Tariff refunds should prompt reassessment of trade policy

After the United States Supreme Court ruled in February that the US government's sweeping tariffs imposed under the International Emergency Economic Powers Act were illegal, the US Customs and Border Protection has been forced to process refunds. As of late July, the CBP had transferred roughly $100 billion — about 60 percent of the $166 billion it had collected — in tariff refunds to the Treasury for disbursement to importers.

A policy sold as a way to extract wealth from abroad instead pushed US Customs duty revenue into negative territory in May and June (down $0.04 billion and $25.6 billion respectively) as the refunds offset collection of the remaining tariffs. That pushed the federal deficit to $1.4 trillion in the first nine months of the fiscal year (October-June).

Under US federal law, the CBP must refund tariffs collected unlawfully with interest. The Cato Institute estimates that the delay in refunding companies for emergency tariffs invalidated by the Supreme Court is costing US importers a total of $700 million per month.

Small businesses that went bankrupt under the initial duty burden, or independent retailers without the resources to preserve customs records, may have little access to those refunds. The biggest refunds are reportedly flowing to companies best equipped to navigate the system. Walmart expects to get about $2.4 billion; Apple has received roughly $2.2 billion; Amazon about $600 million. But individual consumers have no automatic right to a refund.

This asymmetry has sparked a wave of consumer class-action lawsuits against major retailers and manufacturers, including IKEA, Five Below, Sony and Nintendo. Yet these suits face a formidable legal wall, as consumers face an almost insurmountable hurdle in proving that a price hike was driven 100 percent by tariffs, rather than inflation, logistics or shifting supply and demand. The law gives consumers no automatic way to get their money back. As Democratic Senator Elizabeth Warren of Massachusetts highlighted on Friday, everyday shoppers paid inflated prices while corporations recouped public funds.

Even if every dollar were returned, the refunds cannot undo the economic damage. With US tariff policy changing more than 50 times under the current administration since January last year, businesses have been left guessing what comes next. Companies that changed suppliers, moved production or lost market share cannot simply reverse those decisions.

After the Supreme Court struck down the executive power basis for emergency tariffs, the US administration has been using Section 301 since July to impose new tariffs on 60 economies. Washington seems trapped in a self-perpetuating loop: emergency tariffs, economic distortion, judicial veto, massive refunds and administrative reallocation to new statutory loopholes. The treadmill is already spinning anew.

On Monday last week, a coalition of 25 states filed suit in the US Court of International Trade to challenge the latest tariffs. Plaintiffs must now mount a grueling item-by-item slog across massive product catalogs, arguing over individual duties and whether the Office of the US Trade Representative followed proper procedures. This bureaucratic paper-chase will drain state legal resources and drag on for years — leaving local economies to suffocate under arbitrary tariffs long before any court gives relief.

It seems some in Washington have learned little from the $100 billion tariff debacle. The US administration can refund a tariff, but it cannot refund a lost customer. A recent US-China Business Council survey underscores the point: months-long delays in US export-control licensing are costing US companies billions of dollars in lost exports, even as many affected products are available in China from other suppliers.