By now, summaries of the Supreme Court’s decision striking down the President’s use of IEEPA to impose tariffs have been widely circulated. Rather than focus on the immediate aftermath, this note is meant to analyze what lies ahead and the impact on the Trump Administration’s overall trade and foreign policy agenda.
In short, we see only marginal change with respect to the Administration’s policy agenda, but for the “mess” of litigation ahead with regards to refunds, estimated at between $133-$175 billion. Below is an in-depth look at the Trade and Geopolitical landscape. Please reach out with any questions.
TRADE OUTLOOK
The immediate result of the Court’s decision is that tariff collections under IEEPA will cease “as soon as practicable” on the following categories:
- Fentanyl (Canada, Mexico, China)
- Venezuelan Oil
- Reciprocal
- Brazil
- Russian Oil
- Cuba
- Iranian Business
To bridge the reciprocal tariffs, the President-by Proclamation-imposed a 10 percent universal reciprocal tariff via Section 122 of the Trade Act of 1974. The President then raised the 10 percent to the statutory cap of 15 percent via an announcement on Truth Social Saturday morning.
The replacement tariff will take effect at 12:01 a.m. ET on Tuesday, February 24, and run until 12:01 a.m. ET on Friday, July 24, complying with the law’s 150-day limit. Though this new 15 percent universal tariff is likely to face legal challenges, it was specifically cited by the U.S. Court of International Trade (CIT) as the better avenue for the Administration to pursue. As a reminder, Section 122 allows for the following:
- Section 122. The statute allows the President to impose an up to 15 percent tariff on imports for 150 days, subject to an extension by Congress. To take such an action there must be a “large and serious” balance of payment deficit; an “imminent and significant” dollar depreciation; or coordination with other countries to correct an “international balance-of-payments disequilibrium.”
Given its unlikely extension and hence limited duration, Section 122 should be viewed as a bridge to another means. The Administration will use the 150-day window to initiate, reenforce, and expand investigations under Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974. Summaries of those dual authorities are included here:
- Section 232. The statute authorizes the President to restricts imports of specific goods that threaten o impair national security. The Department of Commerce must complete an investigation and report to the President within 270 days of initiation. The President then has 90 days to decide whether and how to act (e.g., tariffs, quotas, and other restrictions). If the President decides to act, he has 15 days to implement restrictions from the date of his determination. There is no statutory cap to the level of tariffs that can be imposed nor an expiration date.
- Many sector-specific Section 232 investigations have previously been launched and are now eligible to be enforced, in addition to those currently imposed. These tariffs can have broad impact as most trading products include derivatives of steel, aluminum, copper, wood, semiconductors, critical minerals, or polysilicon; are autos, trucks, or plane parts; and/or are robotics or industrial machinery.
- Section 301. The President is authorized to impose tariffs under the statute to address unfair foreign trade practices. The law designates USTR to investigate countries that are in violation of trade agreements with the U.S. or impose unjustifiable, unreasonable, or discriminatory practices against the U.S. USTR must complete its investigation within 12 months of initiation and then recommend a remedy to the President within 30 days of the investigation’s conclusion. As with Section 232, there is no statutory cap to the level of tariffs that can be imposed nor an expiration date (though review is required every four years).
- USTR can thus launch new Section 301 investigations, as well as revive “dormant” Section 301s (e.g., digital services taxes) that were announced during Trump 1.0 but paused under then-President Joe Biden. The previous 301 country-specific investigations launched were against Austria, Brazil, the Czech Republic, the EU, France, India, Indonesia, Italy, Spain, Turkey, and the UK. The Biden Administration terminated the investogations of Austria, France, India, Italy, Spain, Turkey, and the UK, leaving Brazil, the Czech Republic, the EU, and Indonesia as live 301s. In addition, Section 301 tariffs on the EU and UK relating to the Boeing-Airbus WTO case were only suspended and not ended by the Biden Administration.
In remarks delivered on Friday at the Economic Club of Dallas, Treasury Secretary Scott Bessent stated he believes that “use of Section 122 authority, combined with potentially enhanced Section 232 and Section 301 tariffs will result in virtually unchanged tariff revenue in 2026.”
What has not been used or mentioned is Section 338 of the Tariff Act of 1930. The statute (“Smoot/Hawley”) allows the President to impose tariffs on countries that are determined to have discriminated against U.S. commerce. Given that most countries previously had higher tariffs than the U.S., Treasury Secretary Scott Bessent had last year mentioned Section 338 as a potential alternative to IEEPA.
Reaffirmed by USTR on Friday, the reciprocal trade Frameworks and Agreements reached to date “remain in full effect.” As USTR Ambassador Jamieson Greer told Fox News, “the tools may change but the policy remains the same.” While that is clearly the U.S. position, it remains to be seen how foreign trading partners will digest the SCOTUS decision. Here are immediate questions we have:
- How is U.S. trade leverage affected, particularly with respect to Brazil and China?
- Do those countries with pending Frameworks, such as the EU and India, slow-walk their progression to Agreement status?
- Do those countries with Agreements follow-through on commitments made, especially foreign direct investment funds?
- How will negotiations over USMCA be affected, if at all?
Finally, refund litigation-which will be adjudicated by the CIT-could take significant time (12-24 months). The Supreme Court provided no guidance to the lower Court, nor did the Administration make any acknowledgement of refunds in the President’s executive order (EO) rescinding his use of IEEPA.
The two-year statute of limitations raises the imperative of quick filings with CIT or administrative protests with Customs and Border Patrol (CBP) through “unliquidated” entries (i.e., those not yet finalized by CBP). Liquidation status is important as unliquidated entries are likely easier to refund.
