The Supreme Court struck down a bunch of Trump's tariffs. Now what?

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This is Planet Money from NPR.

Okay, Cara.

How do you feel?

You saw?

Yes, I saw the news and I

I never thought this day would come.

Honestly, it's like

was the Supreme Court ever going to rule on it?

Like, you know, where we're going to be in this kind of like

purgatory forever, but it has come.

So I'm so happy.

This is Cara Dyer.

She is a small business owner in the US.

And the big news, the US Supreme Court has said that President Trump's giant sweeping

tariffs that he imposed early last year are illegal.

Dunzo.

This is huge news.

We're talking about his tariffs on products from all over the world, almost every single country,

a different percentage tariff on each of them.

And those percentages, they've gone up and down and up and down for more than a year.

But from early on, there were lawsuits against President Trump, states and companies and

individuals saying that these tariffs, they are not legal.

And now a lot of businesses and people like Cara, they're thinking, maybe they could get some

of the money they spent on those tariffs back.

Okay, wait.

So, so what do you do now?

Well, I've kept meticulous records.

And I will be asking for, yeah, yeah, I did.

Just every little fee in tariff.

Yes, absolutely, absolutely.

So like, okay, now they've ruled that it's illegal.

Now we need to take some action and get those refunds back into the hands of businesses.

So far, the US has collected more than $100 billion under these now illegal tariffs.

That's a lot of free buttons.

Yeah, it's back.

Right.

Yes, how do you know what to do?

How to go about it?

I don't.

Yeah, but now is when they would have to like start and figure out a process to get

those refunds going.

So I'm also hopeful that they'll, you know, that that will happen.

That they will give you very clear guidance on how to get them back.

My can tell a little digging on your part.

Right.

Yes, yes.

Hello, and welcome to Planet Money.

I'm Jeff Kuo.

And I'm Sarah one of that is.

And I'm Mary Childs.

About a year ago, the Trump administration tried to use a law that was not designed for tariffs

to impose the biggest, most disruptive tariffs we've seen in about a century.

This morning, this Supreme Court came back and said,

no, you can't use that law to impose tariffs.

Today on the show, why are the tariffs illegal?

And what does this mean for businesses?

For Kara?

For the rest of us?

Are any of us going to get refunds?

Yeah, and also, what does this mean for the Trump administration's whole

tariff policy?

And what's up with this new 10% tariff you just announced today?

Also, a market for tariff refunds is already booming.

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All right, first things first.

What did the Supreme Court actually say today?

For that, we called up Georgetown Law Professor Kathleen Clawson,

who is an expert on the law of tariffs.

We had her on the show back when Trump's big new tariffs were first

getting challenged in the courts.

She was the one who had explained to us some Planet Money that basically

Trump created these big new tariffs under a law that no president had ever used before to create

tariffs. That law is called IEPA.

It stands for the International Emergency Economic Powers Act.

And back when we first talked to her, here's what Kathleen told us.

We trade lawyers don't think of IEPA as a trade law.

But this is not something that I teach in my trade class.

It's there.

But it's not on the short list for how we think about

imposition of tariffs in the U.S. economy.

And today, the Supreme Court told us what they think about IEPA and how Trump has been using it.

Actually, the justices had a lot of thoughts about IEPA.

There are multiple opinions.

The whole thing is 170 pages.

We know it's going to be long, but 170 pages really is something.

Yeah, so this decision, it kind of landed on your desk with a thump.

It's a real thump. I was going to show you I had printed it,

but I printed it double-sided and two pages for sheet just to save the paper.

Kathleen says the takeaway from all those 170 pages really boils

down to just a few key parts, where the court is trying to just

interpret the literal words of the law.

Yeah, you see, in IEPA, it doesn't literally say

the president can impose tariffs.

It says something much more vague.

It says the president may, quote,

regulate, dot, dot, dot, importation, like the importation of goods.

It was simply a question of, does the statute IEPA

allow the president to impose a tariff on the basis of those words?

