SCOTUS Blocks IEEPA Tariffs as Trump Pivots to Section 122 Authority

The U.S. Supreme Court’s 6-3 decision to strike down tariffs imposed under the International Emergency Economic Powers Act (IEEPA) represents a significant judicial check on executive trade authority. The ruling specifically targets the "reciprocal tariffs" and fentanyl-related duties that President Donald Trump had levied against major trading partners, including Canada, Mexico, and China. While the legal victory for free-trade advocates is substantial, its immediate economic impact on Canadian industry remains nuanced due to existing treaty protections and the administration's rapid tactical shift.

For Canadian exporters, the IEEPA-based tariffs—which had reached as high as 35%—were largely a theoretical threat rather than a practical burden. Under the Canada-U.S.-Mexico Agreement (CUSMA), most goods crossing the border were deemed exempt from these emergency duties. William Pellerin, a partner in international trade at McMillan LLP, noted that the majority of Canadian businesses will see little change in their daily operations because they were already operating under CUSMA’s duty-free framework. However, the ruling removes a significant legal precedent that had allowed the executive branch to bypass traditional trade negotiations in favor of emergency declarations.

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For Canadian exporters, the IEEPA-based tariffs—which had reached as high as 35%—were largely a theoretical threat rather than a practical burden.

The reprieve for the global trade community was short-lived. Within hours of the court's decision, President Trump announced a pivot to Section 122 of the 1974 Trade Act to impose a new 10% global tariff. This specific legal tool allows the President to impose temporary import surcharges to deal with "serious balance of payments" deficits. Unlike IEEPA, which the court found was being overextended beyond its intended emergency scope, Section 122 is a more established, albeit time-limited, trade instrument. The primary constraint of this new strategy is its duration: these tariffs can only remain in effect for 150 days without explicit Congressional approval.

The critical question now facing the Canadian government and market analysts is whether this new 10% levy will respect CUSMA exemptions. Avery Shenfeld, chief economist at CIBC, highlighted the risk that the administration might attempt to bypass treaty obligations by framing the 10% tariff as a broad national security or balance-of-payments necessity that supersedes specific trade deals. If Canada is not exempted from this new round, the economic fallout could be more severe than the previous IEEPA duties, as it would represent a direct breach of the CUSMA framework and could trigger retaliatory measures from Ottawa.

Investors and trade analysts should monitor the 150-day window closely. While the President can initiate the Section 122 tariffs unilaterally, the requirement for Congressional extension introduces a political hurdle that did not exist under the IEEPA strategy. This shift moves the trade battleground from the judicial branch to the legislative branch, where regional economic interests—particularly in border states that rely on Canadian inputs—may exert more influence. For now, the ruling provides a legal precedent against the "emergency" justification for trade wars, but the administration's rapid pivot suggests that the era of tariff-driven diplomacy is far from over. The focus now shifts to whether the 10% global tariff will be applied uniformly or if traditional allies like Canada will once again find shelter under existing trade agreements.