Given that refunds are provided to importers, not consumers, companies should expect the Administration to pressure those seeking refunds to simultaneously provide relief to U.S. consumers who also bore the cost of the tariffs. But the political pressure is not the only factor in considering refunds. A complex downstream process will assuredly emerge affecting everything from supplier agreements to pass-through contract provisions.
GEOPOLITICAL OUTLOOK
The Trump Administration’s foreign policy agenda is most immediately focused on a wide range of significant matters: the fate of Gaza governance and rebuilding, the Iranian nuclear and ballistic missiles programs, regime change in Cuba, a Russia/Ukraine peace agreement, and surrounding avenues of leverage, including ongoing global trade negotiations, implementation of the “Donroe Doctrine” in the Western Hemisphere, squeezing of illicit global oil transport, and reshoring/friend-shoring critical supply chains.
Putting aside the inaugural meeting of the “Board of Peace” in Washington last week, we view the fate of the Iranian talks as the primary focus of the Administration and the most likely to impact global markets and trade negotiations.
The diplomatic approach the Trump Administration has taken with Iran to date remains the President’s stated preference, but progress is slow and adding to U.S. frustration. Talks mediated by Oman this past week in Geneva lasted over three hours but produced only “guiding principles.” A third round of meetings is expected this Thursday pending Iran submitting a written proposal.
As the President said publicly, decisive action-whether a diplomatic agreement or a kinetic strike-is likely within the next week. At this time, the odds of the latter are significantly higher.
Meanwhile, the pressure campaign against the China/Iran/Russia alliance continues. Oil supplies to China and Cuba have been materially impacted, particularly for the latter. In turn, this puts economic pressure on Iran and Russia, curtailing revenue that has been key towards their respective military postures.
As has been the case for the last year, Brazil remains an important piece of the puzzle that the U.S. has not yet been able to solve for. There are signs, however, that the popularity of President Luiz In?cio Lula da Silva is waning, as seen in the political backlash he faced last week during Carnival celebrations. Both Brazil and the U.S. face domestic political pressures that will influence their talks-Brazil’s October 4 presidential election and the U.S. congressional midterms on November 3. A Lula trip to Washington is now planned for early- to mid-March and could advance a trade deescalation that began between the two countries in the fall of last year.
At the same time, the U.S. is now holding direct talks with Cuba, choosing to engage with Alejandro Castro Esp?n, a Brigadier General in the Interior Ministry and son of Ra?l Castro, with dialogue reportedly taking place in Mexico. There have also been reports of Secretary of State Marco Rubio interacting with a contact referred to as “El Cangrejo,” a lieutenant colonel in Cuba’s military who represents a more pragmatic, business-minded approach.
While regime change may be the overarching goal of the Administration, a near-term agreement coupled with sanctions relief is more realistic, including release of political prisoners, acceptance of U.S. deportation flights, resumption of counternarcotics cooperation, and-most importantly-a curtailment of Cuba’s relationships with China and Russia.
But Congress will inevitably be needed to help consummate a transformative deal. Under Title II of the Helms-Burton Act of 1996, the U.S. embargo cannot be lifted without a series of conditions first being met, including free elections, transition to a free-market system, compensation paid for expropriated property, and a ban on regime governance that includes any individual connected with political repression of the Cuban people.
President Trump’s visit to Beijing from March 31-April 2 must now be viewed in a different light following the IEEPA decision and the developments above. Due to the Court’s ruling, remaining tariffs on Chinese goods have been lowered without concessions on the part of the CCP: Section 301 (25%), Section 232, and the new Section 122 (15%). Seemingly, President Xi Jinping has been handed renewed leverage by the Court.
U.S. policy progress on Brazil, Cuba, and Venezuela, however, offers an opportunity to blunt any advantage gained by the Chinese from the Court’s decision. Key issues for the two sides remain arms sales to Taiwan, Department of Commerce export controls, foreign oil, and rare earths.
OUTLOOK/ANALYSIS. In reacting to the Supreme Court’s IEEPA decision, Ambassador Greer made clear the Administration’s global trade strategy has not changed, stating:
Between April 1, 2025 and December 31, 2025, the trade deficit in goods has declined 17% … For many months, the Trump Administration has cautioned foreign trading partners and the business community that if the Supreme Court were to limit the President’s authority to impose tariffs under IEEPA, alternative tools would be implemented to address many of the issues at the heart of the President’s reciprocal tariff program. These objectives include reducing the U.S. global trade deficit in goods, reversing the lack of reciprocity by our foreign trading partners, and incentivizing the reshoring of production to the United States.
We agree with Greer’s assessment. While perceptions of lost leverage will continue to be espoused by the media, it is important to focus on the key facts: tariffs are here to stay and the Administration’s foreign policy strategy remains undeterred. To be sure, lost revenue and the burden of Section 232 and Section 301 investigations are headaches for the Administration.
The Congress has little ability to provide either assistance to the Administration or act as a deterrent on any of these accounts. Thus, outside observers are best to focus on the refund process and the ongoing global trade and geopolitical negotiations that most impact the Administration’s agenda, particularly upcoming diplomacy with Brazil, China, and Iran.
The final factor that remains relevant is U.S. domestic politics. Democrats hold a five-point advantage on the generic congressional ballot and their base is more motivated to vote in the midterms by a 20-point margin. Driving these numbers are voters’ concerns with affordability and the overall polarization of a Trump presidency.
The Administration may naturally be inclined to dig in on Section 232 and Section 301, but relief from steel, aluminum, and lumber duties may be the Administration’s best tool towards providing meaningful and immediate relief that buoys Republican prospects in November.
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