Shipping cranes stand above container ships loaded with shipping containers at the Port of Los Angeles in California on Friday.Mario Tama/Getty Images
After the U.S. Supreme Court’s 6-3 ruling on Friday that President Donald Trump acted illegally in using emergency economic powers to impose sweeping tariffs on trade partners, one crucial question remained unanswered: How, or will, the United States refund more than US$130-billion in collected duties?
While Mr. Trump was quick to respond to the ruling with the announcement that he would reimpose tariffs through other “methods, practices, statutes and authorities,” that did little to address the refund process, which U.S. Supreme Court Justice Brett Kavanaugh said in his dissent would be a “mess.”
“The United States may be required to refund billions of dollars to importers who paid the [International Emergency Economic Powers Act] tariffs, even though some importers may have already passed on costs to consumers or others,” Mr. Kavanaugh wrote.
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Pierre-Benoît Gauthier, vice-president of investment strategy at IG Wealth Management in Montreal, said the most likely outcome for U.S. companies seeking refunds would be “a long legal and administrative process,” which large companies were likely well-equipped to handle, but which could put smaller importers at a disadvantage.
“The legal costs of trying to get these refunds might end up being worse than the [tariff] bill itself,” he said.
In his comments on Friday, Mr. Trump appeared to confirm this outcome, signalling that, because the Supreme Court decision is silent on what will happen to the money already collected, U.S. companies seeking refunds will have to sue the government to determine whether they will get the funds back.
“They take months and months to write an opinion and they don’t even discuss that point,” he complained of the court not addressing the money question. “Wouldn’t you think they would have put one sentence in there, saying ‘keep the money’ or ‘don’t keep the money,’ right?”
The President said the issue will have to be “litigated” and “we’ll end up being in court for the next five years.”
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Michael Gregory, deputy chief economist at Bank of Montreal, said in a note to clients on Friday that while the Supreme Court ruling did not offer a clear path forward, “it cited the Court of International Trade (CIT), which was the initial lower court that ruled against IEEPA tariffs, as the appropriate venue to address the issue of refunds.”
Thousands of companies have already filed protective lawsuits at the CIT, which has jurisdiction over trade issues, said Patrick Childress, a partner at Holland & Knight in Washington.
“This is largely to secure their legal rights if it becomes necessary to file a court case in order to receive an IEEPA tariff refund,” he said, noting that “at this point it’s not 100-per-cent clear or certain that that will be necessary.”
Financial markets took the Supreme Court decision in stride, reflecting what analysts and legal experts said were priced-in expectations of the ruling as well as continued uncertainty around the refund process and the real-world impact of the White House response.
By Friday afternoon, U.S. government short- and long-term bond yields were up slightly and the U.S. dollar index, which tracks the greenback against a trade-weighted basket of six major currencies, had trimmed earlier losses. The S&P 500 Index was about 0.6 per cent higher, while the Russell 2000 Index of small-cap companies was down about 0.1 per cent.
“[The decision] looks at face value like great news for the markets, but in reality it’s almost a non-event,” said Mr. Gauthier.
As of last December, the U.S. had assessed US$133.5-billion worth of duties under IEEPA so far since Mr. Trump’s return to the White House, according to U.S. Customs and Border Protection.
Potential refunds from the U.S. Treasury as a result of the ruling could amount to US$120-billion, or 0.5 per cent of U.S. gross domestic product, but would be unlikely to spur companies to cut prices, Paul Ashworth and Stephen Brown, economists at Capital Economics, wrote in notes to clients.
Mr. Brown noted that the tariff ruling could be a concern for the U.S. Federal Reserve, which has come under pressure from the Trump administration to cut interest rates.
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“The bigger concern for the Fed is that, as things stand, the tariff ruling is equivalent to a fiscal stimulus just as the labour market is showing signs of tightening again,” Mr. Brown wrote. “The ruling raises the upside risks to GDP and employment growth and could make the Fed concerned about the upside risks to inflation further ahead.”
While investors digested the Supreme Court decision, it came as a relief to Emily Ley, a Florida entrepreneur who was among the first to challenge the tariffs.
“We are thrilled with the result of the decision. We do plan to seek a refund if that option becomes available, so that we can reinvest back into our business,” she said.
With reports from Adrian Morrow and Nathan VanderKlippe