Tariffs ruled illegal: Appeals court rebukes Trump as Treasury warns of massive refunds

Tariffs ruled illegal: Appeals court rebukes Trump as Treasury warns of massive refunds Aug, 31 2025

A 127-page federal appeals court opinion just cracked the central pillar of Donald Trump’s trade agenda, declaring his across-the-board tariffs illegal under the emergency powers law he used to enact them. The ruling, issued Friday, August 29, 2025, upholds a lower court decision and says the International Emergency Economic Powers Act (IEEPA) doesn’t let a president build a sweeping import tax regime by executive order. The stakes are huge: the Justice Department is warning that if the duties fall, the Treasury could face billions of dollars in refunds owed to importers.

The court left the duties in place for now, giving the administration until October 14 to seek a stay and ask the Supreme Court to take the case. Trump, defiant on social media, called the ruling catastrophic and vowed to win at the high court, framing the duties as a tool to “Make America Rich, Strong, and Powerful Again.”

At issue is Trump’s “Liberation Day” policy, a two-track system. One set of “trafficking” tariffs targeted Canada, Mexico, and China, tied to what the White House called failures to stop fentanyl flows into the United States. The second, the so-called worldwide or “reciprocal” tariffs, applied a baseline 10% duty on nearly all countries, with elevated rates—11% to 50%—for dozens of nations. The administration justified the global layer by labeling large trade deficits an “unusual and extraordinary threat” to national security and the U.S. economy.

What the court decided

The appeals court agreed with the U.S. Court of International Trade: IEEPA is not a blank check for comprehensive import taxes. The panel wrote that while the statute gives presidents tools to restrict specific transactions in a national emergency, it “does not authorize the tariffs imposed by the Executive Orders.” In plain terms, emergency sanctions authority is different from Congress’s power to tax imports.

That distinction matters. Tariffs operate like taxes on foreign goods, and the Constitution gives Congress the lead role over revenue and commerce. Washington has long used laws that delegate narrow trade powers to the White House—think national-security duties under Section 232 or retaliation under Section 301—but those are specific statutes with detailed procedures. The court said Trump’s move vaulted past those guardrails, using an emergency law designed for targeted sanctions to create a broad, permanent tariff system.

Legal experts see more than a partisan fight here. This is a separation-of-powers test: how far can a president stretch emergency authority to rewire U.S. trade policy without Congress? Former Justice Department trial lawyer Ashley Akers put it bluntly: even if existing trade deals don’t unravel, the White House could lose a major bargaining chip if this decision stands. In the court’s view, the emergency statute doesn’t let the executive swap in a new tariff code by proclamation.

For now, the court’s stay preserves the status quo through mid-October. That breathing room is designed to let the administration race to the Supreme Court and request both review and a longer pause. If the justices grant a stay, the duties could continue while the case is argued. If they deny one, the tariffs would likely lapse even as the legal battle continues, unless Congress steps in.

Money, markets, and what happens next

Money, markets, and what happens next

Expect a fast calendar. The case is slated for the Supreme Court’s September 29 conference, where the justices decide whether to hear it and how to handle the stay request. They have options: take the case and extend the pause, refuse the case and let the lower court ruling control, or issue a temporary stay while they weigh next steps. Any of those choices will ripple through supply chains that have been priced around the current duty structure for months.

The financial stakes explain the Justice Department’s stark warning. The government has collected billions under these duties, and if they’re invalid, Customs and Border Protection could have to refund a large share. That doesn’t just mean writing checks. Importers can seek interest, and agencies would need to process a flood of protests and reconciliation claims. Budget watchers say a sudden outflow would complicate Treasury cash management and could show up in deficit projections.

Who gets the money back? Mostly importers—the companies that filed the entries and paid the duties at the border. Many passed some or all of those costs down the chain to distributors and retailers. Consumers rarely see direct refunds even if prices were higher, because the legal payer is the importer of record. That’s one reason small businesses pushed the challenge: they argue the tariffs hit them first and hardest.

Those plaintiffs say the duties raised the average American household’s costs by $1,200 to $2,800 in 2025. Look at the basket of goods that got pricier: furniture and home fixtures, electronics and components, apparel and footwear, auto parts, and a wide range of inputs used by food producers and manufacturers. Even when importers absorbed some of the hit, the bill tended to show up in higher shelf prices, thinner margins, delayed hiring, or all three.

Internationally, the design of the policy created fresh friction. Canada and Mexico were swept into the “trafficking” tier despite being close partners under USMCA. A separate global “reciprocal” layer meant allies in Europe and Asia paid a baseline duty simply for running surpluses with the United States. Trading partners bristled at being lumped together under a national security label more commonly used for sanctions on adversaries and bad actors.

That gets to IEEPA’s history. Presidents have used it for targeted financial sanctions, asset freezes, and transaction bans—usually aimed at specific countries, entities, or sectors tied to a defined emergency. Courts have generally allowed those targeted measures. What they have not endorsed is using emergency powers to copy-and-paste a new tariff schedule across most imports from most countries. That’s the leap the appeals court rejected.

Could the White House pivot? If this ruling stands, the administration still has tools: it can bring cases under existing trade statutes, negotiate bilateral deals, or pursue sector-specific relief where Congress has delegated authority. What it cannot do, the court signaled, is redefine the tax on imports wholesale without Congress. Akers and other trade lawyers note that removes leverage in negotiations, where broad duties were used as a pressure tactic.

Here’s how the next few weeks could play out if you run a business that imports:

  • Keep entry records tight. If the duties fall, documentation speeds up refunds and avoids disputes over classifications and country-of-origin claims.
  • Model both outcomes. Price new contracts with and without the duties; hedge inventory timing where possible.
  • Talk to brokers early. Expect a backlog of refund claims and reconciliation filings if the Supreme Court refuses a stay.
  • Watch the high court docket. A stay order will arrive fast if it comes; no stay triggers immediate repricing across supply chains.

Markets will care less about the legal theory and more about the cash flows. Ending the duties would likely shave costs on a broad range of imports, easing pressure on some consumer prices and improving margins for retailers and manufacturers. It would also deal a blow to domestic producers that benefited from the import price umbrella. Keeping the duties in place preserves that protection but at the expense of higher input costs and ongoing uncertainty.

Trump’s political message is unchanged: he argues that big trade deficits are a national security risk and that tariffs are the fastest way to reset the global playing field. On Truth Social he warned, “If allowed to stand, this Decision would literally destroy the United States of America,” and promised to win at the Supreme Court. The administration’s legal filings echo that urgency, tying the duties to border security and economic strength.

Congress, meanwhile, sits in the background with the power that matters most. Lawmakers could bless parts of the policy by statute, rewrite delegations to the executive, or do nothing and let the courts decide. For years, both parties have grumbled about presidential overreach on trade while relying on the White House to take the heat for tough calls. This case forces the question: who actually sets the nation’s tariff policy?

As the clock runs toward October 14, importers are preparing two sets of invoices, consumers will keep paying today’s prices, and the Treasury is bracing for a possible torrent of refund claims. The Supreme Court’s first signal—stay or no stay—will tell businesses how seriously to pencil in a world without these duties, and how soon they’ll get there.