Q&A of the Day – Impact of the SCOTUS Tariff Ruling
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station page in the iHeart app.
Today’s entry: Submitted via Talkback: Hey Brian, my, question is in regards to this tariff ruling. I understand that there's probably gonna be some companies that are looking to try to get refunds. I see a problem with that though. That sounds a lot like double dipping to me, as I'm sure most companies, if not all of them, pass those costs onto the consumer. It would be surprising to me if they are able to get those refunds on the tariffs.
Bottom Line: You’ve posed a good question, as there are many of them, perhaps more questions than answers at this point stemming from Friday’s SCOTUS ruling striking down most of President Trump’s tariffs imposed during the first year of his current term. Even more questions were introduced by President Trump’s subsequent executive order Friday night imposing a 10% across-the-board tariff based upon the 1974 Trade Act, which (in theory) allows President Trump to impose those tariffs for a maximum of 150 days.
While the short answer is that the one thing that’s likely to quickly ensue is a lot of litigation to be sorted out in federal courts pertaining to whether there will be refunds issued for tariffs collected, as the Supreme Court notably didn’t delve into that topic at all... Let’s breakdown what the ruling did and the quantifiable as to what it means.
The Supreme Court ruled that the International Emergency Economic Powers Act does not authorize the president to impose tariffs. This struck down the sweeping tariffs Trump imposed under IEEPA authority starting with his “Liberation Day” tariff announcement last April.
These included:
- Broad "reciprocal" tariffs of at least 10% on imports from nearly all trading partners.
- Drug-trafficking-related tariffs (25% on most Canadian/Mexican imports & 10-20% on Chinese goods).
What it didn’t include are numerous other tariffs which had been in place previously including tariffs imposed by President Trump during his first term that were kept in place by President Biden. On that note here are the tariffs left in place:
- Tariffs under what’s known as Section 232 (national security, steel, aluminum, autos) and Section 301 (unfair trade practices, China from his first term and continued/expanded), remained in place and unaffected.
It’s been commonly reported that “most” of Trump’s tariffs were eliminated with the ruling, and that’s true based upon the total number of tariffs in effect, however it’s not the case in terms of the effective tariff rate in real time.
According to Yale’s Budget Lab: Before the IEEPA tariffs were struck down, the overall average effective tariff rate for imports was 19.6%. Immediately following the SCOTUS ruling, the rate fell to 9.1%. After the 10% across-the-board tariffs were imposed Friday night, the rate rose to the level of 13.0% for at least the next 150 days. Complicating matters, on Saturday President Trump announced the tariff rate would 15%. Adjusting for that adjustment, the net effective rate should be 14.95%. Therefore, the net effective impact in real-time is that approximately 24% of imposed tariffs were eliminated by Friday’s Supreme Court ruling.
Due to this dynamic, any potential refunds, pending legal action, will be far less than commonly reported. As of December, the total tariff revenue collected under the tariffs that were struck down amounted to $133 billion. Factor in what’s been collected this year, and my estimate is approximately $161 billion that’s in play.
Now, that’s far from an in significant number. That’s the equivalent of about $1,200 per household for perspective. In terms of knowing any potential legal outcomes for the unconstitutional tariffs collected, it’s way too early to know what that many look like. It’d be speculation on top of speculation. Potential outcomes include:
- No refunds – with the established policy by the SCOTUS serving as the timeline for enforcement
- Refunds to importers which paid tariffs
- Refunds to consumers
- A combination of the two
To be continued...