Analysis by Energy Workforce President Tim Tarpley
In a 6-3 ruling released on Friday, the Supreme Court invalidated most of the IEEPA tariffs that President Trump had used to put varying tariff lines on the vast majority of countries in the world. The Administration had used these tariffs to push for the renegotiation of trade policies between the individual countries. They had resulted in a number of confirmed and pending free trade agreements being agreed upon. The court stated, among other things, that the President exceeded his authority under IEEPA in the issuance of the tariffs, but also reiterated the President’s authority to levy tariffs under a variety of other tariff lines. Interestingly, the court did not directly address the issue of repayments; however, the ruling is widely expected to open the possibility of a refund process, given that the court found that the tariffs were collected without legal authority. How and when any refund process could be undertaken is unknown at this point, and it has been complicated by the President’s comments shortly after the ruling that he planned to fight the refunds in court, a process that could take many months or even years.
While the implications of the ruling should not be understated, the actions taken by the Administration and the relevant agencies after the ruling have been significant. Shortly after the ruling, the White House released an Executive Order that took two major actions in response. First, the EO put a 10% tariff on virtually every country in the world. The President followed up on Truth Social the next day and directed that the rate be raised to 15%, but this has not yet been officially put into place. We expect an additional EO along these lines soon. These new section 122 baseline tariffs are intended to replace the IEEPA baseline country tariffs that the court invalidated. Virtually all current exemptions that were in place for the IEEPA tariffs are carried over to this new line. This is important to us: USMCA-exempt products will continue to receive a carve-out, and the 122 tariff will not stack on an existing Section 232 product, although it may stack on other applicable tariff lines.
The new tariff line cites section 122 as its legal authority, which is important for several reasons. First, this authority requires a “large and serious” trade imbalance between the two countries. This is relevant because it may subject these new tariff lines to challenges for countries that do not have a significant trade deficit with the United States. We can expect multiple legal challenges to be filed along these lines. Second, the section 122 tariffs are temporary and must be sustained by Congress after 150 days. Whether or not there are votes in Congress to sustain these tariffs is an open question, but it certainly ends the ability for Congress to attempt to dodge “owning” the tariff issue. There will clearly be a vote at some time along these lines. The President’s strongest supporters in the chamber are already pushing for a move to “sustain” the President’s trade agenda. It is unclear if there is support for such a move, but it will be important to watch for these developments.
The second major action the EO included was order additional “Section 301” investigations for a number of countries. This tariff line may be used to move some countries from section 122 over time; however, 301 requires lengthy investigations and findings, so it may not be an option for all countries, and it will take USTR quite some time to complete these investigations. Section 301 allows for significant tariffs to be imposed on countries found to be engaging in unfair trade practices.
What does this all mean for us? Well, the first thing it means is that it throws a lot more uncertainty and confusion into our supply chains and international trade. Countries around the world already smell blood in the water and are starting to pull out of, or signal they want to renegotiate, existing trade deals. The EU is one of the most notable examples. This uncertainty certainly may weaken the President’s hand as he works to negotiate further deals. Additionally, while the White House was quick to replace the lost IEEPA tariffs with these new lines, the political reality is that they will be harder to defend both politically and legally. There are many more procedural, legal, and political calculations to consider with these new tariff lines. This is the main reason the Administration ultimately chose the IEEPA approach: it was much more straightforward, without these calculations. Also, the importance of the Congressional aspect should not be underestimated. The Republican majority in the House is very slim. The President does not have command over retiring members as he does over those who will face a primary. It will be a challenge to sustain any tariff policy through Congress before the midterms. If it is not possible to sustain, and the section 122 tariffs expire in 150 days, where does that leave us long term? Section 232 may be all that remains for many of the products and materials that our sector cares the most about. These tariffs are very impactful to our sector and were left untouched by the ruling and the subsequent EO. These tariffs may ultimately survive longer and should remain our focus. It will become increasingly vital for the energy services sector to work together to ensure that the tariff framework ultimately in place after all these changes is one we can work with and thrive on.
