States 2.0: New Tariff Lawsuit Slaps Trump's 10% Levy-but the Legal Fight Is Far From Over

The 26-state lawsuit challenges the 10% tariff, but collections continue for most importers

A new coalition of states has added pressure to the legal fight over Trump's 10% tariff, but the ruling most importers can point to for immediate relief is still narrow. Two dozen states have sued to block the levy, while the only injunction so far reaches only the two private importer plaintiffs and the State of Washington. For most importers, CBP is expected to keep assessing and collecting Section 122 tariffs while the case moves forward on appeal.

That is the practical fork in the road. A trade court has already called the tariffs invalid and unauthorized by law, which strengthens the argument that the statute is vulnerable. But the near-term outcome is still collection, not refund. The Federal Circuit allowed the government to keep collecting while it appeals, concluding the administration is "likely to succeed on the merits."

This is why the timeline matters as much as the litigation. Section 122 tariffs were designed to be temporary, with a 150-day window and a set expiration date. Companies and investors should focus on three watchpoints: whether lower-court losses expand beyond Washington and the two importer plaintiffs, whether appeals keep collection restored during the review, and whether the dispute moves toward higher courts. If you are exposed, do not assume automatic refunds; the current CBP mechanism targets IEEPA tariffs, not Section 122 refunds.

Section 122 is the real legal weak point in the tariff strategy

The states did not choose this statute at random. Section 122 was drafted as a narrow emergency tool, not a broad grant of tariff power.

Why Section 122 was always the more vulnerable authority

Section 122 of the Trade Act of 1974 allows tariffs of up to 15% for only 150 days, after which congressional approval is needed to extend them. It was meant for "fundamental international payments problems", with text that states have tied to "large and serious balance-of-payments deficits" and "imminent and significant depreciation of the dollar." That is a much tighter standard than a general tool for addressing trade outcomes.

The lawsuit targets that gap. States argue the administration is stretching a balance-of-payments statute to address what amounts to trade imbalances. Even if the factual and legal arguments do not produce wide relief right away, they go to the core question of whether Congress actually authorized this use of presidential power.

Why the July 24 deadline matters

That is why the July 24, 2026 deadline matters. A statute with a built-in sunset is harder to defend if the legal and policy case against it keeps weakening. If the court story deepens before expiration, Section 122 may stop looking like a durable fallback authority and start looking like a temporary measure with refund or reversal implications.

Why the temporary nature of the tariff still cuts both ways

The counterargument is straightforward: this was always meant to be short-lived. Even critics acknowledge that the administration shifted to Section 122 after earlier tariff authorities were struck down, and the Federal Circuit has said the government's appeal has a credible procedural posture.

There is also a policy dimension. Critics argue the tariffs have delivered very little, if anything beyond higher costs for businesses and consumers. But even if the tariff regime has underperformed, that does not automatically translate into refunds or immediate relief for most importers.

What to watch before the tariff expires

The first places to feel the impact are businesses with direct supply-chain exposure: retail, consumer goods, autos and parts, and industrial inputs. For those companies, the issue is less about headline drama and more about gross-margin pressure, guidance sensitivity, inventory already in the country, and whether tariff costs can be passed through quickly enough to protect pricing.

The legal boundary conditions matter just as much. Current relief is limited to Washington and two importer plaintiffs, while the government says it can keep collecting because the Federal Circuit believes it is "likely to succeed on the merits". CBP's CAPE refund mechanism also currently applies only to IEEPA tariffs, not Section 122. Importers should review entries, deadlines, contract pass-through language, and litigation options instead of assuming broad refund rights.

The near-term trade is legal repricing, not automatic refunds

For now, this is not a refund trade. It is a legal-risk repricing trade. The question is whether markets keep underwriting a 10% levy when relief is narrow, collection is still allowed during appeal, and the stated policy benefits have delivered very little, if anything beyond higher costs. If the legal situation changes before or at expiration, the biggest moves may go to those tracking the process, not just the headlines.