SCOTUS Strikes Down IEEPA Tariffs: New Trade Risks Emerge for Canada

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 levies introduced by the Trump administration, which had reached as high as 35% for certain Canadian goods. For legal and compliance professionals, this decision underscores the limits of using emergency statutes to bypass established trade frameworks like the Canada-U.S.-Mexico Agreement (CUSMA). By defining the boundaries of "emergency" tools, the court has provided a roadmap for importers and trade partners to contest future tariffs that lack a clear legislative mandate.

While the ruling is a landmark legal victory for trade advocates, its immediate economic impact on Canadian exporters is expected to be muted. William Pellerin, a trade partner at McMillan LLP, noted that most Canadian exports were already shielded by CUSMA exemptions. Under the previous IEEPA regime, goods that met CUSMA’s rules of origin were largely able to cross the border duty-free, meaning the legal nullification of the 35% tariff does not change the status quo for the majority of cross-border commerce. However, the ruling provides a critical precedent: the executive branch cannot unilaterally use national emergency declarations to overhaul the fundamental economics of global trade.

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Avery Shenfeld, chief economist at CIBC, warned that if the 10% tariff is applied broadly without regard for CUSMA, Canadian industries could face a significant competitive disadvantage for at least the next five months.

The administration’s response was swift and indicative of a shift in strategy rather than a retreat. Hours after the ruling, President Trump announced a new 10% global tariff under Section 122 of the 1974 Trade Act. This move highlights a pivot from "emergency" powers to "balance-of-payments" authorities. Unlike IEEPA, Section 122 is specifically designed for trade deficits but carries a strict 150-day expiration date unless extended by Congress. This creates a new period of regulatory uncertainty for Canadian businesses and legal counsel who must now navigate a rapidly shifting landscape of trade enforcement.

The primary concern now shifts to whether these new Section 122 tariffs will respect existing CUSMA exemptions. Avery Shenfeld, chief economist at CIBC, warned that if the 10% tariff is applied broadly without regard for CUSMA, Canadian industries could face a significant competitive disadvantage for at least the next five months. The legal community is now closely watching for the text of the upcoming executive order to determine if it "stacks" on top of existing sectoral duties or if it attempts to override the duty-free status granted by the regional trade pact. This distinction is critical for supply chain planning and cost-benefit analyses for North American manufacturers.

From a RegTech and compliance perspective, this volatility necessitates robust monitoring of customs and border protection (CBP) updates. The transition from IEEPA to Section 122 requires firms to update their tariff schedules and risk assessments within a very tight window. Furthermore, the 150-day limit on Section 122 tariffs suggests that the battle will soon move from the courts to the halls of Congress, where the administration will need to lobby for a permanent extension of these trade barriers. For Canada, the focus remains on the durability of CUSMA as a shield against shifting U.S. trade policy, even as the administration seeks alternative legal pathways to implement its protectionist agenda.