Tariffs: SCOTUS Ruling, Why They’ll Stay, and What to Do with Uncertainty

Hey, everybody, it's Gene Marks, and welcome to another episode of the Paychex THRIVE Week in Review. This is where we take a few items of news that impacts your business, and we talk a little bit about them.

Obviously, the big news this past week has been tariffs, but before we get to them, let me just make sure that I share this with you.

Regardless of tariffs, it is difficult and challenging to run a small business. We know that, and HR is one of the more challenging things that we have to deal with as business owners. Paychex provides an HR service that helps you do more things at once because they act in the role of an HR person to help you with all sorts of things on the HR side, well and above just payroll processing.

If you are busy and need help on the HR side, I implore you to check out Paychex. Go to paychex.com/meetpaychex. That's P-A-Y-C-H-E-X dot-com forward slash M-E-E-T-P-A-Y-C-H-E-X. Thank you for considering that. Let's get to the news.

Usually, we handle three or so news stories of the week, but this week is about tariffs. And the big question is what happened, and can I get a refund for my tariffs? So, let me address that.

First of all, what happened? Last week, the Supreme Court overturned the president's actions, basically saying that the president behaved unconstitutionally and broke the law by implementing tariffs that were over and above the Emergency Powers Act that he was using to implement tariffs.

Now, this was also found by a lower court, as well as by another court, an appeals court, and the Supreme Court finally weighed in and said the president did exceed his authority. So, I want to be clear that the tariffs issue is not going away, and the only thing that is for certain is the uncertainty that's going to happen over the next two years at the very least.

And why is that? Well, even though the president couldn't get his tariffs through the International Emergency Economic Powers Act, he has other cards to play. He could go and use the 1930 Smoot-Hawley Act, which gives him the power to impose tariffs up to 50% on any countries that discriminate against the U.S. The thing about using the Smoot-Hawley Act is that he needs congressional approval to do so. And even though the Republicans hold a slim majority in the House and the Senate, there are a number of Republicans that have voiced their opposition to the president's tariffs, and so that would be a pretty tough hill for him to climb.

His second option is Section 122 of the 1974 Trade Act. This is a tariff that he can oppose of up to 15% as a balance of payments authority on any country that he wants, and that is what his announced intention is to do, to increase the 10% global tariff to 15%. He is allowed to do this without congressional approval. However, he has a 150-day limit to this and would need congressional approval to continue. So, this tariff that he has right now is in effect. He may increase this to 15%. At the time of this recording, it is not official, but even if he does, there is 150-day limit to this tariff.

Finally, though, is the card that he will most likely pay, which is under the Trade Expansion Act of 1962. It is the Section 232 of that act. Here, the president can enact tariffs on certain sectors and industries where he believes that this country is being discriminated against or is facing challenges from. The Biden administration did this in 2024, instituting tariffs on aluminum and steel and semiconductors and other products, as well – certain industries that they are focusing on, at the time was mostly China and their industries.

The president can do the same thing. Investigations are required, public comment is required as well, but it does give the executive office a lot of flexibility, and that is what I expect to see the president do.

So, is this tariff thing over? Far from it. I can guarantee you that whatever the president does, there will be opponents to it. Certainly, people in industries that are affected by this, they will sue him, and as he has shown in the past, he will sue them right back. He likes to fight these things out of the court. These things can take years to work their way through the courts before they ultimately get resolved by the Supreme Court – if they do. And in the meantime, the tariffs are going to be in effect in having their issue.

So, a couple of points I want to make out. First of all is the big question. Can you get a refund? I mean, you know, the Supreme Court overturned this tariff, what the president was doing with tariffs. Are you able to get a refund?

So, my response to that is don't count on it. Refunds are going to be very, very hard to get for small businesses, and let me explain to you why. For starters, the president's own administration is wiping their hands clean of this situation and saying, “Hey, when it comes to refunds, that's got to be decided by the lower court, not by us. They haven't come up with any methodology for it, so that's going to be up to you to go to the lower court and listen to what they have to say.”

Even Justice Brett Kavanaugh, who wrote the dissenting opinion, said that the refund process is going to be an absolute mess. And make sure that you know what the details are of getting a refund. Most of the imports that come in from other countries come in through a brokerage firm or a customs house, an importer-exporter. They are usually the importer of record. They're the ones that bring the goods in and then they pass through any tariffs to their customers. So, a lot of businesses are not even the importer of record. They can't even institute a refunds process because, again, they're not the importer of record.

