Stakes couldn’t be higher in blockbuster Supreme Court tariff case

THE OUTCOME of the legal battle over US tariffs will have major effects on container demand and trade flows in 2026.

For ocean shipping, which stands at the crossroads of the world economy, there’s an even broader potential impact. The ruling could expand the powers of US president Donald Trump to such an extent that tariffs on goods will be only part of the geopolitical problem.

In an online panel on Tuesday presented by the Budget Lab at Yale, trade policy experts outlined the potential consequences of the case, the likely timing of the ruling, the outlook for tariff refunds, and how Trump will use other tariff powers should the US Supreme Court (SCOTUS) rule against him.

SCOTUS will hear oral arguments on November 5 and a decision is expected shortly thereafter.

“The counsel for one of the plaintiffs told me they expect a decision before Thanksgiving,” said Stan Veuger, senior fellow of economic policy studies at the American Enterprise Institute.

Scott Lincicome, vice president of general economics at the Cato Institute, heard that a decision is expected in early December.

“If we’re going to get a ruling against tariffs, it’s going to come quickly,” said Peter Harrell, fellow at the Carnegie Endowment for International Peace. “If we get into the spring and there’s no ruling, that’s a pretty strong signal that the court is going to uphold the tariffs.”

Lincicome believes the outcome is a “coin toss”.

“Even if, on the legal merits, they might want to decide for the plaintiffs, maybe they’ll find a way not to,” he said, adding that the ruling might not be a simple “yes” or “no”.

“There are an almost infinite number of ways the court could ‘half the baby’ here. Maybe the fentanyl tariffs are okay, but the global reciprocal tariffs, which aren’t even reciprocal, are not. This may not be the nice, clean ruling we’d all like to see.”

Veuger, like Lincicome, believes it “is really going to be close”, particularly if partisan politics plays a role in the judges’ decisions.

Harrell is more optimistic that Trump will lose. “I actually don’t think it’s a coin toss. I think the court is significantly more likely than not to strike down the tariffs. I don’t think it’s a 90-10 kind of call, but probably in the 70% range,” he said.

Natasha Sarin, president of the Budget Lab at Yale, said that the “major-questions doctrine” will be pivotal. Veuger agreed that this is “the elephant in the room”.

The major-questions doctrine is a conservative policy limiting executive branch overreach, holding that executive actions with “vast economic and political significance” are illegal if they are not clearly authorised by Congress or the Constitution.

SCOTUS and chief justice John Roberts have wielded the major-questions doctrine to strike down multiple policies of former Democratic presidents Joe Biden and Barack Obama.

Tariff regulations are promulgated by Congress, and Trump has numerous options under those laws.

The International Emergency Economic Powers Act of 1977 (IEEPA) — which Trump has used for his fentanyl and reciprocal tariffs — makes no mention of the word “tariff”, only the right to regulate the importation and exportation of property amid a national emergency.

“There is a whole set of statutes the court can point to in its ruling, noting that they are not saying the president does not have any delegated authority, only that IEEPA is not a delegated tariff authority and the president has to follow the processes and procedures Congress has laid out,” said Harrell.

Presidential power could expand beyond tariffs

If SCOTUS approves Trump’s use of IEEPA for tariffs, it would open up a Pandora’s box of wider presidential powers, Harrell warned.

“This is an incredibly important case,” he said. “It’s not just about whether the president has unbounded power to impose tariffs on imported goods, it’s about the president’s power to regulate America’s connection to the international economy writ large.

“Once you open the door to this with IEEPA, it suggests you could tax anything coming in and out of the United States,” he said. “Property” is not just physical goods; it’s also money and services.

Trump could have carte blanche to implement capital constraints, tariffs on foreign services, tariffs on cross-border flows from foreign investments in the US, and tariffs on US-based companies that derive income from investments outside of the country.

All of that would be outside the purview of Congress, which is mandated by the Constitution to levy taxes.

“There is a more fundamental issue with presidential power in this case,” said Lincicome. If Trump wins, “then all bets are off”.

According to Veuger, “There’s definitely a risk that these restrictions that are now seemingly limited to trade in goods would extend to international capital flows.”

Fallout from such expanded powers could impact global shipping in multiple ways.

Capital constraints could further damage the US economy and negatively impact import and export shipping demand, and could also spark greater tensions with trading partners, leading to retaliation.

Tariffs on capital flows from overseas investments would hurt US-based shipping companies, which are overwhelmingly engaged in international trade using non-US assets. Tariffs on revenues sent overseas would hurt foreign shipping companies with US investments or subsidiaries.

