Recent/upcoming developments… The Supreme Court heard oral arguments regarding President Trump’s imposition of tariffs under the International Emergency Economic Powers Act (IEEPA).  Trump has used IEEPA to impose his sweeping “reciprocal” country-based tariffs.  He used Sec. 301 to impose his first term tariffs on China and Sec. 232 to impose sector-based tariffs.  Those authorities are not being questioned.

* The VOS Selections case originated in the Court of International Trade and was appealed to the Court of Appeals for the Federal Circuit, while the Learning Resources case began in the District Court for D.C. and was appealed to the Court of Appeals for the D.C. Circuit.  Both cases are now consolidated before the Supreme Court.

* In both cases, plaintiffs argue that IEEPA lacks explicit authority for tariffs, as it primarily addresses financial sanctions rather than trade duties.  They also contend that the tariffs violate separation of powers by encroaching on Congress’s Article I tariff authority, invoke the major questions doctrine (asserting that it requires clear statutory language for actions of economic significance), and assert that the actions violate Administrative Procedure Act (APA) standards.

* The lower courts have generally ruled against the administration, holding that IEEPA does not authorize broad tariffs because its language excludes measures of this scope, magnitude, and duration.  They have also applied the major questions doctrine to require explicit Congressional authorization for such economically significant actions.  In the Federal Circuit appeal, however, four judges dissented against these findings, arguing that IEEPA broadly permits regulation of imports, including through mechanisms like tariffs.  The dissent rejected the application of the major questions doctrine and emphasized that the statute’s history supports executive flexibility without needing explicit mention of tariffs.

Our outlook… The questions and comments made by the justices’ during the oral arguments reinforce our (limited conviction) view that a majority of the Court is inclined to rule again President Trump and his use of IEEPA in this fashion.  The three liberal justices, as well as several of the conservative justices, expressed skepticism that IEEPA’s language on “regulating imports” extended to tariffs and repeatedly raised the notion that the delegation of such authority to the executive could conflict with Congress’ taxing authority.  That said, there was a minority contingent of justices who appear inclined to support the administration’s position, pointing to the legality of similar actions undertaken by President Nixon under similar authority and suggesting deference be granted to the President’s in matters involving foreign affairs.  On timing, our base case is that we will get a decision from the Court by year’s end (sometime in December), though there is some possibility the decision slips into very early next year.

* It seems there may be as many as six justices inclined to rule against the administration on its use of IEEPA to impose broad-based tariffs.  Justices Kagan, Sotomayor, and Jackson all displayed strong skepticism, repeatedly highlighting the statute’s  omission of terms like “tariffs” or “duties,” insisting that Congress would have included such language if it meant to delegate that power (especially given separate authorities like Sections 122 and 301 that explicitly address tariffs).  Justice Barrett questioned the government’s attempt to equate discretionary licensing fees under IEEPA with automatic, broad-based tariffs, expressing unease that the former involves executive choice while the latter acts as a mandatory tax without similar flexibility.  Justices Gorsuch and Roberts both voiced concerns over doctrinal issues, with Gorsuch pressing on the lack of an intelligible principle that could prevent unlimited presidential authority in economic matters, and Roberts raising concerns as to the practical difficulties Congress would face in revoking such expansive emergency powers once exercised.

* However, at least three justices appear inclined to defer to President Trump on this matter.  Justices Alito, Kavanaugh, and Thomas variously suggested (directly and indirectly) that if IEEPA allows for total embargoes, then tariffs could be viewed as a milder regulatory step (i.e., viewing “regulating imports” as encompassing tariffs if it includes more disruptive actions).  Alito also seemed to place considerable emphasis on the exercise of tariffs as a form of “regulating imports” during the Nixon administration.  And though the questions/comments of Roberts, Kavanaugh, and Barrett suggest they do not support Trump’s position in the aggregate, each had moments during the oral arguments where they raised concerns with isolated aspects of the plaintiffs’ arguments (i.e., Gorsuch toyed with the idea that tariffs might be of lesser impact than other actions authorized by IEEPA; Roberts seemed sympathetic to the notion that tariffs implicate the President’s foreign affairs power; Barrett questioned whether IEEPA’s allowance of other fees/licenses might allow tariffs under a different moniker).

Watch for these developments… Reports indicate that the White House staff is taking steps to prepare alternative tariff actions in the event the President’s IEEPA authority is thrown out, something that administration officials said earlier in the year they would be prepared to do.  This suggests the White House feel there is some chance they will lose the IEEPA challenge.  If indications of them taking preparatory steps increases in the wake of the oral arguments, it will suggest they feel more concerned they are going to lose and the probability of that outcome will rise.