UNIVERSITY PARK, Pa. — The U.S. Supreme Court ruled in a 6-3 decision on Feb. 20 that the president could not invoke the 1977 International Emergency Economic Powers Act to levy tariffs against other countries.
Terrence Guay, clinical professor of international business and director of Penn State’s Center for Global Business Studies, and Daniel Cahoy, department head of risk management and professor of business law in Penn State's Smeal College of Business and affiliate law faculty with Penn State Dickinson Law, explained the ruling and what it means for the business community in the following Q&A.
Q: What does the International Emergency Economic Powers Act say about tariffs?
Guay: The act dates from 1977 and the Carter administration to address national emergencies outside of the U.S. Last year, President Trump expanded past use of this act to address the U.S. trade deficit, which has been in a negative position since 1976, in the hopes that it might create more manufacturing jobs in the U.S. American consumers spend a higher proportion of their income on consumption than other countries. The drive for lower cost and competitive goods led to more purchasing from abroad than buyers in other countries demanded from us. This was accelerated by the economic resurgence of other countries 30 years after World War II. It should be noted that, while the U.S. has had a 50-year deficit in the trade of goods, the country has had a surplus in the trade of services. The president is primarily interested in the goods trade deficit. As a result, over the last year, U.S. tariffs went from 2% on average to 18%, the highest since the 1930s.
Cahoy: The International Emergency Economic Powers Act (IEEPA) does not mention the word “tariff.” The Trump administration rested its authority to use the law to impose tariffs by arguing that it’s inherent in the law’s text that gives the president the power to “regulate … importation.” No previous president tried to use this law in that way. However, the court rejected the idea that “regulate” means the same thing as tariff or tax. Essentially, the majority determined that Congress has not explicitly included tariff power in the IEEPA and the president’s attempt to read it into other powers that the law does list was incorrect.
Interestingly, this decision does not mean that the president has no power to impose tariffs. There are several other laws that give more limited tariff power to the executive branch — including laws that President Trump employed during his first administration to impose tariffs on imported Chinese goods. The underlying rationale for those laws includes threatening national security and unfair trade practices. But they are more complex to implement because they require an investigation by a federal agency and a finding that tariffs are necessary before the president can impose them. That is likely the reason President Trump chose to use IEEPA — it allows “regulation” without a lengthy investigation. Whether the president will now attempt to use the other laws to re-impose some of the tariffs is an open question.
Q: Which part of the federal government has the power to levy tariffs?
Guay: Implementing tariffs is an executive and legislative branch decision. In 2025, U.S. Congress did not obstruct the president’s tariffs policy. Congress was unwilling to uphold its legal influence to shape trade policy out of concerns about political repercussions.
Cahoy: The U.S. Constitution grants Congress the power to impose tariffs, taxes, duties, etc. But like many legislative powers, Congress can delegate some implementing authority to the executive branch, be it the president or an agency. Recent Supreme Court decisions have required that delegation to be clear. On the other hand, if the delegation of power is ambiguous, and a president or agency attempts to expand that power in a way that implicates a so-called “major question” of economics or social consequence, the court may reject it because such important issues require Congressional input. That’s essentially what happened in the current case. Notably, Congress may be able to rewrite IEEPA to clearly delegate the tariff power — that is, if it doesn’t run afoul of the so-called nondelegation doctrine, which prevents Congress from delegating its core legislative powers to another branch of government.
Q: How will today’s ruling affect the business community?
Guay: Eliminating tariffs will provide relief to the U.S. companies and their customers who have absorbed 90% of the costs. Trying to adjust global supply chains to accommodate frequently changing tariffs is difficult and expensive. Companies may be relieved not to deal with the paperwork, tariffs costs, supply chain disruptions and loss of market share abroad — due to consumer resentment — that were a part of the tariffs.
Q: Does the federal government need to reimburse companies that have paid the tariffs? Where does that money come from?
Guay: Likely. The federal government has been collecting about $30 billion each month in tariff revenues under President Trump’s tariff policies. Overall, this is now about 5% of U.S. federal government revenues — a small total percentage but a large increase from pre-Trump years.
Cahoy: This issue was not addressed by the Supreme Court in the decision. The default assumption would be that, if the government had no power to collect the tariffs, they must be refunded. But how that will happen — i.e., the mechanism that private individuals and firms will have to use to get a refund, such as filing a form or suing the government — is unclear. Of course, the court could have said that its decision applied prospectively only, so not doing so does suggest that reimbursement of past payments is due.
Q: What happens next?
Guay: The president has claimed since the case went to the Supreme Court that he would implement alternative trade measures if the court ruled against him. It is not clear what these new policies might be, other than more permissible tariffs or regulatory actions. But this would require Congressional approval, too.
Cahoy: It’s not clear at this point. As Dr. Guay suggests, the president could attempt to use other measures to impose similar tariffs. Or he could simply conclude that the tariffs provided sufficient leverage to secure better trade agreements and the emergency need has passed.