So, what do they do? They have to rely on these brokerage firms and customs houses and importer-exporters – a lot of them being very small businesses themselves – and they might not have the resources to go through a refund process. And again, they're not going to be getting any help from the administration in doing this. So, it's going to be very, very difficult.

Finally, there are some large companies that are going after refunds. They have hired some firms that can help them do that, as well. It is still murky as to whether or not these firms and these large companies can get refunds on these tariffs. But even if they do, by the time it comes trickling down to small businesses, I think it's going to be a long way away.

The bottom line is that if you're expecting to get a refund, I would not be putting a lot of weight behind that expectation. Maybe there's a possibility. Maybe you've got the ability to work for your trade association or some other kind of external party to help you in the process. But any refunds that you could be looking at, I think are going to take a long time to get, if you get them at all. So, don't count on it.

The big thing is, what do you do for now, right? I mean, if there is any certainty about these tariffs is that it's going to remain uncertain over the next couple of years. Now, in my opinion, most tariffs with the EC, with Japan, with India, with Mexico, with Canada have been resolved and negotiated and are around a 15-percent level. The president has a lot of flexibility with the 1962 Trade Act. So, he has got the ability to implement more tariffs on certain industries and sectors relating to those countries. And I do believe that the president will do that.

But I also believe, and I think that I am not incorrect, that those tariffs are going to probably wind up to be around the 15% that's already been negotiated with a lot of these countries. So, you know, I'm not saying that a 15% tariff is a great thing, but a lot of my clients and readers and people that I speak to are like, hey, we're not crazy about tariffs, but we would just like some certainty as to what we have to pay, so we can navigate our businesses around that. And I can say that that 15% number is generally where we're going to be coming in.

Now, if you spend a lot of money with China and you buy goods from there, that tariff rate is at 30%. That might come down quite significantly because, again, of that 15% level that I foresee agreeing on. We'll have to wait and see. The president can come after China. Already, there are tariff rates on Chinese goods in certain industries and sectors that are well above that 15%. So, I don't really know what is going to happen with China. It is still, there is a shot that it could come down.

So, what do you do as a business? Well, I mean, there are different cards you can play. You can lean into bonded warehouses and free trade zones, bring in those products there, pay no tariffs until you take them out when maybe those tariffs are that much lower.

You can find alternate suppliers in other countries using the World Trade Center organization, or you can go to the Make Onshoring Great Again portal that the Small Business Administration is now making available and maybe find an alternative supplier that's domestic to do what you want to do. You can lean into technology, hopefully, maybe AI to reduce your overhead, make your people more productive. So, that can mitigate any potential price increases, and if you're going to increase prices to your customers, you really want to do it on a targeted level. You don't want to just have a broad overall price increase.

My smartest clients are looking at their customer-by-customer basis. They're leaning into their data, their accounting systems, the profitability per customer, and they're implementing price increases or passing down some of these costs depending on the profitability and the relationship that they have with their customers. Some customers might be really profitable or great relationship; They're getting less of an increase. Others might not be such a great relationship or less profitable; They're getting more of a tariff increase. Really depends, and you've got the data to do just that.

So, recapping tariffs now. The Supreme Court overruled what the president was doing under the International Emergency Economic Powers Act, but the president have many cards to play and he will be playing those cards.

Will you get a refund? It's possible, but I think the chances of it are very, very low. So, I wouldn't count on. Use some of the tactics that I just described, bonded warehouses and targeted pricing, for example, to try and navigate your way around these tariffs and mitigate any of the costs before you start passing down your price increases to your customers. That's where we are on tariffs so far.

Clearly, we'll be reporting a lot of this as the news continues on and there will be plenty of news on tariffs, but this is where we stand today at the end of February.

You've been watching this week's episode of the Paychex THRIVE Week in Review. My name is Gene Marks.

Again, if you need any help or tips or advice in running your business, go to paychex.com/thrive and you can sign up for our thrive newsletter.

And if you need any help on the HR side, visit paychex.com/meetpaychex and you can get some much-needed help to hopefully help you operate your business at a much more profitable level by letting paychecks take away some of the administrative burden of your employees and HR duties.

Again, my name is Gene Marks. Thanks for watching or listening. We'll see you next week with another episode of the Paychex THRIVE Week in Review. Take care.

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I'm your host, Gene Marks, and thanks for joining us.

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