Today, we've got the answer.

The chief justice says those words cannot bear such weight.

Those words cannot bear such weight.

That's the key phrase.

Was that like a mic drop moment?

I can imagine the chief justice doing a mic drop.

I don't think he did today.

I wasn't in the room, but I'd be surprised if he did the mic drop,

but he could have.

Basically, those are the most important words the Supreme Court said today.

It said those words in IEPA regulate, dot, dot, dot, importation.

They do not mean that the president can create giant,

sweeping across the board tariffs on countries around the world.

That is not what the law means, the court said.

Kathleen says it is very, very clear.

No ambiguity here.

These particular tariffs, she says, are illegal over and out.

So let me ask you the obvious question,

which is, are any of us going to get our money back?

You got a long road to hoe there, my friend,

if that's what you're going for.

Look, the Supreme Court today has said nothing about refunds.

We don't have any guidance on how or if that's going to happen.

So it sounds like what you're saying is I really got to talk to a customs lawyer.

Always good advice.

And as it happens, we do happen to have a customs lawyer on speed dial.

We sure do.

Maureen Thorsten.

And let's just say today is kind of like her day.

Oh yeah.

I've spent 25 years doing nothing, but nerding out on this stuff.

And now I know way more than anybody ever wanted to know.

Maureen is an international trade lawyer.

She's a partner at Wileyrain, who specializes in customs law.

And we wanted to ask Maureen, yeah, sure,

how our companies are going to try to get refunds for all the tariffs they paid

on the goods they've imported to settle to us.

And more importantly, though, what about regular customers like me and Sarah?

Yeah, we've been paying tariffs indirectly,

directly on all kinds of things for over a year.

Blueberries, dresses, toys.

Those lamps I got off Timo.

There you go.

So like, what are we going to get that money back?

And as you can imagine, we are not the only ones

bombarding Maureen with questions on this day.

I feel like the snakes just keep popping out of the peanut brittle can

that is my inbox today.

And what are the questions that people are asking you?

Well, okay, what happens next?

Can I get a refund?

When can I get a refund?

How do I get a refund?

Maureen says, if you were to vastly oversimplify this very complicated world of customs law,

there are basically, let's say, three ways that companies could

in theory get refunds on the tariffs they paid.

The tariffs that are now deemed illegal.

So option number one, turns out,

customs actually already has a process to get refunds on your tariffs.

Because you know, the US has had lots of tariffs over the years.

And there have always been people who have maybe overcalculated how much they owe in tariffs.

So companies can go to customs and say,

Like, hi, excuse me.

Can I get a refund on my tariffs?

I kind of repaid.

Thanks.

But there is a whole process to it.

And also a limited time window.

Up until day 300, you can file what's called a post-summary correction,

where you essentially say, hey, customs, I messed up my original entry.

Here's the new corrected documents.

Please accept my correction.

You can do an UBC take backsees.

An UBC take backsees?

Yes.

OK, but what if you miss the deadline to do your tariff take backsees,

Upses?

Maureen says, with these tariffs, the answer is not totally clear.

But you could always go to court.

That's option two.

You could just sue the US government.

You could file a lawsuit that says, hey, I paid these tariffs.

There's a Supreme Court.

Just said that these tariffs are illegal.

So please give me my money back.

In fact, a lot of companies like Costco and Toyota and good here,

they started filing these tariff refund lawsuits

even before the Supreme Court made its decision.

And now there's one more possibility that Maureen talked about.

And this is one that it seems like a lot of people

are hoping for, which is that maybe the Trump administration

is going to create some kind of official, easy process

for everyone to get their IEPA tariff refunds.

Though that might take a while.

Now, people might not want to wait.

But everyone's sort of speculating and trying to figure out,

like, try to read tea leaves about all of this.

So what about us, right?

Like, can regular people get a refund

on the tariffs we paid on, you know, that lamp I bought?

And Maureen says, well, it depends.

