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President Donald Trump issued a presidential proclamation on Feb. 20 to impose a universal tariff on imports following the Supreme Court’s decision against the administration’s use of the International Emergency Economic Powers Act (IEEPA) for a similar broad-based tariff, as well as more country-specific duties.
While some Republican lawmakers are urging legislative action to support the president’s tariff agenda, Trump made clear that he is not looking to Congress to act and will rely on existing authorities. Businesses, meanwhile, are eager for clarity on the provision of refunds for the invalid tariffs and are entering yet another period of uncertainty..
(Read our initial article on the Supreme Court’s decision.)
Trump’s initial proclamation laid out a 10% tariff and took effect Feb. 24, with specific products exempted, but the president promised in a social media post on Feb. 21 to raise the amount to 15%, the maximum rate allowed under the never-before-used authority granted under Section 122 of the Trade Act of 1974. That increase had not occurred at publication time.
Section 122 allows the president to impose broad tariffs for up to 150 days using any of three justifications:
- To deal with large and serious U.S. balance-of-payments deficits
- To prevent an imminent and significant depreciation of the dollar in foreign exchange markets
- To cooperate with other countries in correcting an international balance-of-payments disequilibrium
The Feb. 20 proclamation equated the U.S. trade deficit with a balance-of-payments deficit, using this as the primary justification for the authority.
“…the United States runs a trade deficit, does not currently make a net income from the capital and labor that it deploys abroad, and experiences more transfer payments, on net, flowing out of the country than into the country,” the proclamation reads.
Grant Thornton insight:
Section 122 has never before been used, and it has already garnered some criticism, as a balance of payments typically refers to all economic transactions between one country and the rest of the world, including those involving financial assets. While the U.S. does have a negative balance on net exports of goods and services, it consistently attracts large inflows of foreign investment into Treasury securities, equities and direct investment.
In an earlier filing in the IEEPA legal challenge, the Trump administration argued that Section 122 was not the appropriate authority for the president to use, writing that “the concerns the President identified in declaring an emergency arise from trade deficits, which are conceptually distinct from balance-of-payments deficits.”
It is unclear whether this action will be subject to additional legal challenge. However, several expert litigators have warned that the contradictory positions taken by the Department of Justice make the legality questionable and that the situation is unsettled.
What’s being tariffed now
While it applies to a broad array of products across various countries, the Section 122 proclamation includes significant exemptions, including for economically or politically sensitive products, items that are subject to Section 232 investigations, and items that are duty free under certain trade agreements.
Items exempted from the current Section 122 tariff are:
- Certain critical minerals, metals used in currency and bullion, energy and energy products
- Natural resources and fertilizers that cannot be grown, mined or otherwise produced in the U.S. or grown, mined or otherwise produced in sufficient quantities to meet domestic demand
- Certain agricultural products, including beef, tomatoes and oranges
- Pharmaceuticals and pharmaceutical ingredients
- Certain electronics
- Passenger vehicles, certain light trucks, certain medium- and heavy-duty vehicles, buses and certain parts of passenger vehicles, light trucks, medium- and heavy-duty vehicles and buses
- Certain aerospace products
- Information materials, donations and accompanied baggage
- All articles and parts of articles currently or that later become subject to additional import restrictions imposed under Section 232
- Articles that enter the U.S. free of duty as a good of Canada or Mexico under the U.S.-Mexico-Canada Agreement
- Textile and apparel articles that enter the U.S. free of duty as a good of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras or Nicaragua under the Dominican Republic-Central America Free Trade Agreement
If the proclamation is not revoked or amended, these tariffs will last until July 24, 2026. Any extension of the use of Section 122 beyond this date would require Congressional approval.
Grant Thornton insight:
These duties will stack on top of most existing tariffs. However, the proclamation exempts items already covered by a Section 232 tariff, including steel, aluminum and copper, and hundreds of derivative products using those materials, from the 10% surcharge.
Because Section 122 is written to apply to apply broadly, without specific targeting by country, a 15% surcharge could exceed long-term most-favored nation rates with the European Union and other trade partners, in addition to exceeding the more recent agreed upon 10% baseline rate with the UK. That may explain the delay in implementation of the president’s promised increase to the maximum statutory rate of 15%.
Smaller in scale but also noteworthy, Trump issued another Feb. 20 proclamation establishing that the Section 122 rate will apply to imported items valued at $800 or less, which were generally exempt from tariffs before last spring. As he did last year, Trump again cited IEEPA in closing the de minimis exemption, which may make the new action subject to additional legal challenge.
Grant Thornton insight:
Although members of Congress from both parties have floated ending the de minimis exemption, it has yet to be repealed by law. The continuing collection of duties on imports valued at $800 or less could face additional scrutiny following the Supreme Court’s ruling that IEEPA can be used by the president to embargo certain types of commerce but not to impose tariffs.
The question of refunds
The administration consistently said in court that businesses would receive refunds if the Supreme Court ruled against its interpretation of IEEPA. However, recent statements from Trump and Treasury Secretary Scott Bessent indicate this is unlikely to be a simple or quick process.
“Wouldn’t you think they would have put one sentence in there saying that — keep the money or don’t keep the money?” Trump asked about the Supreme Court decision during remarks to press on Feb. 20. “I guess it has to get litigated for the next two years.”
