US Supreme Court Rejects IEEPA Tariffs: Key Takeaways For Canadian Businesses

On February 20, 2026, the US Supreme Court issued its long-awaited ruling in Learning Resources, Inc. v. Trump, invalidating the President's use of the International Emergency Economic Powers Act ("IEEPA") to impose broad tariffs, including those imposed on Canada beginning in March 2025 and the so-called Liberation Day tariffs imposed on other countries in April 2025.

The decision is significant in that it eliminates the President's ability to use the IEEPA as a major tool of his trade and foreign policy. While significant, the practical impacts may take many months to be felt as the issue of refunds is likely to be litigated in lower courts, and President Trump has already turned to other statutory mechanisms to impose replacement tariffs.

We explore the decision and its implications for Canadian businesses below.

Case Background

Following President Trump's election in 2025, he began implementing broad tariffs on virtually every country, including Canada, through the power granted to the President under the IEEPA. The IEEPA grants the President certain powers to deal with a "national emergency" in respect of extraordinary threats to the US. These powers include the power to "investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit . . . importation or exportation."

Prior to President Trump making the IEEPA central to his trade and foreign policy, it was a little-used piece of legislation that had only ever been employed by US Presidents to control or freeze property in which a foreign country or national had an interest. In contrast with its past uses, the Trump administration took the novel position that the IEEPA conferred broad, discretionary power to impose tariffs on an indefinite basis pursuant to a declaration of a national emergency.

Given the significant disruption that the use of the IEEPA caused to US importers and supply chains, multiple US importers and states challenged the Trump administration's use of the IEEPA to impose tariffs, and specifically, whether the IEEPA's delegation of the authority to "regulate ... importation" authorized the broad imposition of tariffs.

Ruling

In a split decision, the Court held that the IEEPA does not authorize the President to impose tariffs. While the rationale of the majority differed, they were united in their opinion that:

• Tariffs are a form of tax and the power to tax belongs to Congress
• The President cannot claim taxation powers through vague or general statutory language
• The word regulate does not include the distinct power to impose a tax

Implications: A New Period of Uncertainty

The Court decision is significant, even if its specific implications for Canada are likely to be limited, but has given rise to added uncertainty:

• IEEPA tariffs invalid, but sectoral/Section 232 tariffs remain: CUSMA-originating goods were exempt from tariffs under the IEEPA, which significantly blunted their impact on Canada. The tariffs most negatively impacting Canada (such as those on steel, aluminum, autos and lumber) are imposed under different legislation (Section 232 of the Trade Expansion Act of 1962), and were not impacted by this case.
• A pivot to new tariff authority: President Trump has already pivoted to Section 122 of the Trade Act of 1974, signing a proclamation on February 20, 2026, imposing a 10% global import surcharge tax (with an exemption for CUSMA-originating goods) in response to purported international payments problems. Tariffs for non-CUSMA qualifying Canadian imports will therefore decline from 35% under the IEEPA tariffs to 10% (or 15% based on a recent social media post by President Trump). Tariffs imposed under Section 122 are limited to 15% and may only be kept in place for 150 days unless extended by Congress, but this window may provide time for the Trump administration to take steps to implement tariffs under other legislative authority such as Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974.
• Lack of clarity on refunds: The Court did not address the issue of refunds of IEEPA tariffs collected by the US, other than in noting that it would be a "mess". It will likely fall to the US Court of International Trade to address the legal issues related to possible refunds, while US CBP would need to develop an administrative process to refund what is estimated to be over $100 billion in tariff revenue. Canadian non-resident importers will be eligible for any refunds and should monitor developments closely.
• Trade deal uncertainty: The US administration used the IEEPA tariffs as a tool of trade and foreign policy to facilitate trade deals with the countries such as Korea and Japan, involving commitments from such countries to make substantial investments in the US for lower tariff rates. The Court's decision could raise questions about the viability of the prospective investments as well as using tariffs as a tool to facilitate trade deals. With respect to the 2026 CUSMA review, the US administration may now rely more heavily on its sectoral tariffs to achieve concessions from Canada.

Key Takeaways for Canadian Businesses

In light of the uncertainty created by the decision, Canadian businesses should:

• Review US entry data to assess any IEEPA tariff exposure, including the status of entries (liquidated/unliquidated)
• Monitor developments with respect to refunds and file protests to preserve refund rights as may be necessary
• Review contracts and other agreements with suppliers/clients that address tariffs and consider potential implications with respect to refunds
• Ensure that any exports remain CUSMA compliant to benefit from the exemption under new tariffs imposed on February 20, 2026
• Consider potential exposure resulting from new tariffs that are likely to be imposed under other statutory authorities

Fasken's International Trade & Investment Group is closely monitoring these developments and remains available to assist clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.