Supreme Court Declares Trump Tariffs Illegal, Refund Process Mired in Uncertainty
The U.S. Supreme Court issued a landmark ruling on Friday, declaring that tariffs imposed by former President Donald Trump under an economic emergency law were illegal. The decision, handed down on February 20, 2026, strikes at the heart of a key component of the Trump administration's economic policy, but leaves a critical question unanswered: how will the government refund an estimated $175 billion in illegal tariffs?
When pressed about potential refunds at a press conference, Trump responded dismissively, stating, "we'll end up being in court for the next five years." This prediction hints at the protracted legal battles likely to unfold as importers seek to reclaim their payments.
How Tariffs Are Collected and the Refund Dilemma
For nearly all goods subject to tariffs, importers post a bond with U.S. Customs and Border Protection and pay an estimated tariff to bring merchandise into the country. The government then makes a final determination, known as liquidation, typically 314 days after entry, with excess payments refunded or shortfalls covered. Importers had attempted to halt this process while the Supreme Court deliberated, but the U.S. Court of International Trade denied their request.
The Supreme Court's ruling did not specify how refunds should be handled. In a dissenting opinion, Justice Brett Kavanaugh warned that the decision could lead to serious practical consequences, including a messy refund process. He noted that during oral arguments, it was acknowledged that distributing refunds was likely to be "a mess." The case now returns to the Court of International Trade to untangle the complexities of refund distribution.
Potential Pathways for Refund Handling
More than 1,000 lawsuits have already been filed by importers in the trade court seeking refunds, with a surge of new cases expected. In December, the court affirmed its authority to reopen final tariff determinations and order the government to pay refunds with interest—a power the Trump administration indicated it would not challenge. This ruling, according to trade experts, removes significant legal hurdles to refunds.
However, the path to obtaining a refund remains fraught with challenges. Legal experts suggest that each importer may need to file individual lawsuits in the Court of International Trade, as forming a class action to cover the diverse range of affected companies is uncertain. Under U.S. trade law, importers have a two-year window to sue for refunds.
Disproportionate Impact on Small Businesses
The refund process could disproportionately harm smaller businesses, many of which were already hit harder by tariffs than larger, well-funded corporations like Costco. Lawyers for importers warn that some small importers might forgo potential refunds altogether rather than incur thousands of dollars in legal and court fees to pursue a case.
Trade experts point out that the government has improved recordkeeping systems, which could facilitate determining refund amounts. Small businesses have urged the Trump administration to issue automatic repayments, fearing that bureaucratic scrutiny of entry paperwork could further delay the process.
Historical Precedents and Ongoing Complications
The Court of International Trade has experience overseeing large-scale refunds, such as after the Supreme Court ruled part of a 1986 harbor maintenance tax unconstitutional in 1998. That process, managed by Judge Jane Restani, involved over 100,000 claimants and offers a potential blueprint, though the current situation is unprecedented in scale.
Even if refunds are distributed, not all companies may receive them. The refund depends on contractual arrangements between the entity that paid the tariff and the importer of record, potentially sparking additional legal disputes. Trade groups warn that the process could take years, leading some companies to sell their potential claims to Wall Street investors.
As the legal wrangling continues, the uncertainty surrounding tariff refunds underscores the broader implications of the Supreme Court's ruling on emergency powers and international trade policy.
