In this episode of Tax Notes Talk, Tax Notes contributing editor Robert Goulder discusses the upcoming oral arguments before the Supreme Court on the validity of the Trump administration’s recent reciprocal tariffs and speculates on the Court’s reaction.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: tariffs and tribulations.
Tariffs have been a hot topic for the Trump administration this year. From the day Trump took office, we’ve seen announcements, executive orders, and countless social media posts all about tariffs. Some of those tariffs were imposed under the International Emergency Economic Powers Act, or IEEPA, which in the case of a national emergency grants the president expanded economic powers.
But IEEPA doesn’t specifically mention tariffs as one of those powers, and now three courts have ruled that the statute doesn’t grant President Trump that authority. The Department of Justice has appealed these decisions up to the Supreme Court, which is poised to hear oral arguments in early November. So how might the Supreme Court rule on the issue, and what may happen if Trump’s tariffs are struck down?
To give us a sense of where things might be going, I’m joined by Tax Notes contributing editor Robert Goulder. Bob, welcome back to the podcast.
Robert Goulder: Thanks for having me, Dave.
David D. Stewart: Now, there have been so many announcements about tariffs. Could you give us a quick overview of the tariffs specifically under consideration right now?
Robert Goulder: Yeah, sure. As you say, there are so many tariffs out there, it’s really difficult to keep track of them. And I suppose I should begin by clarifying which of President Trump’s tariffs are not being litigated before the Supreme Court.
Those would be the so-called national security tariffs pursuant to section 232 of the Trade Expansion Act of 1962. Those tariffs really aren’t too controversial. They’re predicated on a detailed investigation by the Commerce Department that needs to conclude that there is in fact a national security threat as to certain categories of imports.
And the classic example there is steel and aluminum: If there were to be a war, you’d need metal to make battleships and guns and whatnot. So you intuitively get that. Those are in full effect today. They came from Trump’s first administration; they were continued during the Biden era. They’re still around today. Those aren’t going away, and nobody is questioning their legality.
But these IEEPA tariffs are fundamentally different. That statute, IEEPA, from the 1970s — the Carter administration — it doesn’t specifically say anything about imposing tariffs. It does have a reference to regulating trade. What does that mean? Historically, that reference has been interpreted narrowly to mean banning imports. For example, if we were to have a war with Germany, the president could unilaterally ban BMWs. If we got into a war with Greece, the president could unilaterally ban the importation of feta cheese. You get that?
OK. Query whether the ability to ban an import necessarily includes the authorization to permit the import, but then to tax it. So this is a case of first impression — there’ve never been IEEPA tariffs until 2025. IEEPA itself has been used lots of times. I found more than 70 documented occurrences where presidents used IEEPA, but it’s always been related to things like the freezing of assets or economic sanctions against foreign bad actors. Tariffs are completely different.
And one question that we need to ask before we really get into the nuts and bolts of the Supreme Court case is, why did the Trump administration do this now? Why are they pushing the envelope as to IEEPA tariffs? Because if you remember from his first term, he was able to impose all sorts of tariffs. There was no shortage of Trump tariffs during the first term, and none of them were based on IEEPA. Why now?
Those national security tariffs I mentioned earlier — section 232 of the Trade Expansion Act of 1962 — those tariffs are imposed on particular product categories, whereas IEEPA tariffs are imposed against particular countries. So we’re talking about the difference between a product-specific tariff and a country-specific tariff.
Now, if you’re a transactional guy like President Trump is, and you think that trade policy is all about leverage and trying to get one of your foreign trade partners to make concessions that they don’t really want to make, you’re going to get much better leverage against that foreign government if you can have a country-specific tariff as opposed to a product-specific tariff. There you have it: the best explanation that I can offer as to why we’re suddenly talking about IEEPA in 2025, but we haven’t talked about it at all really for the last 50 years.
David D. Stewart: Just [to] clarify and make sure that’s absolutely clear: This is specifically the so-called reciprocal tariffs that we saw announced back in April, right?
Robert Goulder: Yeah, well, that’s part of it. So it’s interesting, the litigants in these cases, they’ve specified five executive orders that were issued by the Trump White House earlier in the year. And if you go and you read those five executive orders, they talk about tariffs that we can lump into two different groups. There’s reciprocal tariffs, which go to his “Liberation Day” announcement in April, where he was on the White House lawn and he held up the big chart with the names of 60 different countries and then a list in the different columns, the tariffs that he was going to hit them with. And that was all retaliation for having a trade deficit as to goods — ignoring any trade deficit or surplus as to services, but just focusing on goods. He was punishing them for that. So that’s part of what we’re talking about, the reciprocal tariffs.
