Who gets compensated if Trump’s tariffs are ruled illegal?

Little noticed last week in the case before the US Court of Appeals for the Federal Circuit challenging Trump's tariffs was the government's argument opposing a national injunction against the president’s use of emergency powers to impose tariffs. The government argued that the court could only enjoin application of the International Emergency Economic Powers Act of 1977 (IEEPA) for those parties to the suit for the tariffs they paid. Only the named plaintiffs can benefit from any decision that is adverse to the government, the Justice Department contended.

This is like saying in the biblical contest of David versus Goliath that only those Israelites who invested in the stone that was in David's sling should be freed from the wrath of the giant. If the tariffs are declared by the courts to have no foundation in law, instead of tens of billions of dollars being returned to all those who paid illegal tariffs, a few small businesses and maybe the citizens of 12 states would benefit from a finding in their favor. Those appealing to the Federal Circuit, the small businesses who paid the tariff, contended  that “Plaintiffs’ economic harms are inextricably linked with the Global Tariffs that non-parties face.”

The government’s argument against comprehensive relief is based upon a recent Supreme Court decision against the issuance by US District Court judges of nationwide injunctions against presidential action. District Court judges in some instances have imposed nationwide injunctions when they find that the president had no authority to take whatever action was being challenged. In those instances, the Supreme Court held that the only beneficiaries of litigation are the individual plaintiffs bringing the case and not the entire class of individuals who are similarly situated. See Trump v. CASA, Inc. This was a “shadow docket” decision not fully argued before the court.

This precedent, cited by the Justice Department lawyers, is wholly inapposite here. Both the Court of International Trade, which ruled against the administration’s use of emergency powers in May, and the Federal Circuit, which heard the appeal, have exclusive jurisdiction to hear cases brought to determine whether a tariff is legitimate or not. To hold otherwise would require every importer to sue or join a lawsuit against the government and then file for a refund if the government lacked authority for imposing a duty or overcharged by mischaracterizing the import. The arguments for full injunctive relief with respect to all who paid the tariff are laid out in the small businesses’ and state governments’ briefs.

Of course, if the so-called “Liberation Day” and trafficking tariffs (responding to the fentanyl crisis) were struck down, there would follow a massive amount of red tape. Each importer would have to show that it paid the tariff, how much, on what date, etc. This bureaucratic requirement would be a relatively modest issue compared with the notion that the wrong of an improperly laid tariff should be made right for all those adversely affected.

To be sure, there is no complete fairness when a tariff refund is ordered: Who ends up bearing the burden of paying a tariff? By law, the importer of record who paid a tariff receives the refund. But the importer may have gotten a lower price from the exporter to help pay for the tariff they both knew was coming and/or the importer may have passed on some or all of the increased cost of the tariff to consumers directly or the intermediate businesses in the distribution chain, who then pass it on to the consumer. This is a bell that cannot easily be fully unrung.

But that is not the worst of it. The president in his April 2 and August 1 executive orders claims that the tariffs are applied under IEEPA. But if struck down, they might be reissued under the president’s retaliatory authority (section 301 of the Trade Act of 1974) to combat unfair trade practices. That statute is susceptible to as broad an interpretation as the emergency finding of IEEPA. Section 301, defining unfair practices, cites “unreasonable or unjustifiable” acts of foreign governments. What is unfair is a difficult issue for the courts to opine on. The Congress gave that authority to the president. So even if the use of IEEPA is in some instances ruled out of bounds, tariffs could be ordered under section 301. And of course, the tariffs on steel and aluminum and autos under Section 232 of the Trade Expansion Act of 1962, citing national security concerns, would remain in place.

Would the courts really allow the government that defended the plethora of tariffs based on IEEPA now claim that the Liberation Day and trafficking tariffs were all really under section 301 as well? Or is the government prevented from re-arguing the legitimacy of the tariffs, by choosing a different legal authority as their basis? Perhaps one result, as the president is unlikely to give up on his tariffs, is that the tariffs become selective instead of blanket, and the deals remain, as abandoning them would be too unsettling to the signatories.

On the other hand, if the president wins his tariff litigation, either before the Federal Circuit (I think unlikely) or the Supreme Court (perhaps somewhat more likely), the great volumes of monies paid make good trading stock for striking deals with recalcitrant trading partners. The litigation is a useful bargaining chip.

There is a precedent for the issue of deciding who gets recompensed if a trade action is overturned. In 2006, the United States and Canada agreed to settle their longstanding bilateral dispute over softwood lumber. The matter stemmed from Canadian subsidies to its industry and Canadian firms dumping softwood lumber in the US market. Litigation was and is a hardy perennial to determining what if anything is owed pursuant to US trade remedies. A formal US-Canada agreement was reached that included some standby US trade restrictions in the form of tariffs or quotas against import surges of lumber from Canada. But the agreement also provided for a distribution to private parties of $1 billion of funds held by the US Treasury from unliquidated entries of lumber imports from Canada. Of the billion dollars, $500 million was paid directly to the litigants in shares determined by the industry based on how much each of the companies had contributed to the litigation budget. Another $500 million was held in a joint North American market development fund to promote the use of lumber. The agreement provided certainty and kept the peace between the two governments and their industries for nine years.

However this case, V.O.S. Selections v. Trump, turns out, the president will no doubt pursue the use of tariffs as the chief element of US foreign economic policy. He has a variety of trade authorities to deploy, and can draw upon his nontrade authorities, such as cutting off military aid or other programs. The president is not without means to continue the conduct of his foreign economic policy through a variety of means. The return to certainty in US trade relations may still be distant.

Correction: This post was revised August 6, 2025, to clarify that the April 2 and August 1 tariffs were not applied pursuant to section 301 of the Trade Act of 1974, but rather that if the tariffs are struck down, the president might reissue them under his retaliatory authority under section 301 of the Trade Act of 1974.