Supreme Court Tariff Ruling: The $175 Billion Refund Flow and 1,000+ Lawsuit Flood

The Supreme Court delivered a decisive legal blow to the administration's trade strategy. In a 6-3 ruling on Friday, February 20, the justices declared that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose sweeping, open-ended tariffs. This decision strikes down the core legal foundation for a central pillar of the administration's policy.

The financial implications are staggering. Economists from the Penn-Wharton Budget Model estimate that reversing the IEEPA tariffs could trigger refunds of $175 billion. That sum would exceed the combined annual budgets of the Departments of Transportation and Justice, representing a massive, immediate drain on federal revenue that was previously counted on.

The legal fight is already in full swing. With the ruling, a flood of claims is imminent. Court records show that more than 1,000 corporate entities are now involved in the legal battle for refunds, setting the stage for an unprecedented and complex process over who qualifies and how the money is returned.

The New Tariff Regime and Fiscal Flow

The administration's immediate response was to pivot to a new legal basis. President Trump signed an executive order imposing a 10 percent tariff on all countries under Section 122, effective February 24. This move establishes a broad, flat-rate tax on imports, replacing the invalidated IEEPA structure with a different statutory authority.

The fiscal math is stark. While the new tariff applies to $1.2 trillion worth (34 percent) of annual imports, it will only partially offset the lost revenue. The earlier IEEPA regime was a major revenue driver, and the new 10% rate is a blunt instrument that cannot fully replicate that flow.

The scale of the existing tariff regime's impact is already visible. In 2025, the combined effect of new tariffs raised an estimated $194.8 billion in inflation-adjusted customs revenue above the 2022–2024 average. This surge in revenue, which pushed the effective tariff rate to a peak of 11.7% in November, shows the massive fiscal shift that has already occurred. The new Section 122 tariff is a continuation of that flow, not a reset.

Market and Economic Flow Implications

The ruling's immediate price impact is clear. Nearly 90% of the 2025 tariff burden fell on U.S. firms and consumers, directly pushing up costs. This pressure is reflected in the data: imported PCE core goods prices rose 1.0% during the year, a direct flow-through of tariff costs into the consumer basket.

Near-term market volatility is the dominant setup. The legal uncertainty around the $175 billion refund process and the administration's pivot to a temporary 10 percent Section 122 tariff create a complex, shifting landscape. Businesses and trading partners are forced to reassess eligibility and the future of trade agreements, leading to choppiness as the market digests these conflicting signals.

The forward-looking tariff flow remains elevated. Even after the IEEPA tariffs are struck down, the average effective tariff rate for 2026 is projected at 5.6%. That figure, the highest since 1972, indicates that tariffs will continue to be a major, persistent cost for importers, shaping corporate profit margins and supply chain decisions for the year ahead.