The Tariff Refund Nightmare
When the Supreme Court overturned President Trump’s “emergency” tariffs on more than 100 countries in February as an abuse of a president’s authority under the 1977 International Emergency Economic Powers Act (IEEPA), importers, producers, and consumers stood to gain refunds of some $166 billion in illegal tariffs that they paid. In March, Judge Richard Eaton of the Court of International Trade required the federal government to set up a process to repay tariffs improperly collected under the statute.
The Trump administration agreed to abide by the court ruling and announced plans for a system for people to collect. On Monday, Customs and Border Protection (CBP) unveiled that system and the government’s refund portal.
The refund system would make Kafka blush.
For starters, the issue of who actually paid the tariff and who should get the refund is inherently complicated. According to CBP’s own count, some 330,000 different importers paid IEEPA duties on more than 53 million individual shipments until the tariffs were declared unconstitutional. The government has estimated that it will take up to 4.43 million hours to process all the refund requests.
In some cases, importers passed along all or part of the cost to consumers. Should consumers apply for refunds, or should importers pass along some of the refund to thousands of consumers? The portal provides no useful guidance on that question. Remember, this is the same administration that wrecked basic government capacity under DOGE. But the general expectation, as Kalena Thomhave wrote yesterday, is that consumers will at best get indirect relief and more likely no relief at all, as whatever businesses can navigate the refund portal will pocket the proceeds.
In the case of some direct international shipments, the tariff was paid by the shipper and passed along to the final customer. FedEx has said that it would try to pass along refunds.
In another case, according to The New York Times, the giant retailer Costco has said that it would use the refunds to lower prices to consumers. But since those are different consumers than the ones who absorbed the cost of the tariff, that might lead to class action litigation.
Meanwhile, our friends over at Talking Points Memo report a systematic disadvantage for small businesses. Unlike giant corporations, small businesses don’t have trade compliance departments or supply chain managers. Yet they face exactly the same challenges in trying to figure out how much they paid in illegal tariffs and what they owe consumers. According to TPM, a disproportionate share of refunds will go to big businesses that have the capacity to determine what they are owed and apply for it.
There’s also the matter of the Wall Street trade, whereby companies sell refund claims to hedge funds at a discount, and the hedge funds try to collect in full. These funds have more time and patience to get full value. And they will likely take in a higher share of refunds.
In addition, Trump illegally used IEEPA to levy a crazy quilt of different rates on the exports from different nations, which sometimes changed overnight. Companies that use imported products from a variety of countries have to sort all that out. The Times reports the case of a small distiller, Melkon Khosrovian, co-founder of Greenbar Distillery in Los Angeles. The tariffs had been a “nightmare” for his distillery, he said, which requires foreign-grown ingredients like vanilla, nutmeg, juniper berries, coffee, tea, and hibiscus. These come from different nations, each with different tariffs. Good luck in sorting all that out.
Other administration tariffs are still being imposed, like the recent Section 232 tariffs on steel, copper, and aluminum (which is in shortage because of the Iran war), as well as a separate 232 tariff on pharmaceutical ingredients. Those seem to be on solid legal ground, but others, like the 10 percent “balance of payments” tariffs Trump imposed under Section 122 of the Trade Act of 1974 after the Court found the IEEPA tariffs illegal, have been challenged by Democratic states and libertarian groups. If these tariffs are also found illegal—and there’s a credible case that they are—businesses would have to go through this whole rigamarole again.
This is an administration that claims to be pro-business, hostile to government bureaucracy, and partial to America first. What’s clear is that many consumers, importers, and producers will never collect the refunds that they are owed. What’s even clearer is that Trump never should have imposed the illegal tariffs in the first place.
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