As the US Supreme Court prepares to rule on Donald Trump’s controversial “Liberation Day” tariffs, major US companies, including retail giant Costco, are taking legal action against the administration. These companies are seeking refunds for tariffs paid, should the court rule them illegal. The case, currently in the US Court of International Trade, has attracted about 90 companies, such as Revlon, Kawasaki, and EssilorLuxottica, all eager to recover funds from tariffs deemed unlawful by lower courts.
The impending decision, expected either by the end of this year or early next year, could have significant financial implications. The companies involved are concerned about the fate of the revenue already collected if the tariffs are declared illegal. Costco, in particular, has requested an extension from the Customs and Border Protection agency to delay finalizing tariff determinations until the court’s decision is made, with a deadline looming on December 15.
Legal Maneuvers and Financial Stakes
While some companies, like Costco, have opted for legal proceedings, others have taken different routes. Several businesses have petitioned the Supreme Court directly, acting as “friends of the court” to advocate for refunds. Meanwhile, companies unable or unwilling to engage in litigation have sold their potential refund rights to hedge funds and distressed debt funds for a fraction of their value.
Costco’s involvement is particularly noteworthy given its size and reliance on imported goods. With approximately a third of its $US270 billion in sales last year coming from imports, the financial stakes are high. The overall revenue from tariffs is nearing $US200 billion this year, with the “Liberation Day” tariffs accounting for nearly half. An adverse ruling could result in close to $US100 billion in refunds, although the court could decide to make any judgment prospective, allowing the administration to retain already collected funds.
Background on the Tariffs
The “Liberation Day” tariffs, distinct from sector-specific tariffs on products like steel and aluminum, were imposed by Trump on all trading partners of the United States. These tariffs were justified under the International Emergency Economic Powers Act (IEEPA), a statute traditionally used to sanction terrorists and rogue states, not to levy tariffs. Trump cited the US trade deficit as a national emergency, a claim that has not historically alarmed previous administrations despite its persistence for over 50 years.
Trump has warned of catastrophic consequences if the court rules against the tariffs, claiming it could cost the US $US3 trillion. However, the total tariff revenue collected this year is far below this figure, suggesting Trump may be referring to potential impacts on international agreements tied to these tariffs.
Economic and Diplomatic Implications
The legal actions by Costco and others underscore the reality that US companies, not foreign exporters, bear the initial cost of tariffs, a point often obfuscated by the administration. According to Goldman Sachs, about half of the tariffs’ impact has been absorbed by companies, with a third passed on to consumers. Over time, consumers are likely to shoulder more of the burden.
Trump has suggested that tariffs could fund significant economic benefits, such as $US2000 dividends for households and the abolition of income taxes. However, most estimates suggest that all US tariffs could generate only $US2.3 trillion to $US2.5 trillion over a decade, a fraction of what would be needed for such ambitious plans.
US Treasury Secretary Scott Bessent has acknowledged that a Supreme Court rejection of the tariffs could lead to a “dangerous diplomatic embarrassment” for the US. The administration’s reliance on a questionable legal basis for the tariffs has already strained international relations and could further damage the US’s diplomatic standing.
Looking Ahead
The outcome of the Supreme Court’s decision will have far-reaching consequences for US economic policy and international trade relations. Should the court rule against the tariffs, it could prompt a reevaluation of the administration’s trade strategies and potentially lead to new negotiations with international partners. As the legal battle unfolds, businesses and consumers alike will be closely watching for the court’s final verdict.