The other batch of tariffs that are being litigated here are generically known as the trafficking tariffs, and that’s because those executive orders, they focus tariffs at Canada, at Mexico, and at China, and they’re retaliation, basically, for those respective governments not doing enough to stem the flow of illegal migrants or contraband — basically, fentanyl or fentanyl precursors. So because he doesn’t like what those countries are doing, he’s going to hit them with these trafficking tariffs.
And all sorts of U.S. importers across the whole country have been paying these tariffs since they came into effect. And some brave, intrepid souls have dared to litigate them, saying, “You know what? IEEPA doesn’t say anything about tariffs. We’re going to challenge these in court.” So we’ve got two cases to start with.
We have a case called V.O.S. Selections, that’s the lead plaintiff there. And if you’re wondering, that’s a wine importer. They import these rare and exotic wines from various places in Europe. They actually represent five different small businesses — very, very small businesses, companies that you’ve probably never heard of, not like major brands. And they brought their case in the Court of International Trade here in Washington, D.C.
And now, at the same time, there was a case brought by 12 state governments, where the lead plaintiff is Oregon, and they were challenging the same five executive orders and the same two batches of tariffs: the reciprocal tariffs and the trafficking tariffs. And what the Court of International Trade decided to do was consolidate them into one case. That’s the case we refer to as V.O.S. Selections, really a consolidation of the two.
And the result we got back in May of this year is that the trade court ruled in the taxpayers’ favor. It was on a motion for summary judgment, so there was no trial. The court granted injunctive relief, which, if it had stood, would’ve prevented the Customs and Border Protection agency from collecting IEEPA tariffs, but that was stayed pending the appeal. So these tariffs, even though they were ruled to be invalid, the injunctive relief has been stayed. So they’re still being applied; importers are still paying them as we speak, pending the outcome of this case. So that’s the first case in the trade court.
Separately, just a few blocks away, in another part of D.C., on the other side of Judiciary Square, there’s the U.S. District Court, and there was a case brought by two other small businesses. The lead plaintiff there is an outfit called Learning Resources. They make educational games for children and young adults. They also didn’t like these tariffs, and they focus on the same five executive orders [and] the same different batches of tariffs: the reciprocal tariffs and the trafficking tariffs. But they decided not to bring their case in the trade court; they decided jurisdiction actually properly belongs in the U.S. District Court. So there is this procedural disagreement, if you will, between these two cases, and that’s why we have two cases.
Now, it turns out back in May, a day after the trade court ruled in favor of V.O.S. Selections, the district court ruled in favor of Learning Resources. So if you’re keeping score, that’s taxpayers two, Trump administration nil. Both of these cases got appealed by the government. Learning Resources was appealed to the D.C. Circuit. V.O.S. Selections was appealed to the federal circuit, and we got a decision from the federal circuit in August. It ruled point-for-point upholding the decision of the trade court. So that’s now three wins for taxpayers and three defeats for the Trump administration.
David D. Stewart: So the Supreme Court has decided to take up these cases. What sort of timing are we looking at? When should we be expecting to see the next action?
Robert Goulder: Oh, things are moving along, I’m happy to say, at quite an expedited pace. Certiorari was granted September 5, OK. It’s a couple of weeks after the decision from the Federal Circuit. The government’s brief was due September 19, just two weeks later. The taxpayer’s brief is due mid-October, and oral arguments are scheduled for November 5. So Dave, if you’re not doing anything else on November 5, I say we go down to the Supreme Court, sit in the front row with a bowl of popcorn, and listen to the attorneys hash out whether IEEPA tariffs are legitimate or not.
When can we expect a decision? Maybe as early as 2026. In the big picture, we’re talking about a decision from the Supreme Court less than 12 months from the date that the very first of these executive orders was issued. So that’s not too bad, as far as these things go. People complain about the wheels of justice turning slowly. In this case, it’s all moved along pretty rapidly.
David D. Stewart: Well, it seems that that’s sort of an outgrowth of how monumental this potentially could be of a decision. So what are we looking at here? What happens if the Supreme Court agrees with the lower courts and says, “No, these tariffs you’ve been collecting for the last six months, they’re not valid”?
