The ruling does not address other sets of sectoral tariffs that have hit Canada the hardest
Friday’s US Supreme Court decision finding that an emergency federal law does not authorize President Donald Trump to enact sweeping tariffs will have a relatively neutral impact on Canada, which was hit hardest by US sectoral tariffs enacted under other laws that the high court did not rule on, trade lawyers say.
Trump quickly responded to the ruling by invoking another law, the Trade Act of 1974, to impose a global tariff to replace some of the duties that the Supreme Court struck down. The tariff is valid for only 150 days, and includes a carveout for Canada-United States-Mexico Agreement-compliant goods from Canada and Mexico.
Ted Murphy
In a split decision, the high court found that the International Emergency Economic Powers Act – a federal law that gives the president economic tools to deal with “unusual and extraordinary” threats to American national security, foreign policy, or the economy – only empowers Congress, not the president, to issue tariffs.
However, Supreme Court Justice Brett Kavanaugh noted in his dissent that several other federal statutes – including the Trade Expansion Act of 1962, the Trade Act of 1974, and the Tariff Act of 1930 – empower the president to enact most of the statutes that the majority struck down, though they require the president to clear more procedural hurdles than IEEPA.
“In essence, the court today concludes that the president checked the wrong statutory box by relying on IEEPA rather than another statute to impose these tariffs,” Kavanaugh wrote.
The IEEPA tariffs did not apply to most Canadian goods, which CUSMA covers. Trump meanwhile used s. 232 of the Trade Expansion Act of 1962 to impose steel, aluminum, automotive, lumber, and other sector-specific tariffs on Canada. The Supreme Court did not rule on the statute on Friday.
“The sectoral tariffs are really the punishing tariffs that Canada is feeling right now,” says Martha Harrison, a partner at McCarthy Tétrault LLP. “Those were not corrected or changed by the decision today.”
Jessica Horwitz, a partner at Bennett Jones LLP, echoed that sentiment. “Canadian companies are probably impacted less so than other companies from other countries because the United States has been extending [CUSMA] tariff preference,” she says. While the tariffs imposed under s. 2. 232 of the Trade Expansion Act of 1962 are still hurting Canadian businesses, Canada was never significantly impacted by the IEEPA tariffs, Horwitz adds.
Trump enacted the IEEPA tariffs early last year. Shortly after taking office, he declared a national emergency in relation to the alleged influx of illegal drugs from Canada, Mexico, and China, as well as “large and persistent” trade deficits. The national emergency declaration allowed him to invoke IEEPA.
Trump then used the emergency powers to impose various tariffs on Canada, Mexico, China and other trading partners. Canada was hit with a 25 percent duty on most imports, which Trump said was meant to tackle fentanyl trafficking. He also imposed a duty of at least 10 percent on all US trading partners to address the trade deficit.
The moves sparked a trade war between Canada and the US, with the two countries exchanging a flurry of retaliatory tariffs, modifications, and exemptions. Canada has since made efforts to diversify its trade relationships and decrease its reliance on the US. The tariffs also sparked backlash in the US, including fierce criticism from Democratic lawmakers. A handful of Republican lawmakers have joined Democrats in several efforts to block the tariffs against Canada.
Friday’s high court decision addressed two lawsuits challenging the tariffs: the first filed by two small American businesses, and the second brought by five small businesses and 12 states.
In the first case, a federal court in Washington, DC, concluded that IEEPA did not give the president the power to levy tariffs and granted the plaintiffs’ request for a preliminary injunction. In the second case, the US Court of International Trade ruled in favour of the plaintiffs. A federal appellate court affirmed the trade court’s decision.
The Supreme Court ordered the DC court to dismiss the case for lack of jurisdiction and affirmed the appellate court ruling.
Writing for the majority, Supreme Court Chief Justice John Roberts said that IEEPA does not authorize the president to impose tariffs to address national emergencies. That power belongs to Congress. The government’s assertion that the statute empowers the president to enact tariffs unilaterally represents a “transformative expansion” of the president’s authority over tariff policy, and replaces “the longstanding executive-legislative collaboration over trade policy with unchecked presidential policymaking,” Robert said.
The justice added that since IEEPA was enacted in 1977, no president has ever invoked it to impose “any tariffs – let alone tariffs of this magnitude and scope.”
Multiple high court justices wrote concurring opinions. Justices Clarence Thomas, Brett Kavanaugh, and Samuel Alito dissented.
Harrison says many trade lawyers were not surprised by Friday’s ruling. “I think most trade lawyers inside and outside the United States felt like this was an uphill battle for the president and his administration, mostly because the authority that he was purporting to have to administer sweeping tariffs under IEEPA… is just not clear, and in fact, not there on its face,” the lawyer says.
“There was almost a bit of mental gymnastics that he and his team had to go through in order to satisfy themselves that they had the authority to do this.”
However, Harrison says the ruling was notable for how it did not address whether the drug trafficking and trade deficit issues identified by Trump qualified as emergencies that would allow him to invoke IEEPA in the first place.
The high court majority did not go down that route “because what it found ultimately was that the president didn’t have the authority to use this piece of legislation for taxation reasons,” Harrison says.
“Even if there was an emergency, he took a taxation measure to address that emergency, and that is beyond his scope.”
Tariff refunds
In the wake of Friday’s ruling, one of the main questions that trade lawyers are fielding from clients is whether they’re now entitled to a refund on IEEPA tariffs they paid over the past year.
Ted Murphy, a Washington, DC partner at Sidley Austin LLP, notes that the ruling did not state that it only applied going forward.
“They struck down the tariffs entirely, so that should mean that importers are entitled to a refund,” Murphy says. “What we don’t know is how the Trump administration will react to that. But we believe importers will be entitled to a refund.
“It’s just a question of whether we still have to fight with the administration to make that happen or not,” he adds.
Murphy says there are also commercial issues at stake. Some Canadian companies that imported products into the US may have charged American customers higher prices to offset the tariffs.
“People who’ve paid increased prices because of the US tariffs now want to know when they are going to get their money back,” he says. “Canadian exporters [who imported products into the US] may be entitled to a refund, but they may also be getting lots of questions from their customers about price rebates, for example.”
In his dissent, Kavanaugh notes that the majority says nothing today about “whether, and if so how, the government should go about returning the billions of dollars that it has collected from importers.” He adds that the process is likely to be a “mess.”
“It’s an open question, exactly how that will be administered, the timeline for refunds, and the legal steps that an importer would need to take to secure those refunds,” Horwitz says. “But that question about refunds is the major headline topic that most businesses are going to be interested in as a result of this decision.”
Editor's Note: This story has been updated to reflect that the new tariff announced by Trump on Friday now has a carveout for CUSMA-compliant goods from Canada and Mexico.
