EMERGENCY POD: SCOTUS Slashes Tariffs!

Peter Harrell with the report!

This past Friday I recorded a show with Peter E. Harrell on SCOTUS’ monumental 6-3 decision. Have a listen here or read the transcript below.

The Ruling: IEEPA Has Zero Tariff Authority

Jordan Schneider: Is the era of tariff by tweet over?

Peter Harrell: I don’t think we’re ever going to persuade President Trump not to threaten tariffs by Truth Social post, but it is very clear in light of today’s Supreme Court opinion that his ability to actually impose those tariffs is going to be constrained. And while he is going to be able to recreate some of his tariffs under other authorities, it’s going to be harder, as he himself acknowledged at his press conference just now.

Jordan: Let’s start with the ruling. What was interesting about it?

Peter: You have a 6-3 majority of the court finding that IEEPA — this 1977 emergency powers statute that Trump has used to impose about two-thirds of his tariffs. This is the statute he used for his universal and reciprocal tariffs, the fentanyl tariffs on Canada and Mexico, and the tariffs he would have used over Greenland. It’s basically everything except the product-specific tariffs on steel or semiconductors — all those are under IEEPA.

The ruling concluded IEEPA does not have any power to tariff. In some ways it’s actually a narrow ruling. As Trump said at his presser, it still gives him the authority to embargo countries like Iran. It also doesn’t constrain his ability to use other tariff laws. It simply says under this statute, which he had relied on for two-thirds or 70 percent of his tariffs — zero tariff authority.

Jordan: What about refunds? What happens next?

Peter: This is the big question. Trump came out fairly ticked at his press conference. He did say that the Supreme Court justices were still, in his words, “barely invited” to come to his State of the Union next Tuesday. So it’ll be interesting to watch that dynamic Tuesday night.

I think about what comes next in two parts. First, he’s going to try to recreate as many of these tariffs as he can under other authorities. He said very clearly he’s going to sign an order under Section 122 of the Trade Act of 1974 to impose a 10 percent tariff starting in three days. So if you’re Japan, South Korea, or the European Union, at least temporarily your tariff rate is coming down — you were at 15, and now you’re going to be at 10.

Then there’s the refund question. If you’re a Walmart or a Costco and you’ve paid $500 million —

Jordan: Or Learning Resources.

Peter: — or Learning Resources, or your small educational toy importer that filed this lawsuit — are you going to get your money back? Trump’s answer today, which I fear is the correct one, is: “We’ll just fight that out in court.” The one true winner of Trump’s trade policy is the trade lawyers. That was true in 2025, and it’s going to be true in 2026. I think at the end of the day, if IEEPA doesn’t authorize these tariffs, these were illegal taxes. Companies that paid will be able to sue to get their money back. That might take a year. Our court system is not known for its rapidity.

As of mid-December, 300,000 American companies had paid IEEPA tariffs. I don’t envy the Department of Justice having to defend 300,000 lawsuits. They might cave in a couple of months and set up some administrative process to make refunds easier. That would be the reasonable thing to do — but they might just decide lawyers are cheap on their side, so sue us.

Jordan: It’s a lot of money — a real deficit-relevant number.

Peter: It’s roughly $140 billion in collected IEEPA tariffs as of December, so it’s probably higher now. It’s a meaningful amount of money.

Global Fallout: Deals, Canada, and Angry Trump Diplomacy

Jordan: Where do we go next? Japan and Europe.

Peter: Looking around the world — Trump has something like 20 trade deals he’s announced. I think we’re up to seven that actually have full text. We got Indonesia just a couple of days ago and Taiwan a week or two ago. Then you have maybe another dozen or so that are four-page MOUs or term sheets.

So if you’re Japan, Argentina, or Europe, do you walk away from your deal? Do you decide the tariffs are going away and just bail? I think the answer is probably no, for a few reasons.

Trump will be able to recreate some of these tariffs, as he’s already doing with his 10 percent tariff. And if you’re Europe, what you got out of this deal was really three things. One, you got a cap on your IEEPA tariff rate. Two, you got caps on the Section 232 tariffs for some products, which matter a lot. The 30 percent of tariffs that aren’t IEEPA are things like the steel, aluminum, and car tariffs. For Europe, one key thing in the deal was getting the 232 tariff reduced from 25 percent to 15 percent. For Germany, that matters a lot — you don’t want to blow that up by walking away.

And finally, no one wants to piss off angry Donald Trump, who will threaten to embargo you, withdraw military protection, or maybe invade some of your territory. So I think they probably don’t walk away from these deals — even though Trump has now lost his magic tariff Sharpie.