Robert Goulder: So there are two ways of looking at that: sort of the micro level and the macro level. The micro level, just as to these litigants, we’re only talking about 12 state governments, and we’re talking about seven small businesses. If you add up all of the IEEPA tariffs that they’ve been paying — I don’t know, $1 million or so, maybe. It’s hard to say. I actually don’t have a figure on that, but it’s not a lot. I mean, you would say $1 million, what’s that? It’s chump change in the grand scheme of things.
The bigger significant issue here is that there are some revenue forecasts floating around. There’s one from our friends over at the Tax Foundation that says, if you look at these IEEPA tariffs and you evaluate how much revenue they’re going to bring in for the federal government over the course of a 10-year budget window, that’s over $2 trillion. So there’s a $2 trillion revenue hole in the federal budget if the Supreme Court upholds the lower courts here.
And the natural question to ask is, wow, the recovery in this case, that’s not going to be anywhere near $1 trillion. It’s not going to be anywhere near $1 billion. But we know that the government is raking in about $30 billion a month in tariffs, and maybe half of that is due to IEEPA tariffs. So yeah, there’s going to be a pretty big hole in the nation’s finances if things go in that direction.
David D. Stewart: What do they do if this hole gets blown in the budget?
Robert Goulder: Treasury Secretary Scott Bessent was asked that very question recently on a television appearance. I think it was on Fox Business, the Larry Kudlow show. And the first thing he said was basically to hint that IEEPA tariffs are too big to fail. Now, he didn’t use those exact words because maybe there’s a pejorative connotation associated with them, but he did say words to the effect that the more money these IEEPA tariffs generate for the fisc, the harder it will be for the courts to invalidate them. So yeah, basically he was saying that these tariffs are now too big to fail. But I don’t think that’s a very good reason; it’s certainly not a legal argument.
And later, when he was pressed, Secretary Bessent did acknowledge that the White House has a plan B if they lose this. And what he said is if they lose, they’d refund all the IEEPA tariffs, all the importers who paid them would get their money back. But then the White House would immediately go back and reimpose the same or similar tariffs based on the Smoot-Hawley law, otherwise known as the Tariff Act of 1930 — yes, the same Smoot-Hawley Act that President Herbert Hoover notoriously used during the early days of the Great Depression. And for listeners of a certain age, the same Smoot-Hawley Act that has ever since been the butt of jokes for those who remember “Ferris Bueller’s Day Off.”
Yeah, everybody thinks that that was repealed, but it’s not. Legal scholars will tell you, Smoot-Hawley, the tariff authorization is still on the books. So apparently, that is Trump’s plan B: If IEEPA tariffs fall, we will bring them back under Smoot-Hawley.
David D. Stewart: That name always rings a bell to me in that it’s one of the things that gets credit for how bad the Great Depression became.
Robert Goulder: Yes, that’s the connotation. Smoot-Hawley is the trade law that made the little depression a big, global depression. So you might ask, if the Smoot-Hawley tariff authority is on the books and it’s not controversial, why didn’t the Trump administration base these tariffs on that to begin with? Why venture into this new territory of trying to conjure an IEEPA tariff that’s never existed before?
I think it’s about just the boldness of their trade policy. They specifically want to push the envelope in terms of what the executive branch can get away with. And in some cases they’re going to get away with things, and in other cases courts are going to say, “No, you’ve gone too far.” So we’ll have to see; I don’t know. Based on the fact that they’re 0 and 3 in other federal courts, including decisions that have been issued by judges that Trump himself appointed, you’d think maybe it’s not looking good for them.
David D. Stewart: If these are struck down and the Treasury refunds the money to the importers, but that doesn’t really get back to the people who paid the tariffs in many cases, because they were passed on to the consumers. So what is the sort of net effect of this? Is it just a windfall to the importer?
Robert Goulder: Yeah, prices are just higher, and that’s how it is. If the economic burden of a tariff was passed on to you as a consumer through various price adjustments, there’s no recovery for that; that’s just our economic model. The only people who are entitled to a tariff refund is the importer who actually paid the tariff up front. Consumers don’t have a cause of action.
David D. Stewart: So anytime there’s this large amount of money that’s floating around that needs a place to go, we have hedge funds for that. What are the hedge funds doing in this environment?
