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BATTLE WON BUT TRADE WAR NOT OVER?

US SUPREME COURT RULES INITIAL ROUND OF IEEPA TARIFFS UNLAWFUL

In a major development of the Canada-US Trade War (the “Trade War”), the Supreme Court of the United States (“SCOTUS”) in its decision of Learning Resources, Inc. et al. v. Trump, No. 24–1287 (“Learning Resources”), ruled that President Trump’s initial round of tariffs under the International Emergency Economic Powers Act (“IEEPA”) targeting Canada, Mexico and China are unlawful.

In this report, we provide a brief review of SCOTUS’ decision in Learning Resources, along with some implications for the Trade War moving forward, including President Trump’s potential response.

Learning Resources – What did SCOTUS say?

As background, President Trump enacted his initial round of tariffs on Canadian, Mexican and Chinese goods pursuant to the President’s emergency powers under IEEPA (the “IEEPA Tariffs”). The justification for the imposition of the IEEPA Tariffs was to combat the national emergency and public health crisis stemming from the alleged influx of fentanyl and other illicit drugs into the US.

In Learning Resources, Roberts CJ, writing for the majority of SCOTUS, held that the IEEPA Tariffs were unlawful. In particular, Roberts CJ ruled that President Trump needed clear congressional authorization to exercise the extraordinary power to unilaterally impose tariffs of unlimited amount, duration and scope. Moreover, Roberts CJ noted that “IEEPA’s grant of authority to ‘regulate . . . importation’ fell short of providing the President with such powers.”

President Trump’s Response

In response to Learning Resources, President Trump announced in a news conference that the US will be imposing a new global 10% tariff under section 122 of the Trade Expansion Act of 1974.

President Trump also indicated that his Trade Administration would be initiating a number of new investigations under section 301 of the Trade Act of 1974, which empowers the President to impose tariffs on nations for unfair trade practices (“301 Tariffs”). As the Trump administration has previously voiced concerns about the unfairness of Canada’s supply management system (and associated quota regime), blanket 301 Tariffs on Canada remain a possibility, particularly since there is precedent for 301 Tariffs on other nations.

Lastly, President Trump made clear that the tariffs implemented under section 232 of the Trade Expansion Act of 1962 will remain in effect (“232 Tariffs”), and 232 Tariffs have already been imposed on a host of Canadian goods (such as steel and aluminum, copper, automotives, and lumber). It is possible that President Trump may now enact more limited 232 Tariffs specifically targeting other Canadian industries that may impair the national security of the US.

Windfall for Importers?

Another aspect of Learning Resources that comes to mind is the potential financial implications for importers. With the IEEPA Tariffs being deemed unlawful, one expects a torrent of refund requests to inundate the US Customs and Border Protection’s Automated Commercial Environment portal. For importers that passed the costs of the IEEPA Tariffs on to their customers, those refunds may provide a significant windfall. 

Takeaways

While Learning Resources may represent a “win” for various Canadian businesses selling goods to US-based consumers, expectations should be tempered as President Trump has a number of other options for pursuing his national security interests and trade policy goals.

Businesses looking to mitigate the effects of US tariffs, and those imposed by Canada on the other side of the border, should contact Experienced International Trade Counsel for assistance.

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