (fentanyl-linked)
• All country-specific reciprocal tariffs from Liberation Day and subsequent updates

Still in force — untouched by the ruling:

• Sectoral tariffs under Section 232 of the Trade Expansion Act of 1962, covering steel, aluminium, auto parts, copper, softwood lumber, furniture, and semiconductors
• These Section 232 levies reportedly accounted for roughly one-third of total tariff revenue in Q4 2025

New replacement tariffs:

• A temporary 10% (potentially 15%) baseline tariff imposed under Section 122 of the Trade Act of 1974, applicable to most trading partners with a defined set of exemptions

The exemptions to the new Section 122 tariff are meaningful: they include critical minerals, energy products, pharmaceuticals, certain electronics, passenger vehicles, aerospace goods, and anything already covered by Section 232. Goods entering duty-free under USMCA — which covers the vast majority of Canadian and Mexican trade — are also exempt.

For context, the Penn Wharton Budget Model estimates that IEEPA tariffs alone generated $175 billion in revenue since implementation. The Budget Lab estimates that fully eliminating these tariffs would cut the average effective consumer tariff rate from 16.9% to 9.1%, and reduce tariff-driven price inflation from 1.2% to 0.6%. For specific product categories, the impact on household budgets could be considerably sharper.

The $175 Billion Question: Who Gets Refunded?

This is where the ruling gets complicated — and politically uncomfortable.

Tariffs are technically paid by the importing company at the US border. So the $175 billion was collected from US importers, not from foreign governments — regardless of how the White House chose to frame it publicly. The economic burden was then largely passed along to consumers through higher prices. Getting that money back is a separate question from who actually bore the cost.

Because the Supreme Court ruling is silent on remediation, the matter defaults to lower courts, particularly the US Court of International Trade. That process will take years. Expect extensive litigation, appeals, and bureaucratic friction before any meaningful refunds materialise.

FedEx was among the first large US companies to file a reclamation lawsuit following the ruling. Costco had already sued prior to the judgment. For large corporations with legal departments and resources to pursue claims, reimbursement is plausible — though slow. For smaller importers who lack those resources, meaningful refund recovery looks difficult.

Consumers who paid higher prices through retail mark-ups are almost certainly not getting anything back. The refund pathway runs through importers, not end consumers. And any broader dividend-style distribution of tariff refunds to the public would require congressional approval — an unlikely scenario given the current political environment.

From a fiscal standpoint, the timing is awkward. IEEPA tariff revenue represented roughly 10% of the 2025 fiscal year budget deficit, and it was being counted as a partial offset to the spending increases in Trump's proposed "One Big Beautiful Bill." Losing that revenue — and potentially being required to pay $175 billion back — creates a meaningful hole in the administration's budget arithmetic.

What Legal Tools Does Trump Have Left?

The ruling removes IEEPA from the tariff toolkit. It doesn't remove much else. Trump explicitly named three alternative statutory routes during his post-ruling press conference:

1. Section 122, Trade Act of 1974 (already activated) Allows tariffs of up to 15% for up to 150 days to address a serious balance-of-payments deficit. No formal investigation required. The US trade deficit provides a ready-made justification. However, extending these tariffs beyond 150 days requires congressional approval — which is politically uncertain given midterm elections on the horizon and existing House votes to roll back some tariffs.

2. Section 201, Trade Act of 1974 Permits product-specific tariffs when surging imports are causing serious injury to domestic industries. Requires a formal investigation by the US International Trade Commission. This is the classic "safeguard" mechanism — targeted, slower, but legally robust.

3. Section 301, Trade Act of 1974 Allows tariffs when a trading partner violates a trade agreement or places unjustifiable burdens on US commerce. Also requires a formal investigation. Trump announced a Section 301 inquiry simultaneously with the new baseline tariffs — a move that signals the administration is building its next legal architecture even as the current one was dismantled.

4. Section 338, Tariff Act of 1930 Allows country-specific tariffs of up to 50% when a nation discriminates against US trade. Doesn't appear to require a formal review, but a broad application would almost certainly face immediate legal challenge given the law's ambiguous scope.

The practical implication: future tariffs are not going away, but they will need more formal procedural groundwork. That slows down the pace of sudden, retaliatory tariff announcements — the kind where a country gets levied for the tone of a phone call or the content of a domestic advertisement.

What This Means for Trade Deals and US Partners

Countries that had already negotiated bilateral arrangements with the US — including the UK and members of the European Union — are now in an awkward position. Despite making concessions on purchases, investments, and their own tariff rates, neither the UK nor the EU received carve-outs under the new Section 122 baseline tariff. They now face the same 10-15% rate as every other country.

