By Jan Wolfe and Dietrich Knauth
WASHINGTON (Reuters) -A federal appeals panel on Thursday appeared skeptical of U.S. President Donald Trump’s argument that a 1977 law historically used for sanctioning enemies or freezing their assets gave him the power to impose tariffs.
Regardless of how the court rules, the litigation is almost certainly headed to the U.S. Supreme Court.
Here is what you need to know about the dispute, which Trump has called “America’s big case,” and how it is likely to play out in the months ahead.
WHAT IS THE CASE ABOUT?
The litigation challenges the tariffs Trump imposed on a broad range of U.S. trading partners in April, as well as tariffs imposed in February against China, Canada and Mexico.
It centers around Trump’s use of the International Emergency Economic Powers Act (IEEPA), which gives the president the power to address “unusual and extraordinary” threats during national emergencies. Trump has said that trade imbalances, declining manufacturing power and the cross-border flow of drugs justified the tariffs under IEEPA.
A dozen Democratic-led states and five small U.S. businesses challenging the tariffs argue that IEEPA does not cover tariffs and that the U.S. Constitution grants Congress, not the president, authority over tariffs and other taxes.
A loss for Trump would also undermine the latest round of sweeping tariffs on dozens of countries that he unveiled late Thursday.
Trump has made tariffs a cornerstone of his economic plan, arguing they will promote domestic manufacturing and substitute for income taxes.
WHAT’S THE STATUS OF THE LITIGATION?
The U.S. Court of Appeals for the Federal Circuit heard oral arguments on Thursday in the case. The panel of 11 judges sharply questioned the government about Trump’s use of IEEPA, but did not rule from the bench.
The Federal Circuit has not said when it will issue a decision, but its briefing schedule suggests it intends to move quickly. Meanwhile, the tariffs remain in effect after the Federal Circuit paused a lower court’s ruling declaring them illegal.
WILL TRUMP’S TARIFFS BE BLOCKED IF HE LOSES IN COURT?
A Federal Circuit ruling would almost certainly not end the litigation, as the losing party is expected to appeal to the Supreme Court.
If the Federal Circuit rules against Trump, the court could put its own ruling on hold while the government appeals to the Supreme Court. This approach would maintain the status quo and allow the nine justices to consider the matter more thoroughly. The justices themselves could also issue an “administrative stay” that would temporarily pause the Federal Circuit’s decision while it considers a request from the Justice Department for more permanent relief.
IS THE SUPREME COURT LIKELY TO STEP IN?
The Supreme Court is not obligated to review every case appealed to it, but it is widely expected to weigh in on Trump’s tariffs because of the weighty constitutional questions at the heart of the case.
If the Federal Circuit rules in the coming weeks, there is still time for the Supreme Court to add the case to its regular docket for the 2025-2026 term, which begins on October 6.
The Supreme Court could rule before the end of the year, but that would require it to move quickly.
HOW MIGHT THE SUPREME COURT RULE?
There is no consensus among court-watchers about what the Supreme Court will do.
Critics of Trump’s tariffs are optimistic their side will win. They point to the Supreme Court’s decision from 2023 that blocked President Joe Biden from forgiving student loan debt. In that ruling, the justices limited the authority of the executive branch to take action on issues of “vast economic and political significance” except where Congress has explicitly authorized the action.
The justices in other cases, however, have endorsed a broad view of presidential power, especially when it comes to foreign affairs.
CAN IMPORTERS SEEK REFUNDS FOR TARIFFS PAID?
If Trump loses at the Supreme Court, importers are likely to seek refunds of tariffs already paid. This would be a lengthy process given the large number of anticipated claims.
Federal regulations dictate that such requests would be first heard by U.S. Customs and Border Protection. If that agency denies a refund request, the importer can appeal to the Court of International Trade.
There is precedent for tariff refund requests being granted.
Since May, CBP has been processing refunds to importers who inadvertently overpaid duties because of tariff “stacking” — where multiple overlapping tariffs are applied to the same imports.
And in the 1990s, after the Court of International Trade struck down a tax on exporters that was being used to finance improvements to U.S. harbors, the court set up a process for issuing refunds. That decision was upheld by both the Federal Circuit and the Supreme Court.
WOULD A COURTROOM DEFEAT UNRAVEL TRUMP’S TRADE DEALS?
Trump has used the threat of emergency tariffs as leverage to secure concessions from trading partners. A loss at the Supreme Court would hamstring Trump in future negotiations.
The White House, however, has other ways of imposing tariffs, like a 1962 law that allows the president to investigate imports that threaten national security.
Trump has already used that law to put tariffs on steel and aluminum imports, and those levies are not at issue in the case before the Federal Circuit.
Some legal experts say a loss for Trump at the Supreme Court would not impact bilateral trade agreements the U.S. has already inked with other countries. Others say that the trade deals alone might not provide sufficient legal authority for taxes on imports and may need to be approved by Congress.
(Reporting by Jan Wolfe in Washington and Dietrich Knauth in New York; Editing by Noeleen Walder and Marguerita Choy)
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