The money is gone, but the debt remains. On February 20, 2026, the Supreme Court of the United States effectively stripped the executive branch of its favorite economic cudgel, ruling 6-3 in Learning Resources v. Trump that the President cannot use the International Emergency Economic Powers Act (IEEPA) to levy tariffs. It was a staggering blow to a second-term administration that had built its trade policy on "reciprocal" duties and "fentanyl-related" border taxes. Chief Justice John Roberts made the boundary clear: the power to tax belongs to Congress alone, and "regulating" importation does not mean the President gets to act as the nation’s tax collector.
Yet, for the thousands of American businesses that handed over an estimated $175 billion in duties since the administration invoked these powers in early 2025, the victory is purely academic. While the Court declared the collection illegal, it stopped short of ordering an immediate, automated refund. This leaves a massive capital hole in the American supply chain—money that was sucked out of corporate balance sheets and spent by the Treasury—with no clear mechanism for its return.
The Shell Game of Executive Authority
The administration did not wait for the ink to dry on the Supreme Court’s opinion before pivoting. Within hours of the ruling, the President signed an executive order revoking the IEEPA tariffs and immediately replaced them with a 15% surcharge under Section 122 of the Trade Act of 1974. This is a classic "bait and switch" in trade law. Section 122 allows for temporary 150-day surcharges to address balance-of-payments emergencies.
While the IEEPA tariffs are dead, the new Section 122 duties are designed to keep the revenue flowing into 2026. The administration’s strategy is transparent: maintain the same economic pressure under a different statutory label. However, Section 122 has a fuse. Unlike the "unbounded" nature of the IEEPA claims, Section 122 expires in July 2026 unless Congress votes to extend it. Given the current temperature on Capitol Hill, that extension is far from guaranteed.
The real friction lies in the $175 billion already sitting in the federal coffers. Treasury Secretary Scott Bessent has already signaled that the government has no intention of writing checks voluntarily. Instead, the administration is forcing every single importer to fight for their money in the U.S. Court of International Trade (CIT). It is a war of attrition where the government holds the cash and the companies hold the legal bills.
The Refund Mess Justice Kavanaugh Warned About
In his dissent, Justice Brett Kavanaugh used a single, unvarnished word to describe the aftermath of the ruling: a "mess." He wasn't wrong. The logistical nightmare of returning $175 billion to tens of thousands of entities is unprecedented in American history.
The complexity stems from the status of "entries"—the technical term for goods moving through customs.
- Unliquidated Entries: These are recent imports where the final "liquidation" or closing of the file hasn't happened yet. For these, refunds are administratively easier but still require proactive filing.
- Liquidated Entries: For goods that entered the country months ago, the files are closed. Reopening them typically requires a formal protest within 180 days of liquidation.
Most companies missed these windows because they didn't anticipate the Supreme Court would move this fast or this decisively. Now, they must rely on "Section 1581(i)" lawsuits—residual jurisdiction claims—to argue that the unconstitutional nature of the tax overrides standard filing deadlines.
The Corporate Hostage Crisis
Major importers like FedEx and Costco have already moved to the front of the line, filing suits to claw back their payments. But for the mid-sized manufacturer or the specialized retailer, the cost of litigation might outweigh the refund. The administration knows this. By refusing a blanket refund program, the Treasury is essentially betting that billions of dollars will go unclaimed simply because businesses cannot afford to wait five years for a judgment.
Furthermore, there is a looming question of equity. If a retailer like Walmart paid the tariff and then raised the price of a toaster by 10%, the consumer paid the price. If Walmart now receives a $500 million refund from the government, that money stays in Walmart’s pocket. It does not go back to the person who bought the toaster. This "windfall" argument is already being shaped by government lawyers as a reason to deny or limit refunds, claiming that businesses shouldn't be "unjustly enriched" for a tax they already passed on to the public.
The China Pivot and the Section 301 Trap
While the IEEPA ruling was a disaster for the White House, it left one major weapon untouched: Section 301 of the Trade Act of 1974. These are the "original" China tariffs from the first Trump term. On the same day the Supreme Court struck down the IEEPA duties, a group of importers filed a petition for certiorari to challenge the Section 301 "List 3" and "List 4A" tariffs.
The argument there is subtly different but equally high-stakes. Importers claim the Office of the U.S. Trade Representative (USTR) overstepped when it "modified" a targeted investigation into intellectual property theft into a massive, $300 billion trade war. The Supreme Court's recent appetite for the "Major Questions Doctrine"—the idea that agencies can't make huge policy shifts without explicit permission from Congress—suggests the Section 301 regime is on thin ice.
If the Court applies the same logic to Section 301 that it just applied to IEEPA, the potential liability for the U.S. government could double. We are no longer talking about $175 billion; we are looking at a potential half-trillion-dollar hole in the federal budget.
Survival Tactics for Importers
The legal landscape has shifted from policy debate to accounting warfare. Companies that are not already auditing their 2025 and 2026 entry summaries are effectively donating their capital to the federal government.
- Stop the Bleeding: Ensure that any goods entering now are being flagged under the new Section 122 codes rather than the defunct IEEPA codes.
- Preserve the Protest: Even if the government says they won't pay, companies must file protests for every liquidated entry to keep their legal rights alive.
- Audit the "De Minimis" Shift: The administration used IEEPA to try and kill the $800 "de minimis" exemption for small packages (mostly from Temu and Shein). With IEEPA struck down, that exemption is technically back in play until the administration finds a new way to kill it.
The federal government is currently operating on a "catch me if you can" basis. They have been told their actions were illegal, but they are keeping the money until a judge forces their hand. For the American business owner, the "Trump Tariff" is no longer a trade policy—it is a five-year accounts receivable problem.
Document every cent paid. Track every entry number. The Supreme Court gave you the law, but only the Court of International Trade can give you the money.
