Why mortgage rates hang in the balance with refund fight ahead
For many across the mortgage world, the idea that a Supreme Court that has largely rubber-stamped President Donald Trump’s second-term agenda would rule against him may have come as a shock.
However, legal experts were less surprised that the High Court ruled 6-3 against Trump’s tariffs on Friday, citing misuse of the International Emergency Economic Powers Act (IEEPA) as the primary reason.
Trump held a press conference on Friday afternoon and stated he would use Section 122 to implement a new 10% global tariff as a reaction to the Supreme Court ruling. He also said he would use other statutes to create new tariffs. However, one legal expert said the global tariff is likely to be quickly overturned.
Kenneth Katkin (pictured top), law professor at Northern Kentucky University’s Chase College of Law, said the statutes in place don’t allow for global tariffs like the one Trump is suggesting.
“A 10% global tariff is going to be struck down as illegal very quickly,” Katkin told Mortgage Professional America. “Because the statutes that authorize tariffs simply do not authorize global tariffs. There has to be some kind of proof that some foreign governments or foreign companies are engaging in some kind of unfair practice.
“There's no way that could be applied to the whole world. So he's just blowing smoke there, and that's going to be struck down very quickly after today's decision.”
Judicial process needed
Section 122 of the Trade Act of 1974 was passed to address “large and serious United States balance-of-payment deficits.” It allows for a temporary import surcharge of up to 15%.
Katkin said that for the president to use other statutes other than the IEEPA, there will have to be a judicial process.
“With the targeted tariffs, there's going to have to be judicial process on that,” Katkin said. “He's going to have to have some showing of what is the unfair practice that the other country is doing that these tariffs are in response to. Those things will have to be litigated out.
“But the authorities that he's claiming now, they don't provide the same kind of open-ended authority that he was trying to claim under the International Emergency Economic Powers Act. They provide more targeted tools, and he's got to actually make showings of what's being targeted.”
The administration has been hinting at the fact that they thought the Supreme Court ruling might not go in their favor, and have likely been working on backup plans for a while.
“I think there may be some targeted tariff that the Trump Commerce Department has probably already been proactively trying to build cases that they can roll out now that certain countries are engaged in certain unfair trade practices, and so we're responding to that with tariffs,” Katkin said. “I'm sure he will be able to do that in some cases, but something like that is not going to work for a global tariff.”
What about tariff refunds?
The matter that wasn’t addressed directly by the Supreme Court ruling was the idea of tariff refunds. However, many companies have been lining up lawsuits in preparation for these tariffs to be ruled illegal.
If there are significant refunds, they could force the government to borrow money to cover the lost tariff funds. This could cause Treasury rates to rise, which could in turn raise interest rates.
Katkin said now the challenge will be up to the lower courts to determine if there should be refunds, and who should get them.
“All the ones that were collected under that statute, the court has ruled that that was unlawful,” he said. “So I would think that the lower courts should start with a presumption that that's going to have to be refunded. Now there's going to be litigation around things like how do you know who actually paid it? How do you prove what the costs were? How do you figure out who was harmed and who can bring the cases?
“I think the principle would be that illegally-collected tariffs have to be refunded if they can figure out how much it was and who to refund it to. And the plaintiffs are going to have to prove all that.”
He said that even if the Trump administration puts new tariffs in place, they won’t be able to grandfather in the money collected by these now-illegal tariffs.
“What happens if he relies on different trade statutes that actually authorize tariffs to be imposed and impose new tariffs?” Katkin said. “That would not have an impact on the refund suits, because the refund suits would be for tariffs that the Court has said were illegally collected. And even if he has different authorities that would allow him to impose different tariffs going forward, those couldn't be imposed retroactively. So those couldn't retroactively legitimize illegally-collected tariffs that were collected illegally in the past.”
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