Complications for the refund process

A ruling against IEEPA tariffs in late November or December could lead to a snapback in US import demand in early 2026, with potential for a sharp boost in container shipping volume and rates.

The embattled US import sector — which has already paid the US government tens of billions in IEEPA levies — would get a massive refund, which could underwrite more import purchases.

But this refund may be very difficult for US businesses to pursue. “There’s an easy way and there’s a really hard way,” said Lincicome.

“In theory, it could be as easy as pushing a button. Customs could just refund the duties collected into everybody’s bank accounts. In reality, my guess is that it’s going to end up back down in the lower courts.”

The worst-case scenario would be if SCOTUS limits refunds to plaintiffs, requiring importers to file suit against the Trump administration to collect the refunds.

According to Harrell, “If the court does not mandate an administrative process, I think the government will probably take the position of: If you want your money, you’ve got to sue us.

“And I could easily see President Trump saying, ‘If you sue me to get these tariffs back, you’re dead to my administration.’ There could be political costs for companies trying to get their money back, even if from a legal perspective they are very clearly entitled to get their money back.”

Reverse-engineering IEEPA tariffs

Should SCOTUS rule against IEEPA tariffs, container volume timing would not only be affected by the refund process, but also by how Trump replaces IEEPA tariffs with alternatives.

IEEPA tariffs are “like a switch in the Oval Office that you can flip on and off until the courts say otherwise”, said Lincicome.

“There are no other trade policies that allow for that sort of action. The others all have a procedural process. You have investigations and reports to do, you’ve got to check some boxes, and that slows things down a bit.”

In other words, a shift from IEEPA tariffs to traditional measures would give importers more opportunity to frontload.

Trump is already moving ahead with alternatives even before the SCOTUS ruling, including new investigations under Section 301 of the Trade Act of 1974 and new national security tariffs under Section 232 of the Trade Expansion Act of 1962.

Trump heavily used Section 232 during his first administration, taking advantage of the law’s lack of definition of the term “national security”. He’s doing so yet again.

“The administration has already been really clear that this is its Plan B, and you can see them maneuvering right now to expand the national security tariffs under Section 232,” said Lincicome.

“They’re reverse-engineering the IEEPA tariffs via other mechanisms. It’s kind of funny that they’re claiming that invalidating IEEPA as a tariff power would be a disaster even as they’re already pursuing Plan B out there in the real world.”

The courts have long approved Section 232 duties even without a compelling national security argument, he noted.

“The courts have basically rubber-stamped it along the way. I still have PTSD from the Trump administration refusing to say that peanut butter could not be a national security threat [in 2018].

“Section 232 seems to be the least likely to be challenged because there has already been so much litigation on this. That said, the administration is now expanding these tariffs to cover what they call derivates, including all sorts of things that only have a small nexus with the underlying investigation.

“There are cans of whipped cream now being covered by steel tariffs. So, there is a chance for some litigation there, but I think that the administration believes Section 232 is going to be a big vehicle for pulling in a lot of this stuff.”

Its latest usage will have material implications for transpacific container flows.

The administration is implementing a 25% Section 232 tariff on upholstered furniture starting on Wednesday, rising to 30% on January 1, and a 25% Section 232 tariff on kitchen cabinets, rising to 50% on January 1. These are being levied under the alleged natural security threat from imports of wood-derived products.

Furniture is the largest category of US containerised imports measured by weight, and both furniture and kitchen cabinets are bulky items, meaning only a limited number fit in each container.

“New tariffs targeting kitchen cabinets and furniture will further hit container volumes already reeling from earlier tariffs,” said Linerlytica on Monday, noting that furniture accounts for 10% of Asia-US containerised volumes.

Other tariff options for Trump, should he lose the SCOTUS case, include Section 122 of the Trade Act of 1974, allowing 15% blanket tariffs for 150 days; and Section 338 of the Smoot-Hawley Tariff Act of 1930, allowing tariffs of up to 50%.

“I think Section 338 would get litigated. [It] has yet to be tested. There has to be ‘discrimination’ [by a trading partner] involved and that limits it versus IEEPA,” said Lincicome.

Section 122 “has a lower maximum rate [than IEEPA] and it’s time-limited. The administration could try to start it again after the first 150-day limit, but I think that would get litigated.

“All of these other laws have more limits compared to IEEPA, so should IEEPA tariffs get invalidated, there would be benefits,” said Lincicome.

“A small nugget of truth in the administration’s legal arguments is that IEEPA is special. It’s unique — and uniquely dangerous.”