Did you actually pay the tariff directly to customs

or was it just like priced into your purchase?

If you were like, I think as a taxpayer and consumer

that I've been paying more for kitty litter

since last year, because kitty litter companies

across the globe are raising their prices

because of tariffs than probably not.

Okay, but say one of us, like, hypothetically,

bought a fancy dress from the UK

for their little sister's wedding.

And then was surprised with a big tariff bill

once that dress arrived at customs.

Can I go to the customs window and ask for that refund?

I've had it, right?

Right, hypothetically.

Maureen says, that's actually really unclear

because this customs refund window we've been talking about

it's not available to everybody.

And it was actually never designed to deal

with this specific kind of big tariff.

But she says, you could always file a lawsuit

to get your money back.

Yeah, I think we at Planet Money are

definitely gonna have to sue,

like just to see what the process is,

what happens, right?

This is the planet money way.

Yeah, what could be more fun than a lawsuit, Sarah?

All right, so I'll look into that.

Yes, you're gonna go look into how

we're gonna sue the federal government.

Happy to.

Okay, meanwhile, a lot of companies

didn't want to wait for the Supreme Court decision

or to figure out if they were gonna get a refund.

So they found a way to get pre-refunded, if you will.

Our co-host Mary Childs actually talked today

to someone who has been getting companies

these pre-refunds, these refunds in advance,

which is a whole brand new baby market.

Yes, the market for tariff refunds.

And there are hundreds of millions of dollars of deals

that have already been done in this little baby market.

This person told me.

Okay, so since the AEPA tariffs started,

companies have been paying the tariffs

all while knowing that they might get this big pile

of money back should the tariffs be rolled illegal, right?

Right, so no one could know if the Supreme Court would decide

whether they were legal or illegal.

So it was this annoying uncertainty for companies.

Like maybe, maybe they would get refunds in the future.

Yeah, but companies don't want maybe money

in the future, right?

They want for sure money today.

So they wanted to get rid of this annoying,

complicated risk, even if it cost them a little.

And whenever anyone, anywhere in the world,

others those words.

Certainly, it's a call to action for us.

Us, Wall Street, and hedge funds.

This is Wes Harrell.

He's the head of a trading group at Seaport Global.

He's a broker and he says this new baby market

was born around November.

Suddenly Wes and his colleagues start getting calls.

We start to get phone calls from importers.

And we're also making outgoing to importers

and basically anyone that we believe

has paid a tariff since liberation day.

These importers, these companies are like, okay,

we have these potential tariff refund claims.

Does anyone want to basically buy this potential refund

or part of it?

Meaning like, give me the company a fraction

of the refund that I might get.

And then you, the buyer can get the full refund

if it ever comes.

And do you know who has cash

and who might want to buy this kind of stuff?

Hedge funds.

Hedge funds.

Hedge funds.

There are hedge funds, Wes' clients that focus

on bankrupt companies or near bankrupt companies

who are looking for ways to make bets on litigation

or anything weird or risky in an odd way

or overly complicated things that might make money.

And Wes' job is to call those people up and say,

hey, I have this weird, risky in an odd way,

overly complicated thing that might make money

at what price would you be interested in buying it?

So here's how it has been working

before this Supreme Court decision.

Let's say I'm a dress company

and that I have paid $20,000 in tariffs

from importing dresses.

That is potentially $20,000

that I might get refunded.

I would go to Wes and say,

I don't want to deal with this uncertainty

with this risk, can you sell it?

I don't need to get the full $20,000 back.

I just want something like 20% of my potential refund.

Give me just 4K of it.

And I'm obviously a hedge fund.

Wes calls me and I'm like, listen,

yeah, I would love to buy that potential future money,

but the Supreme Court might say it's legal

and I will get nothing.

So I'm only willing to pay like 20%.

And I might get 16 grand in profit.

It's not bad.

Weirdly, the seller and the buyer were very aligned

when this baby market was popping up.

The market was oddly well-defined

from a very early stage in this.

