Will US refund tariffs if Supreme Court rules against Trump’s policy?

The future of United States President Donald Trump’s far-reaching tariff programme is now in the hands of the US Supreme Court, which will determine whether the administration’s approach to taxing imports can continue — or if the federal government will be forced to return vast sums of money to businesses that paid the disputed duties.

At the centre of the legal battle is the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose so-called “reciprocal tariffs” on nearly every US trading partner earlier this year.

These duties were part of Trump’s signature trade policy in his second term, designed to penalise countries that the administration said benefited unfairly from trade imbalances and to boost domestic manufacturing.

The case is high stakes not just for trade policy but also for the federal budget. If the Supreme Court ultimately rules that the tariffs were unlawful, it could force the US Treasury to return hundreds of billions of dollars in collected duties.

Such a scenario would upend Washington’s revenue calculations, increase government borrowing, and have ripple effects on the broader American economy.

How did Trump use emergency powers to implement tariffs?

In April, Trump declared a national “emergency” to justify broad new tariffs under the IEEPA, which grants the president special economic powers during crises that threaten national security.

The administration argued that longstanding trade deficits had harmed key American industries and posed a national security risk.

Using these powers, Trump implemented tariffs at historically high levels. India and Brazil faced duties of up to 50 per cent, while China was supposed to be hit with rates as high as 145 per cent.

Other close US allies, including Japan, South Korea, the United Kingdom, and the European Union, were also subjected to steep new charges.

The administration framed these measures as “reciprocal,” claiming they were designed to match or exceed the tariffs that US trading partners imposed on American goods.

Trump’s team maintained that this aggressive approach was necessary to force countries to negotiate fairer bilateral trade agreements.

According to White House estimates, Trump’s tariff regime was projected to generate between $300 billion and $400 billion annually, making it a significant source of federal revenue at a time when lawmakers had recently passed major tax cuts.

The US Congressional Budget Office later calculated that these tariffs would help reduce the federal budget deficit by trillions of dollars over the coming years.

How did legal challenges begin?

Almost immediately after the new tariffs were announced, they were challenged in court by American businesses and trade groups, who argued that the president had overstepped his constitutional authority.

The Court of International Trade in New York was the first to rule, concluding in May that the IEEPA could not be used to impose such sweeping trade measures.

This initial ruling set the stage for a more consequential decision by the US Court of Appeals for the Federal Circuit, which delivered its verdict on August 29.

In a 7-4 majority decision, the appeals court upheld the earlier ruling and struck down the tariffs, stating that Trump had exceeded the powers granted to him under federal law.

“We discern no clear congressional authorisation by IEEPA for tariffs of the magnitude of the Reciprocal Tariffs and Trafficking Tariffs.”

In effect, the court found that Trump’s attempt to use emergency powers to levy taxes on imports violated the constitutional separation of powers.

Imposing tariffs, it ruled, is a “core Congressional power” that cannot be assumed by the executive branch without explicit legislative approval.

While the ruling was a major setback for the administration, the appeals court delayed the implementation of its order until October 14. This pause allowed the Trump administration time to seek review by the Supreme Court and temporarily keep the tariffs in place.

The administration moved quickly to appeal. In an urgent filing, US Solicitor General John Sauer warned that a prolonged delay could create chaos if the tariffs were eventually overturned after being collected for many months.

He wrote, “The stakes in this case could not be higher.”

According to the filing, if the dispute were not resolved swiftly, the government could end up holding between $750 billion and $1 trillion in tariffs by mid-2026 that might later need to be refunded.

Trump told reporters that his administration was preparing an appeal and urging the Supreme Court to act quickly to prevent the tariffs from being struck down.

The big question: Will Trump refund the tariffs?

In a television appearance on NBC’s Meet the Press on Sunday, US Treasury Secretary Scott Bessent directly addressed what would happen if the Supreme Court ultimately ruled against the administration.

Bessent made clear that the government would have no choice but to return a significant share of the revenue collected under the disputed tariffs.

“We would have to give a refund on about half of the tariffs, which would be terrible for the Treasury,” he said. “If the court says it, we’d have to do it.”

Bessent did not offer detailed plans for how such refunds would be administered, but he suggested that there were “numerous other avenues” for maintaining tariffs in some form, even if the current legal basis was struck down.

However, he acknowledged that using alternative legal tools would “diminish President Trump’s negotiating position” in ongoing trade talks.

How much money has been collected so far?

The financial stakes of the case are immense. As of August 24, US businesses had already paid more than $210 billion in tariffs that courts have since deemed unlawful.

The White House reported that this year alone, the government has collected $158 billion in total tariff revenue, including both the IEEPA tariffs under dispute and others imposed under different authorities.

For context, the US Treasury Department’s data shows that in July alone, the government took in $28 billion in customs duties, while April’s figure was $16.8 billion.

Earlier in June, the US Department of Homeland Security announced that US Customs and Border Protection had collected $81.5 billion from Trump’s tariffs since their introduction earlier in the year.

These funds currently sit in the Treasury’s general accounts and have been used to reduce government borrowing. If refunds are required, the Treasury would face a sudden and significant shortfall, forcing it to raise money by selling more bonds.

How will a potential refund affect the US economy?

Economists warn that refunding hundreds of billions of dollars could dramatically alter the government’s fiscal position. Without the tariff revenue, Washington would need to increase borrowing to cover its obligations.

To attract investors for this additional debt, the government might have to offer higher yields on Treasury bonds, which would increase borrowing costs across the economy.

In recent days, these concerns have already begun to show up in the bond market.

The yield on the 30-year Treasury bond briefly reached 5 per cent, its highest point since July, reflecting investor unease about the potential for more debt issuance if the tariff revenue disappears.

Beyond its direct fiscal impact, the tariff dispute has already begun to affect the real economy. Many American companies have warned that higher import costs will inevitably be passed on to consumers, leading to price increases on a wide range of goods.

Major retailers and manufacturers, including Nike, Hasbro, and Walmart, have cautioned that the tariffs will raise prices for everyday products.

The administration, however, has maintained that businesses should “eat” the additional costs, arguing that the duties are necessary to strengthen domestic industries.

The latest jobs report from the US Bureau of Labour Statistics highlighted a slowdown in the labour market. In August, the US economy added only 22,000 jobs, while the unemployment rate rose to 4.3 per cent, the highest in nearly four years.

The data showed that industries most exposed to international trade, particularly those reliant on imported goods, have seen the steepest job losses since the tariffs were enacted.

If the IEEPA tariffs were eliminated and not replaced with new duties, some analysts believe there could be a short-term boost to economic activity.

Bessent noted that ending the tariffs could provide a $200 billion net stimulus effect, as reduced import costs filter through to businesses and consumers. He also suggested that inflationary pressures might ease if tariffs were rolled back.

How can Trump still impose tariffs?

The administration has hinted at c ontingency plans should the Supreme Court side with the lower courts.

Kevin Hassett, Director of the National Economic Council, said during an interview on CBS’s Face the Nation that there are other legal mechanisms available for imposing targeted tariffs.

One option he cited is Section 232 of US trade law, which allows the government to implement tariffs for national security reasons. This authority was previously used for steel and aluminium duties during Trump’s first term.

With inputs from agencies