Major court cases are testing the legal foundations of Trump’s tariff strategy, with potentially sweeping fiscal consequences. If the Supreme Court upholds lower court rulings, a central pillar of U.S. trade policy could be dismantled, forcing a shift toward more targeted, security-based measures.
Two of the most consequential court cases in recent global economic history are winding their way through the U.S. legal system. Each argues that Trump’s use of the International Economic Emergency Powers Act (IEEPA) for ‘Reciprocal Tariffs’ is illegal. If the Trump administration loses either case in the Supreme Court later this year, not only will the reciprocal tariffs be struck down, but hundreds of billions in cumulative collected tariffs will also have to be repaid, with interest, to American importers.
That would blow a monumental hole in the U.S. fiscal budget, while undermining a core pillar of the administration’s trade strategy. Yet while much focus has understandably been on the ‘Reciprocal Tariffs’ initiative, the administration has been quietly expanding a far more durable legal route grounded in the national security provisions of Section 232 of the Trade Expansion Act. More on that below.
First, regarding reciprocal tariffs, the Trump administration has been losing badly in lower court hearings in two separate cases brought by private sector plaintiffs. In V.O.S. Selections v Trump, the Court of International Trade found in May that the IEEPA-based worldwide reciprocal tariff actions are unlawful because the sweeping tariffs applied to all trade partners could not possibly serve as a remedy for the declared national emergencies of fentanyl trafficking and a trade deficit. In other words, the IEEPA-based tariff response had no reasonable relationship to the triggering emergency; hence, it was illegal. The Trump administration appealed to the Federal Circuit, securing a pause on the court’s order to remove the tariffs.
On July 31, the Federal Circuit Court of Appeals heard the second round of V.O.S. Selections v. Trump. The case revealed a clearly sceptical set of Federal judges pushing back against the Trump administration’s efforts at justifying IEEPA. Judge Alan Lourie noted that “‘Tariffs’ seems to have no friends in that statute [IEEPA], so why would we read tariffs into that statute?”, while Judge Raymond Chen noted that “It seems pretty clear to me that…the president doesn’t have the authority to rewrite the tariff schedules, and it seems like in this case, that’s what the president is trying to do.”
On Friday, August 29, the U.S. Court of Appeals for the Federal Circuit issued its final ruling, determining that Trump’s Reciprocal Tariffs are illegal. The court concluded that IEEPA does not grant the president broad authority to change tariff rates. Such activity, the court noted, “is vested exclusively in the legislative branch by the Constitution” through Article 1—meaning only Congress has such broad tariff authority. Having lost twice in the V.O.S. Selections case, the Trump administration is also behind 1-0 in Learning Resources v. Trump, a case brought by a private toy importer in the DC District Court.
In the Learning Resources case, the court found that since IEEPA makes no mention of the word ‘tariff’, instead using the term “regulate”, it does not authorise the president to impose tariffs whatsoever. Historically, the 1977-enacted IEEPA has been used by Presidents for regulating trade through trade sanctions, import/export bans, asset freezes and investment controls. The act had never been used for applying tariffs prior to 2025. The Trump administration will appeal the V.O.S. Selections loss to the next and final court, the Supreme Court, likely by the end of the year. What happens to Trump’s tariff strategy if the Supreme Court similarly finds that IEEPA is built on a foundation of legal quicksand?
If IEEPA tariffs are sent to the scrap heap of misused laws, then Section 232 of the Trade Expansion Act of 1962 will become an even more crucial tool for Trump’s ongoing tariff strategy. Active Section 232 investigations are accumulating at speed under Trump 2.0, with current investigations underway in ten sectors, including Pharmaceutical Ingredients, Copper, Timber and Lumber, Semiconductors, Trucks, Processed Critical Minerals, Commercial Aircraft, Jet Engines, Polysilicon, Unmanned Aircraft Systems and Wind Turbines.
Legally, Section 232 is tried and trusted, authorising the Secretary of Commerce to launch investigations to “determine the effects on the national security of imports”. It allows the President to “take such action, and for such time, as he deems necessary to adjust the imports of such article and its derivatives so that such imports will not so threaten to impair the national security”. The historical application and interpretation of Section 232 have specifically included the permissible delegation of tariff authority from Congress to the Executive. In fact, like today’s Reciprocal Tariffs, Trump’s initial 2018 Section 232 tariffs, which applied to steel and aluminium, were challenged by private importers as unconstitutional. In that instance, the courts upheld the tariffs as fully compliant with the law, and those tariffs are in place to this day.
However, the process for implementing Section 232 tariffs is more onerous and narrowly defined than the current tariff approach. Section 232 requires the Commerce Department to conduct a detailed investigation of a selected good or sector, issuing an advisory report on the national security risk posed by these imports to domestic production of the given products. Only where this process has been followed can tariffs be narrowly applied to the investigated products. Hence, this is not the broad-stroke legal weapon that IEEPA was interpreted to be, wrongly as it may turn out to be. Section 232 tariffs are a slower, more targeted process, but proven to be legally solid.
Section 232 tariffs have already been used for negotiating security-based market access provisions with trade partners. It is reasonable to assume that this strategy will increasingly seek to entangle other trade partner countries in the growing web of Section 232 investigations aimed at addressing perceived U.S. supply chain vulnerabilities, especially those from China. The UK received a Section 232 steel and aluminium carve-out, provided it meets U.S. requirements on supply chain security and “ownership of relevant production facilities” (widely interpreted as meaning Chinese ownership). Given Australia’s growing rare earth ambitions, Canberra will likely have taken note of the U.K. agreement in preparation for a Section 232 discussion on critical minerals when the investigation findings are released
Yet such Section 232 frameworks will create tensions with Beijing, which has explicitly warned against China-targeted trade deals. Given the overall size of China’s economy and its massive manufacturing heft, U.S. economic incentives will have to be weighed by each government against the risk of losing Chinese market access, as well as for their impact on the World Trade Organisation’s rules-based order. Given that most countries are already negotiating with the U.S. in WTO-illegal reciprocal tariffs, we can similarly expect many to negotiate Section 232 agreements. For U.S. allies, including Australia, broader national security imperatives along with economic costs will heavily shape the trade-offs inherent in any Section 232-based negotiations.
The legal durability of Section 232 tariff authority points towards a radical new international economic security-driven trade architecture. Where IEEPA tariffs offer a blunderbuss that hits friends and foes alike, undermining U.S. soft power and affecting both strategic and non-strategic imports, Section 232 can offer a more rational scalpel approach for wielding geoeconomic power. In light of Beijing’s successful strategic mercantilism, the U.S. and partners need a more sophisticated economic security strategy than currently on offer. If the Supreme Court follows the lower courts in finding IEEPA tariffs illegal, the already emerging Section 232-built economic security approach will only accelerate.
Dr Naoise McDonagh is Director of the Master of Business Administration (MBA) at Edith Cowan University, where he teaches and researches international business and trade. His work focuses on how domestic regulation, trade agreements, and geopolitics shape the global business environment. Prior to ECU, he lectured in international political economy at the University of Adelaide and served as President of the Australian Institute of International Affairs, South Australia.
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