And one industry in particular, Wes says,

was really into it.

We found that there was a decent amount of interest

in the retail, apparel, and footwear sectors,

which I suppose makes sense.

The best rationale I can give

is I think that they were acutely impacted

by these new tariffs.

Yeah.

And they were looking for the ability

to raise cash immediately.

Raise cash so they could go do normal, corporate things

with the cash they just got selling the tariff refund they may

or may not have gotten in the future.

Now, after today's Supreme Court ruling,

the probability of refunds has gone way up

and these claims are now way more valuable.

Wes says the prices have jumped.

It's not at 20% anymore.

Price now is 40.

It's sort of where we're seeing bid shakeout.

Like, hedge ones are buying the potential refund

for 40% of what it will total if it happens.

Things are very much in flux.

This decision was only just recently made.

We're still trying to shake out

where offerings are coming in.

We're getting incomings from a number

of different importers as we speak.

That's still a discount of 60%.

Because of what a mess it's going to be

to try to get this refund and how long it will take.

That's what the hedge funds are buying.

All that complexity, the uncertainty,

the headache for the potential payoff.

There really is no modern parallel

for the magnitude of this unwind.

And I just don't see the administration

turning around in short order

and immediately issuing refunds.

Brett Kavanaugh summed it up as mess.

Yes, exactly.

That's a great quote from today.

After the break, today, President Trump

added new tariffs.

And we'll tell you how.

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So this big Supreme Court decision,

it didn't get rid of all of Trump's tariffs.

Just the big sweeping ones he tried to create using IEPA.

But there are other laws that give the president

the power to create tariffs.

Kathleen Clausen, our trade law professor,

ran through a whole list of them

with us last time she was on the show.

Most of these statutes go by their three digits.

So if you want to sound cool in trade world,

you have to start talking in three digits, right?

Section 301, Section 232, Section 201.

The list goes on.

So these laws, they were mostly created

during the Cold War to give the president economic powers

to deal with all that Cold War stuff.

But for decades through the 90s and 2000s,

they weren't really used that much.

Because we had become a member of the World Trade Organization,

we were committed to lowering tariffs,

we were not interested in raising tariffs.

And so it's only since Trump won

than they experienced its renaissance.

After Trump was elected for his first term,

he started using some of these three digit laws,

mostly Section 301 and Section 232,

to create new tariffs.

The Supreme Court's latest decision

doesn't touch any of the tariffs

created under those three digit laws.

For instance, right now we have a bunch

of specific tariffs on some Chinese machinery

and minerals and also footwear.

Those tariffs were created under the Section 301 law.

Those tariffs are still in place.

But if you are a president who loves sweeping tariffs,

most of these three digit laws have a major limitation.

Most of them only let you create specific targeted tariffs.

For instance, Section 232 is all about protecting national security.

And the process itself takes a while.

There's gotta be a report, just a lot of administrative work.

The appeal of creating tariffs using IEPA

was that the process would be much faster.

So if the Supreme Court would let the president use IEPA,

like he wanted to use it,

he could create a bunch of tariffs

with just the stroke of his pen.

And now it seems like there really isn't any law

that would give him that kind of power.

Or is there?

At this press conference on Friday,

Trump announced a new across the board,

10% tariff,

under a different law,

with a different three digit number.

He said Section 122.

Yes.

So what is going on?

That's the big news of the day.

Kathleen says, yeah, welcome to Section 122.

It allows the president to impose a tariff of up to 15%

for a limited period of time

to address a balance of payments deficit.

She says this is another one of those economic laws

written during the Cold War.

And unlike some of the other three digit laws,

Kathleen says Section 122 in theory

lets the president create a lot of tariffs really fast.

Has the president ever used Section 122 to make tariffs?

No, no president has before.

Never.

That has never been done before.

But Kathleen says a lot of trade law professors

have been expecting Trump to turn to this Section 122 law

at some point.

And there is a big caveat here,

which is that tariffs created under Section 122,

they are supposed to expire after 150 days.

