‘We’re screwed!’ Trump faces $175bn tariff blow from Supreme Court

Melissa Lawford

Sat, February 21, 2026 at 3:55 AM GMT+9 5 min read

More than 60pc of the tariffs Donald Trump announced last April will ‘effectively vanish’ - Chip Somodevilla/Getty Images

Donald Trump’s tariffs are illegal. Even he cannot spin that as anything other than bad news.

“If the Supreme Court rules against the United States of America on this National Security bonanza, WE’RE SCREWED!” the president wrote on Truth Social in January.

The nation’s highest court did just that on Friday – invalidating the president’s use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs on America’s trading partners. Judges said the legislation did not give him the power to do so.

In an instant, one of the defining pillars of Trump’s economic agenda has been destroyed, blowing a gaping hole in the public finances worth hundreds of billions of dollars, throwing his trade deals into chaos and hammering his authority ahead of crucial midterm elections in November.

Tariff income represents half of the all the cash that the Trump administration has collected since he returned to power.

As well as having to scramble to find new sources of income, Trump is now also likely to be on the hook for $175bn (£130bn) in refunds that businesses will demand for paying these illegal levies.

Speaking after the judgment on Friday, Trump said it was “crazy” that the Supreme Court had not ruled on whether companies would be eligible for refunds. “We’ll end up being in court for the next five years,” he said.

Back in January, the president himself warned that the fallout could be even worse. America’s trading partners could demand payback for the investments they have agreed to make under trade deals signed with the US, Trump warned.

He said: “When these Investments are added, we are talking about Trillions of Dollars! It would be a complete mess, and almost impossible for our Country to pay.”

The IEEPA formed the foundation stone of Trump’s trade policy. The act was the legal justification that Trump used to impose his sweeping “reciprocal” tariffs on almost every country in the world on April 2 last year and the fentanyl tariffs on Mexico and China.

Those punishing tariffs bought the world to the negotiating table, allowing Trump his pick of which countries to do trade deals with and giving him leverage to extract favourable trade terms and investment promises.

On Friday, the Supreme Court swept this all away, stating: “IEEPA does not authorize the President to impose tariffs”. Now, only Congress can do this.

This ruling will not affect the sectoral tariffs that Trump has imposed on goods such as cars, steel and aluminium, which were introduced under Section 232 of the Trade Expansion Act of 1962.

But the impact will be seismic. Olu Sonola, head of US economics at Fitch Ratings, says: “More than 60pc of the 2025 tariffs effectively vanish.”

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The effective tariff rate on imports will drop from 13pc to 6pc, wiping out more than $200bn in expected annual tariff collections, says Sonola.

Over a decade, this will cost the US treasury more than $1tn in lost revenue at a time when national debt is already at a record $38tn.

An expensive refund

In the first instance, the Supreme Court decision will mean logistical chaos as importers race to bring in goods tariff-free. Meanwhile, the White House will be scrambling to plug the sudden gap in its budget.

Scott Bessent, US treasury secretary, has made clear that the administration will turn to other legal levers to claw back the money.

How Trump might resurrect his trade war

These are expected to include using Section 122 of the Trade Act of 1974, which allows the president to impose tariffs of up to 15pc on all countries for up to five months.

This will buy time while the administration can launch targeted actions such as under Section 338 of the Tariff Act of 1930, which allow the US to impose tariffs of up to 50pc on countries that are deemed to discriminate against America.

But the White House cannot impose measures that apply retrospectively, which means the administration has no way of protecting itself from businesses trying to claw back the tariff revenue that they have already paid.

According to the Penn-Wharton Budget Lab, businesses have so far paid $175bn in IEEPA tariff revenue.

The 301,000 importers who have paid this money are gearing up to get it back. A fleet of major companies including CostCo, Revlon and Ray-Ban had already filed pre-emptive lawsuits against Customs and Border Protection (CBP) to make claims for refunds.

Trade groups are preparing to file class action lawsuits to make claims on behalf of small firms. Hedge funds have reportedly been buying up the rights to make claims on behalf of businesses in exchange for a substantial cut of any payouts.

Beth Benike, who owns BusyBaby, an infant products company that imports from China and has been hammered by tariffs, is hoping she can claw back $40,000 that she has paid so far.

Benike says: “I’ll be joining a class action lawsuit to try to get that money back. I think the [CBP] website is going to break.”

The refund process is going to be messy. One big problem is that small companies that imported through third-party wholesalers technically have no direct route to make claims and will be reliant on their suppliers’ customer service policies.

The chaos will cost Trump further political capital in the run-up to the November midterm elections, when he is already expected to lose the Republican majority in the House of Representatives.

Trade deal doubts

At the same time, the trade deals Trump secured with the likes of the UK and the European Union now look on shaky footing. Those deals were agreed in the shadow of Trump’s IEEPA tariffs, intended as a way to escape the worst of his wrath.

Countries are likely to keep the agreements in place for now but the Supreme Court decision opens the door to more negotiation.

More than anything, the Supreme Court ruling hammers Trump’s authority.

Back on April 2 last year, when he launched his full-scale trade war on what he called “liberation day”, he said it was a “declaration of economic independence”. But the White House can’t break free from America’s highest court.

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