On Feb. 20, the Supreme Court held in Learning Resources, Inc. v. Trump that the tariffs imposed by the administration under the International Emergency Economic Powers Act of 1977 were unlawful. What the court did not do is explain what the remedy should be, whether those who paid the tariffs should get their money back and, if so, how the refund process would work. On March 27, the U.S. Court of International Trade ordered Customs and Border Protection to refund the IEEPA tariffs.
CBP estimates that over 330,000 importers have made a total of over 53 million entries in which they have deposited or paid IEEPA tariffs and that the total amount of IEEPA tariffs paid is approximately $166 billion.
Although the IEEPA tariffs have been paid by importers of record, virtually every American has borne some of the economic burden of the tariffs because the tariffs resulted in price increases paid by consumers, in the case of imported retail goods, and in price increases paid by consumers and producers, in the case of imported manufacturing inputs. They have also resulted in lost jobs and lower wages. They have caused lost profits or even losses and business failures. They have reduced capital investment and future productive capacity.
Some of the burden of the tariffs was also undoubtedly borne by foreign producers selling goods in the United States, but the administration’s narrative that almost all of the burden of tariffs is on foreigners is simply false. Because of administrative complexity, cost, and fundamental issues related to lack of information, it will never be possible to untangle all of this in a fully fair manner that accurately recompenses those who bore the actual economic burden of the tariffs by paying higher prices, earning lower wages, or losing their job or business.
Policymakers may not be satisfied with a result where importers, having long since sold the imported goods, usually at higher prices reflecting the payment of the tariffs, receive a windfall. Such a windfall would accrue to the benefit of the importers who imported directly or retained a customs broker.
Congress should enact legislation that does at least eight things. Most importantly, Congress should provide explicit statutory guidance regarding importer disposition of the refunds. This could leave it up to the importer to decide. It could require that the importer make a good-faith effort to refund the tariffs to its customers who paid higher prices due to the IEEPA tariffs. Lack of actual information makes this deeply problematic, however. The legislation would need to explain the mechanics of how this would work in practice and provide safe harbors for good-faith compliance.
Almost as importantly, Congress should impose a permanent moratorium on class-action litigation regarding the tariff refunds. The first such lawsuit was filed against Costco, UPS, FedEx, and Lululemon on March 11, and other firms have already been sued. More are likely to follow against many importers. If Congress does not address the class-action lawsuit issue, the result could be thousands of class-action lawsuits, years of delay, massive enrichment of lawyers, and a patchwork of outcomes as each lawsuit is litigated, settled, or a judgment rendered, with different results for each importer of record. This would also require the administration of settlement funds or judgments by third-party class-action administrators, involving the delay and expense of class notification, claim verification, claimant communications, claim disbursement, and fund tax administration. Failure to address this issue is likely to result in delays in importers refunding tariffs to consumers or workers to prevent having to refund the tariffs twice — once to the group the importer chose to refund the tariffs to and again to whomever the class-action lawsuit judgment requires the refund be paid to.
Congress should explicitly require that the unlawful IEEPA tariffs be refunded by CBP within one year. A shorter time frame is probably unrealistic given the magnitude of the problem. Congress should require that any import transaction that was “liquidated” with unlawful IEEPA tariffs be reliquidated without the tariffs so that the tariffs can be refunded. Liquidation is the bureaucratic term for calculating the correct amount of tariff due.
Congress should require CBP to institute a much simpler system for refunding the unlawful tariffs than the current protest system. Such a system should make use of the existing Automated Commercial Environment. It should require that the importer of record establish only five things: (1) the importer’s identifying contact information, (2) the importer’s payment information, or how the refund should be paid to the importer, (3) the date, (4) the amount of IEEPA tariffs paid, if liquidated, or the date and amount of deposit paid, if not liquidated, and (5) the minimum information required to accurately identify the underlying importation transaction. To its credit, based on filings with the CIT, CBP appears to be working on this.
VANCE HEADS TO IOWA TO STUMP FOR REP. ZACH NUNN
Congress should also preempt any state laws purporting to impose requirements on refund disposition, instruct CBP to prioritize liquidation and payment of small business claims, and clarify that customs brokers have a fiduciary duty to return tariff refunds to their clients.
Congress should also consider appropriating additional resources to CBP to hire temporary personnel to process the refunds. CBP, making the heroic assumption that it can process refunds in five minutes, estimates that it will take 4,431,161 man-hours to process the refunds. This is the equivalent of about 2,300 full-time employees for a year, assuming 1,900 hours annually per employee. It will take longer and involve more people because it is unrealistic to expect an average processing time of five minutes.
David R. Burton is a senior research fellow at Advancing American Freedom. He focuses on securities regulation, tax matters, entrepreneurship, business law, financial privacy, regulatory and administrative law issues, and the efficacy and ethics of markets.