SCOTUS Strikes Down IEEPA Tariffs as Trump Pivots to Section 122 Duties

The U.S. Supreme Court’s 6-3 ruling on Friday marks a significant constitutional check on executive power over international trade, specifically striking down the use of the International Emergency Economic Powers Act (IEEPA) to levy "reciprocal tariffs." For the e-commerce and retail sectors, which have been navigating a volatile cross-border pricing environment, this decision initially appeared to be a major reprieve. The court effectively dismantled the legal justification for the 35% tariffs previously imposed on Canadian, Mexican, and Chinese goods, which the administration had tied to national security and fentanyl-related emergencies. By ruling these duties illegal, the court has signaled that the executive branch cannot use broad emergency powers to unilaterally realign global trade structures without more specific Congressional authorization.

However, the relief for Canadian exporters and U.S. retailers may be short-lived and largely symbolic in the immediate term. While the IEEPA-based tariffs are now illegal, the practical impact on Canadian trade had already been mitigated by the Canada-U.S.-Mexico Agreement (CUSMA). Most Canadian goods crossing the border were already exempt from the 35% rate because they were compliant with CUSMA’s rules of origin. As William Pellerin, a partner in international trade at McMillan LLP, noted, most Canadian exporters will not see an immediate difference in their bottom lines because they were not paying the higher rates in practice. The ruling is more of a systemic victory for trade predictability and the rule of law than a sudden reduction in landed costs for the majority of cross-border retail goods currently in transit.

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The court effectively dismantled the legal justification for the 35% tariffs previously imposed on Canadian, Mexican, and Chinese goods, which the administration had tied to national security and fentanyl-related emergencies.

The more pressing concern for the retail industry is President Trump’s immediate pivot to Section 122 of the 1974 Trade Act. Hours after the Supreme Court ruling was handed down, the President announced a new 10% global tariff via executive order. Unlike the IEEPA tariffs, which were framed as emergency measures to combat specific social or security issues, Section 122 allows for tariffs to address large balance-of-payment deficits. This new 10% duty presents a fresh set of risks for the e-commerce sector: it is currently unclear whether this "global" tariff will respect existing CUSMA exemptions. If the administration attempts to apply this 10% flat rate to all imports regardless of existing free trade agreements, it would represent a significant escalation in costs for North American supply chains that have spent years integrating across the border.

From a logistics and pricing perspective, the 150-day limit on Section 122 tariffs is a critical detail for retail planners and inventory managers. Under the 1974 Trade Act, these duties can only remain in place for five months unless Congress votes to extend them. This creates a "tariff cliff" for e-commerce businesses that must now decide whether to bake these potential costs into their Q3 and Q4 pricing strategies or treat them as a temporary disruption. Avery Shenfeld, chief economist at CIBC, highlighted that the lack of detail on how these new tariffs stack with remaining sectoral duties remains the primary source of market anxiety. Retailers operating on thin margins may find it impossible to absorb a 10% increase, even if it is technically temporary, leading to immediate price hikes for consumers.

Looking forward, the retail sector should prepare for a period of intense legal and legislative maneuvering. The Supreme Court ruling has essentially forced the administration to move from a broad "emergency" legal tool to a more specific, time-limited trade tool that requires eventual Congressional buy-in. Retailers should monitor whether the Canadian government prepares retaliatory measures, which typically target high-visibility U.S. consumer goods to exert political pressure. For now, the "CUSMA shield" remains the most important factor for Canadian retail exports, but its durability against the new Section 122 order remains the industry's biggest unanswered question. Businesses should audit their supply chains to ensure they are fully CUSMA-compliant to maximize their chances of exemption from this next wave of trade volatility.