And the statute says that Congress can extend that period,

so it does throw it back to Congress.

But I would quickly say that I think

we have not been used, so we don't have any test case yet.

Like, what if after the 150 days are up,

the president just does it again.

Makes another 10% tariff that lasts another 150 days.

Kathleen says, yeah, there is going to be lawsuits

to come over the new 10% tariff.

Sounds like law professors have already kind of had

hypothetical fights about this hypothetical use of this law.

That's what we do best, Jeff.

Now, for Cara Dyer, the business owner from earlier,

who, by the way, sells toys,

all of this tariff whiplash is so exhausting to think about.

Yeah, and the last time we talked to Cara,

which was in the midst of the sort of roller coaster

of tariffs on China last summer,

she was on the fence about whether or not she was going to be able

to afford to put in large orders of toys,

because she didn't know if she'd be able to afford the tariffs

on those orders.

And she was hopeful that maybe China,

or the Chinese manufacturer she worked with,

would help chip in.

I remember at one point you were like,

maybe China will like share in the cost of the tariffs?

Does that not happen?

No.

Yeah.

Not at all, not at all.

They were willing to do things that were like,

probably not legal.

Like, you know, put us in a big container

with lots of other items and not reported,

or say that our inventory wasn't worth as much as it was.

Those were the kinds of things that were sort of offered to us,

and we didn't really take them up on that,

because like, yeah, tempting, but super risky, right?

So it was like the factories in China

that would say, like, we'll just say that there's only 200 dolls

in that container.

Yes.

500.

Yeah.

But I didn't feel comfortable with it.

So we never did anything like that.

Wow.

Cara ended up switching suppliers.

But beyond that, Cara changed up her whole business, actually.

She didn't order any large shipments,

because tariffs were so high and unpredictable

that she thought they'd put her out of business.

We did pull back.

We didn't place any other large orders this past year,

and instead we focused on developing new products

and testing them out.

Cara instead decided to have, like, a testing year

to just develop new products,

and not necessarily import them.

So she designed this little red-writing hood storybook.

She calls them.

Her company is called Storytime Toys.

Kids can read a fairy tale,

and then play in that fairy tale world that they build,

or like these little sets.

Red-writing hood can go through the woods

and get to her grandmother's house,

and the wolf can put the grandmother inside a little, you know,

a little Omar to hide her.

And so there's lots of fun things about that set.

And when Cara tested out this set during her testing year,

it did pretty well with customers.

So before the Supreme Court decision,

Cara had actually decided to finally put in an order

for a big container full of these storybooks.

It's her first big container

since the tariffs first went into effect.

That was 12,000 products.

So we probably would have had to pay about $15,000

in tariff on that.

And now it's just gone.

Go on, yes, yes.

Ugh, I mean, that's such a huge relief and cost savings.

Hmm, except it may not actually be the end of tariffs, though.

And she knows this.

I've just sort of been following along with the news

and what the administration has been saying in response to this,

like, oh, we'll find another way.

So I just don't know.

I don't know if it's the end of tariffs or not.

I just today, I want to feel hopeful about it.

But of course, the roller coaster is not over.

Trump already announced today that new 10% tariff.

And Cara, she's just pretty frustrated

that she's had to reimagine her whole business because of tariffs.

Rethink our strategy, rethink our finances.

Definitely, I feel angry about that.

Especially when it really felt like just while it was going on,

you didn't see any reason for it.

Were we getting a better deal from China?

You know, because we did this?

No.

You know, Cara says she only paid about $20,000 in tariffs

because she scaled back on orders.

So not a ton, but that $20,000 for a small business

is that's pretty significant.

And she does plan to try to apply for every fund.

But I don't know.

I mean, if I have to hire a lawyer,

I'll have to weigh the cost of that

compared to how much I would potentially get back.

But I mean, if they're illegal tariffs,

we need that money back so that we can invest it

in growing our business and operating our business.

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