Held: IEEPA does not authorize the President to impose tariffs.
With these nine words, the Supreme Court of the United States of America has voided the legal basis for the Trump administration’s so-called reciprocal tariffs on international imports. Only Congress has the power to enact tariffs, the court ruled.
Trump’s trade team will now have to come up with other justifications for the president’s counterproductive and increasingly unpopular border taxes, enact them through legislation, or ditch the reciprocal tariffs completely. It’s likely the president will try a bit of options one and two.
The illegal tariffs are those imposed by Trump under the International Economic Emergency Powers Act (IEEPA), a tool used previously to sanction countries or individuals deemed to pose an emergency security risk to the United States.
Shortly after taking power last winter, Trump justified IEEPA tariffs of 25 per cent on all Canadian and Mexican imports based on the alleged threat to the U.S. posed by fentanyl and migration. Then on “Tariff Liberation Day,” April 2, 2025, Trump announced a pile of IEEPA tariffs ranging from the teens to upwards of 50 per cent on about 90 countries.
These tariffs were paused after financial markets started to creak then reimposed later last year in the middle of a race by the United States Trade Representative (USTR) to sign one-sided deals with a number of countries. These deals lowered reciprocal tariffs on imports into the U.S. but did not eliminate them in most cases.
Perhaps recognizing the harsh impact Canadian and Mexican tariffs, in particular, would have on the U.S. economy, Trump exempted imports that complied with the Canada-U.S.-Mexico Agreement (CUSMA), triggering a mad dash from U.S. importers and Canadian companies to certify as such. In August, Trump raised Canada’s “reciprocal” tariff rate covering non-CUSMA-compliant imports to 35 per cent.
Meanwhile, Trump hit key Canadian and Mexican export sectors, including automotive goods, steel, aluminum and later copper products, with high national security tariffs justified under Section 232 of the Trade Expansion Act of 1962. These tariffs, which continue to do significant damage to Canada, including from factory closures and firms shifting production to the United States, are not affected by the IEEPA decision.
Earlier this year, United States Trade Representative Jamieson Greer said there was a continuity plan, or Plan B in Treasury Secretary Scott Bessent’s words, should the Supreme Court agree with earlier U.S. court decisions denying the legality of tariffs under the IEEPA.
That plan involves replacing many of the reciprocal tariffs with Section 232 tariffs, and tariffs under sections 301 or 122 of the Trade Act of 1974, the latter granting the President the right to impose tariffs of no more than 15 per cent for no more than 150 days.
The Trump administration may also introduce legislation granting the president the power to impose tariffs in a wider range of situations, but this would have difficulty passing both houses and may become a lost cause if the Democrats win the House of Representatives in this year’s midterms.
There is also the question of rebates to U.S. importers. Trump has collected an estimated US$175 billion through IEEPA tariffs. Refunds “would exceed the combined fiscal 2025 outlays from the Department of Transportation at $127.6 billion and the Department of Justice at $44.9 billion,” writes Reuters.
So where does this leave Canada? Basically, we’re in the same boat as we were at 9:59 a.m., before the Supreme Court ruling was published. The President is still trying to drain manufacturing work out of Canada and Mexico into the U.S. and still threatening to do more damage outside of the IEEPA.
CUSMA-compliant goods continue to cross the border tariff free if they are not captured by Section 232 “national security” tariffs on steel and aluminum products (and their derivatives), copper, automotive goods, trucks and buses, timber and lumber (see the full list here). And we are awaiting (dreading) possible new sectoral tariffs on pharmaceuticals, aircraft and semiconductors and their components—all important export sectors for Canada.
It’s possible the IEEPA ruling will give a bump to Canadian and Mexican leverage in CUSMA review negotiations just getting started. It was good to see Minister Dominic LeBlanc saying Canada and Mexico would coordinate in these talks during his trip to Mexico City this week.
But overall, it does not appear today’s Supreme Court decision substantially affects the possible CUSMA review scenarios I outlined earlier this year. The U.S. demands of Canada and Mexico are known and could, in some cases, significantly compromise our sovereign economic and security policy.
The kinds of deals the Trump administration is agreeing with other countries facing now-illegal IEEPA tariffs are extremely one-sided. The USTR just released its Indonesia agreement, which commits that country to never taxing digital services and never asking U.S. streaming service providers and media companies to contribute to Indonesian cultural or domestic news content.
If the Supreme Court decision contributes to American doubts about the effectiveness of Trump’s trade wars, which it almost certainly will, Canada and Mexico will benefit from time. If the Trump administration responds by withdrawing from CUSMA, we’re into a different conversation—one that will benefit from much deeper economic cooperation with Mexico in the short term.