The EU reportedly delayed ratification of its own deal in response to the uncertainty. US trade representatives have stated that previously negotiated deals remain valid, but confidence in Washington's reliability as a negotiating partner has taken a visible hit.

For countries like Brazil that previously faced IEEPA reciprocal tariffs above 10%, the ruling is a genuine reduction. For others who had negotiated below the new baseline or expected preferential treatment, the arithmetic has moved against them.

The broader strategic concern for trading partners is precedent. If a sitting US president can impose sweeping tariffs under emergency law, have them ruled illegal, and immediately replace them with a different set under a different statute — all within a single news cycle — the stability premium of any negotiated deal with Washington diminishes substantially.

The Road Ahead: Tariffs Are Down, Not Out

The Supreme Court ruling is a meaningful constraint on executive overreach in trade policy. It restores a meaningful check: the president cannot unilaterally impose broad-based tariffs simply by declaring an emergency. Future tariffs will require either congressional backing or formal investigative processes with narrower legal justification.

But to frame this ruling as the end of the US trade war is premature. The administration has multiple legal avenues still available, a stated intention to use them, and a political agenda — including Trump's oft-repeated vision of replacing income tax revenue with tariff revenue — that makes a quiet retreat unlikely.

For businesses, the near-term picture involves a 10% baseline tariff on most goods (with meaningful exemptions), continued sectoral tariffs under Section 232, and an evolving legal landscape that could shift materially within the 150-day window of the current Section 122 tariffs.

For investors, the ruling introduces a degree of uncertainty that markets dislike: tariff revenue projections are harder to model, refund litigation creates contingent liabilities for the federal government, and the pace and scope of future tariff escalation is now harder to predict based on past IEEPA patterns.

For consumers, the Budget Lab's estimate of a 0.6% reduction in tariff-driven price inflation — versus 1.2% before the ruling — represents real but modest relief. It doesn't undo the price increases already embedded in retail supply chains.

The trade war isn't over. It has changed venue.

---

Frequently Asked Questions

Why did the Supreme Court rule Trump's IEEPA tariffs unconstitutional? The court ruled 6-3 that IEEPA — a 1977 emergency powers law — does not explicitly authorise the president to impose taxes or tariffs. Under the major questions doctrine, executive actions of major national consequence require clear congressional authorisation. Because IEEPA's language is ambiguous on tariff authority, and because no previous president had used it for tariffs, the court found Trump's tariffs exceeded his legal authority.

Which tariffs were actually removed by the Supreme Court ruling? The ruling invalidated two main categories: the fentanyl-linked tariffs on China (10%), Mexico (25%), and Canada (35%), and all country-specific reciprocal tariffs from Liberation Day and subsequent updates. Sectoral tariffs under Section 232 — covering steel, aluminium, autos, semiconductors, and other categories — remain fully in force and were not affected by the ruling.

Will US consumers or businesses get a refund on illegally collected tariffs? Formally, reimbursement is possible but unlikely to be fast or broadly distributed. The $175 billion in IEEPA tariff revenue was collected from US importers, not consumers directly. Refund claims will be handled through lower courts — a process expected to take years. Large corporations like FedEx and Costco are already pursuing legal claims. Smaller importers face a harder path, and retail consumers who absorbed higher prices through pass-along markups have no direct refund mechanism.

What tariff tools does Trump still have available after this ruling? Several. The most immediately active is Section 122 of the Trade Act of 1974, which allows tariffs of up to 15% for 150 days to address balance-of-payments deficits — already deployed as the replacement tariff. Beyond that, Section 201 (safeguard tariffs for injured domestic industries), Section 301 (tariffs for unfair trade practices), Section 338 (country-specific discrimination tariffs up to 50%), and continued expansion of Section 232 sectoral tariffs all remain available. Future tariffs under most of these mechanisms will require formal investigations, making sudden large-scale tariff announcements procedurally harder.

How does this ruling affect countries that already made trade deals with the US? Negotiating partners including the UK and EU have not received exemptions under the new Section 122 baseline tariff, despite having made concessions in prior negotiations. US trade representatives maintain that existing deals remain valid, but the lack of carve-outs has created friction. The EU delayed ratification of its agreement in response to the uncertainty. The broader concern among trading partners is that US trade commitments may be subject to sudden revision, which could discourage future deal-making.

---

This article is for informational purposes only and does not constitute financial advice. Always consult a qualified financial professional before making investment decisions.