More than 1,500 companies that paid IEEPA tariffs have already sued in the U.S. Court of International Trade to preserve potential refunds, as Customs and Border Protection began denying extension requests for tariff liquidation — the point at which tariff payment are considered final and after which a refund would be harder, if not impossible. Though the administration complied with the Supreme Court’s decision by announcing the end of IEEPA tariffs at midnight on Feb. 24, it may attempt to require any importer seeking a refund to sue in order to recover that money.
Grant Thornton insight:
Until the court orders or the administration establishes a clear refund mechanism, the best place for companies to start is to preserve relevant import, payment and classification records. Some importers with claims close to liquidation also may consider suing to preserve their possibility of a refund, though they should consult with trade counsel before doing so.
Hundreds of companies have already filed lawsuits with the Court of International Trade seeking to force the refund of payments, while others have filed motions with U.S. Customs — or both. The Justice Department has not filed a formal legal reply to the Supreme Court’s decision.
“We absolutely will fight tooth-and-nail for [refunds] if the federal government tries to hold that money back,” said former U.S. Solicitor General Neal Katyal, who argued the plaintiffs’ case before the Supreme Court, in a televised interview.
Grant Thornton insight:
Like the original imposition of the tariffs, any refunds provided will have an impact on transfer pricing between related entities. Although the tariffs were initially borne by the importer of record, many importers shared the tariff impact with customers through an increase in sales price or shared the tariff impact with non-U.S. related parties through a reduced import value. Companies will need to carefully apportion refunds to avoid violating transfer pricing rules.
While refunds to IEEPA tariffs could happen, the Section 122 tariffs appear aimed at preserving a high-tariff environment until more targeted tariffs on specific products or countries can be implemented. The administration already has several Section 232 and 301 investigations in process, and U.S. Trade Representative Jamieson Greer said the Trump administration will pursue investigations of “most major trading partners” under Section 301.
Grant Thornton insight:
Section 301 cases could include the revival of investigations from Trump’s first term, directed at specific trading partners that began to implement digital services taxes, including Austria, France, Italy, Spain and the United Kingdom. Tariffs imposed under those cases in 2021 were immediately suspended and the cases later terminated as the countries collectively negotiated global tax changes through the Organization for Economic Cooperation and Development.
“I’ve got a feeling the American people won’t see it,” said Treasury Secretary Scott Bessent when asked about tariff money during a Feb. 20 appearance at the Economic Club of Dallas. In a subsequent televised interview, Bessent implied that the administration would issue enough tariffs to avoid a major difference in revenue collection between the pre- and post-IEEPA regime. To date the federal government is estimated to have collected between $165 billion to $175 billion from IEEPA tariffs since they began in February 2025, with tariffs on most countries going into long-term effect in August 2025.
The view from Capitol Hill
Though the Section 122 authority has never been used before, the law says that an extension of its use beyond 150 days requires “an Act of Congress.”
Senate Minority Leader Chuck Schumer, D-N.Y., vowed in a Feb. 24 statement, “Senate Democrats will continue to fight back against Trump’s tariff tax, and will block any attempt to extend these harmful tariffs when they expire this summer.”
Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, which has tax and trade jurisdiction, has introduced legislation to mandate that the government refund each IEEPA tariff payment, with interest, within 180 days of enactment. The bill also would require customs officials to reliquidate any tariff paid under IEEPA-related orders, an action aimed at ensuring importers receive refunds without needing to sue the government for an extension. Ways and Means Committee members Reps. Steven Horsford, D-Nev., and Janelle Bynum, D-Ore., introduced similar legislation in the House.
Rep. Richard Neal, D-Mass., the top Democratic House taxwriter, has raised an even thornier issue: If companies that paid tariffs passed on price increases to American consumers, will there be any recourse for those shoppers?
“There’s going to be enormous pressure for refunds,” Neal said. “And then the ensuing argument will include what to do about consumer relief from the refunds.”
From the other side of the aisle, Sen. Bernie Moreno, R-Ohio, went the opposite direction, urging his fellow Republicans to use the process known as budget reconciliation to raise tariffs already in law — such as those under Section 232 and Section 301 — to higher rates. A second party-line legislative package already faced an uphill battle, but adding tariffs to the mix would likely add to the challenge. A handful of Republicans in both chambers previously voted to end the IEEPA tariffs, and at least four GOP senators applauded the Supreme Court’s decision.
House Speaker Mike Johnson, R-La., told reporters on Feb. 23, “It’s going to be, I think, a challenge to find consensus on any path forward on the tariffs, on the legislative side.”
Senate Majority Leader John Thune, R-S.D., concurred, saying Feb. 26, “At least among Republicans in either the House or the Senate, there’s not unanimity on the issue of tariffs. So we’ll see what the administration decides to do next.”
Grant Thornton insight:
Both chambers of Congress remain narrowly divided, so a handful of Republicans could help Democrats advance legislation to provide refunds. However, Trump threatened to veto previous legislation to undo his tariff policies, so any legislation in this vein would need a two-thirds supermajority of the total members in each chamber to override a veto and become law. That appears highly unlikely to happen, despite voter concerns over the cost of living.
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