Robert Goulder: Well, it’s very interesting. My phone rang a while ago, and the guy was asking me to basically give him, not legal advice, but financial advice. And I thought, whoa, whoa, whoa — that’s not what I do. That’s not in my job description. I’m just a humble contributing editor for Tax Notes International. I’m not going to give financial advice.
What they were asking — this was a partner in a law firm was saying, “My client wants to know if he should take the deal from this hedge fund on Wall Street. They’re offering 20 percent immediately. ‘I give you the check right now, 20 percent. All you have to do is assign me your right to an IEEPA tariff recovery.'”
So if you think this through, now if the Supreme Court upholds the lower courts and invalidates these tariffs, then those recovery rights are going to be really valuable. And the hedge funds will have, if you pay 20 percent and you collect 100 percent, well that’s like quintupling your initial investment. So why would any importer accept that deal? Well, if you were worried that maybe the conservative justices on the Supreme Court would sort of maybe gang up and throw the Trump administration a favor because maybe that’s just their general disposition, in theory, maybe, and then you’d uphold these tariffs, then those refund rights are worth zero, and 20 percent is a whole lot better than zero. What’s the saying — a bird in the hand is worth two in the bush? It’s that metaphor exactly as applied to your ability to litigate and recover a tariff refund.
David D. Stewart: So let’s set out the crystal ball on the table here. What seems to be the most likely outcome from the Supreme Court in this case?
Robert Goulder: Well, my hunch — and again, this is just a hunch — it’s that there’s a lot of justices on the Supreme Court who for a long time have been yearning to elevate this legal doctrine called the nondelegation principle, or the nondelegation doctrine. And it’s the idea that when the Constitution of the United States expressly gives a power to one branch of government — say, the taxing power, which they give to Congress in Article 1 — if Congress is then going to pass a statute that delegates that constitutionally conferred power to a different branch, the executive branch, they need to do so under very controlled terms and under a very limited scope.
There needs to be something called an intelligible principle that guides the hand of the executive branch in how to wield that conferred authority — in other words, the tariffs couldn’t be higher than a certain percentage rate, or they couldn’t last for more than a few months, or they might have to be limited to product categories rather than countries.
If you look at IEEPA, not only does it not mention tariffs, there is zero, zilch, nada in the way of an intelligible principle being described as to how the executive branch should use this taxing authority. So I’m talking here about Justice Gorsuch, Justice Kavanaugh, Justice Coney Barrett, even Chief Justice Roberts, they all at various times have said, “Hey, we really believe in this doctrine. We believe in it strongly.” There have been some very vigorous concurring and dissenting opinions where they’ve said, “We’ve looked at this dispute and it flunks the nondelegation doctrine.” So it’s like an itch that they’ve been dying to scratch.
And this case, this IEEPA tariff case that they’re going to hear on November 5, is the ideal platform for the Supreme Court once and for all to make this doctrine the law of the land, so that it’ll benefit from stare decisis and be part of the court’s intellectual jurisprudence for all time, there for everyone to adhere to. They just need to take the bait — and will they do that if it means embarrassing President Trump? I don’t know. Because tariffs are his signature economic issue. If you stop a guy on the street and say, “What is President Trump’s signature economic issue?” He might scratch his head, and then after a few seconds they’re going to say, “Well, tariffs.” That’s what it is, tariffs.
Now, is the Supreme Court, with all these conservative justices, a conservative majority, are they going to embarrass, maybe even humiliate President Trump by saying, “You got it wrong. You should have relied on one of those other statutes, not on IEEPA”? Well, if they’re serious about the nondelegation doctrine, and if all those past concurring opinions and dissenting opinions in dicta basically where they’re saying, “We really believe in this doctrine of nondelegation, there has to be an intelligible principle if you’re going to confer a constitutionally delegated power” — if you really believe in all that, I don’t see how they can do anything but affirm the federal circuit.
David D. Stewart: Well, it’s definitely going to be something to watch. Going to be there on November 5. Maybe not physically there, but tuning in to the webcast of the audio from the Court. We’ll definitely chat when we have an answer.
Robert Goulder: Yes, we’ll need to do a postmortem on the other side. But it is the tax case of the year, it just happens to be a tariff case.
David D. Stewart: Well, Bob, thank you so much for being here.
Robert Goulder: My pleasure, Dave.