Jordan: What about Canada?

Peter: This is where Trump is going to find this most painful. He can still go on Truth Social and post whatever he wants — it’s a free country when it comes to speech. He can say he’s mad at Carney and wants 100 percent tariffs until Canada gives us Alberta. But it’s going to be a lot harder to actually implement those. He could do a Section 301 investigation and probably impose a 15 percent tariff on Canada, but you can’t impose unlimited tariffs under 301, and you have to do an investigation. For his hobby horses — disliking Canada, some European countries — it’s just going to be hard for him.

Jordan: On the 301s — can you have Claude Code do your investigation for you? Who can sue saying your investigation was BS?

Peter: They have some options. Section 122 lets him impose up to 15 percent. He said today he was choosing 10 percent for 150 days. So they have until about mid-July to figure out something to keep the tariffs going.

For 301, you have to do a factual investigation, find that a foreign country engages in an unfair practice, have some quantification of the harm, and then have a process for deciding retaliatory tariffs. USTR is going to have to decide the right balance: do we produce 301s that are more likely to hold up in court because we put more work into them — but maybe in 150 days you can only do 20 of those? Or do we have Claude Code write 170 of them within five months and take our chances?

Jordan: Who can sue?

Peter: The lawsuits going forward get murkier and are going to be even more lucrative for the trade lawyers. With IEEPA, the argument was simple: IEEPA doesn’t authorize any tariffs, so all of them should go. But 301 clearly authorizes tariffs. So if you’re importing from France, you’d have to sue and argue the France 301 was done badly — and even if you win, that has no bearing on whether the Vietnam 301 was done badly. It’s going to be country-by-country litigation.

Will Trump Take the Tariff Off-Ramp?

Jordan: What a mess. I guess the question is — there’s a narrative that this is actually a blessing in disguise for Trump. This is an off-ramp. They realize inflation is bad and now he gets to roll things back.

Peter: I’d be curious what you think. There’d be a lot of logic to that view — this would be a nice opportunity to politically rethink. But Donald Trump is tariff man! He’s just going to tariff.

Jordan: I guess the question is to what extent there are other people in the administration who want to reimpose something like what we have now. I could see him seeing this as an L, getting distracted, and moving on to other things — start new wars or pick different fights on Twitter. Liberation Day was very much a him-driven thing.

Now that we have more of a process and we have these deals, do we still need giant tariffs hanging over everyone’s head that aren’t that credible? We’re going to do all these Section 301s, and then the fun part is the deals. The tariffs are a means to an end, and if we’re already getting deals, can you just threaten the 301 tariffs? Does that still give you the leverage you need?

I could see it both ways.

Peter: We’ll see. What he’ll lose if he doesn’t recreate the tariffs is the revenue. It was $140 billion between March and December of last year just on the IEEPA tariffs. If he does nothing to recreate them, he’d probably lose $200–250 billion in revenue, which is something on the order of 5 to 10 percent of federal receipts. It’s not zero.

Jordan: What about the ruling itself? There were some zingers. Kind of a fun read.

Peter: The interesting quirk is that some of the lines are drawn from the government’s briefs. When the DOJ was submitting briefs, they made frankly somewhat outlandish claims about the tariffs’ economic impact — that it matters whether we’ll be a rich or a poor nation. But the Justice Department never framed it as “we the attorneys believe this.” They consistently framed it as “our boss believes this.” They never wanted to own Trump’s Trumpian claims.

Jordan: There was also the line: “No, no, a thousand times no, but should have sufficed to dissuade the principal dissent from invoking this case.”

Peter: On a more serious note, you see a very sharp debate among the justices about the major questions doctrine. The majority — Roberts, Barrett, and Gorsuch — said that for a big government action relying on an old statute, Congress has to speak clearly to authorize that kind of action. They’ve been developing this doctrine over the last decade or so.

The liberal justices — Kagan wrote the opinion, joined by Sotomayor and Jackson — have been skeptical of the major questions doctrine from the beginning. They reached the same outcome, no IEEPA tariffs, but without adopting the doctrine. And the dissenting conservatives — Kavanaugh, Alito, and Thomas — all believe in the major questions doctrine. They had to come up with convoluted reasons why the doctrine should overturn Obama-era clean air regulations but not this.

You also see Justice Jackson in her individual concurrence trying to bring legislative history back. The conservative majority doesn’t really believe in legislative history — they don’t want to read what congressmen said during the legislative process.

Jordan: Why not? I thought that was their whole thing.

Peter: They believe in originalism, but they think you should view it in the context of what the words meant at the time they were adopted — objectively rather than subjectively. They’ll look at a dictionary definition from when IEEPA was passed in 1977, but they won’t go into what the authors of IEEPA said.

Jordan: So originalism isn’t just 1789 — it can also be the early 1970s. You’re citing dictionaries from the era as “this is how the words were used back in the day.”

Peter: Exactly. And the worry about legislative history — going back to the congressional record to see what Congressman X said — is that it can be manipulated. Congress doesn’t fully agree on what a statute means. If you just believe what one person said about it, that’s not necessarily what everybody who voted for it meant.

Live from Toy Fair: Why Toys Are Still Made in China

Jordan: I went to the Toy Fair, the largest toy industry convention in the world, earlier this week.

Peter: Because they’re all still Chinese, right? We still buy most of the toys from China?

Jordan: Absolutely. What was fun was talking to people about why they can’t make them anywhere else. It’s just like lots of other electronics assembly. Magnets were one thing folks said was really hard — the entire magnet industry is in China. If you’re bringing magnets somewhere else, then you’re paying transit costs and they’re going to hit you. There’s also a high safety bar with magnets because if kids eat two of them, they clamp together and can blow up your intestine or something.

I talked to one factory that was making toys for adults — giant Hogwarts replicas made out of wood that only adults can assemble. It’s very skilled work, and the pain of setting up that expertise in another country is enormous. You can’t have toys fail because there’s this big safety dimension.

Peter: Fair point. I think of a lot of toys as fairly cheap and cheaply made, but there really is a lot of safety engineering to make sure they don’t leak chemicals and things like that.

Jordan: People were saying there are still parts of the manufacturing process that need humans — sometimes they paint on the glue, sometimes the decals. Are you okay with one in a thousand being screwed up? One in 10,000? If you have a less experienced workforce, you’re going to struggle.

The other thing folks talked about was the SKU challenges. Everyone was saying this was the most boring Toy Fair of the year because there’s far less innovation. Everyone’s playing it safe because they’re worried about keeping their businesses going. They’re not coming up with the cool new toy — they’re just making another animal set or pizza set.

So I walked up to the Learning Resources booth. Small business, fourth-generation family owned. I said, “Hey, can I talk to whoever was involved in the tariff case?” Some guy says, “Yeah, Rick’s over here.” I walk up, and he was super game, really friendly. It gave me real Profiles in Courage vibes. The fact that it took a small business — not Mattel, Hasbro, or any of the thousands of other companies that paid these tariffs — to step up is really a testament to American democracy. Some random small business owner can embarrass a president like this.

Peter: I very much agree. When I first started talking about tariff litigation last year, most big companies were completely intimidated by Trump. Trade associations were lying low and hoping it blows over. It was really only the small businesses — Learning Resources plus a couple of small businesses in New York, and some Democratic state governments. That’s who was willing to sue because everyone else was terrified of Donald Trump.

It’s a huge testament to the fact our system can and does work — small businesses can have this kind of victory. I also hope it sends a broader message: if the government does something illegal, you’ve got to stand up to it. It’s really not in your interest to cower on the sidelines.

Jordan: A few days ago I purchased for the Schneider household the Spike the Fine Motor Hedgehog as well as Peekaboo Learning Farm — to give my thanks in monetary form to Learning Resources for putting this together.

The other funny thing — Learning Resources is very wholesome. Happy educational toys. Their big new product this year is a children’s yoga ball, maybe a foot in diameter, wrapped in a fuzzy cover with a bear version and tiger version. Rick was telling me about it: “We’re really proud of this. It helps kids learn to calm themselves down and be more mindful.”

And as you’re walking in, right next to the yoga ball, there’s “Fart Time” — a statue of some animal maybe four feet in the air with a giant purple fart coming out under it. I’ll make this the thumbnail so none of you miss it. It was a fascinating contrast in this giant convention center — from the happy educational “we just want your kids to learn and develop” to the “we’re going to sell your kids poops and farts and you’re going to thank us for it.”

One dark thing someone told me — the influencers in this world are really young, like 10 and under. The way you get press now is you pay for posts. And there’s very much a child actor dynamic where you’re not becoming an influencer at six unless your parent is pushing you.

Peter: Europe’s on the move — a couple of countries are moving toward no social media for under 16. So maybe eventually.

Jordan: Or maybe you can only make posts if they’re about happy educational toys, not poop and fart ones. Actually, that sounds like Woke AI. All right, let’s call it here. Peter, thanks for jumping on today. Everyone tell Peter to start his freaking Substack already so I can get off LinkedIn and stop reading his posts. It’s always a pleasure.

Peter: Thanks, Jordan. Always a pleasure.