Tariffs are often presented as a tax on foreign products, an apparently simple tool to protect domestic industry and penalise competitors from abroad. But reality is far more complex. The case of the nearly $100 billion that the Trump Administration has already had to refund following a ruling by the United States Supreme Court is a masterclass in how international trade really works. Who pays a tariff? Who bears its cost? And what happens when the courts conclude that the tax had no legal basis?

It is rare for a judicial decision to force a government to refund tens of billions of dollars in taxes already collected. This is exactly what is happening in the United States after, on 20 February 2026, the Supreme Court ruled by six votes to three that the International Emergency Economic Powers Act (IEEPA) does not authorise the president to impose tariffs.

The White House had used this 1977 law, designed to grant extraordinary powers to the president in the face of international emergencies, to justify broad taxes on imports from much of the world. Trump had described the persistent US trade deficit as a national emergency and had relied on this law to impose the so-called reciprocal tariffs. 

The Supreme Court, however, concluded that Congress had not delegated through the IEEPA a tariff power of virtually unlimited scope. The ruling points out that when Congress grants the president the power to impose tariffs, it does so explicitly and with specific limitations, which is not the case with this law.

The consequence has been enormous. By the end of July, the Administration had already processed approximately $100 billion in refunds, around 60% of the nearly $165 billion collected through the tariffs that were struck down.

When revenue turns into expenditure

This is one of the less visible aspects of the case. During 2025, tariffs provided the federal government with extraordinary revenue. Monthly customs-duty receipts exceeded $31 billion in October, strengthening the Administration’s argument that these taxes could also become an important source of funds for the Treasury.

The ruling reversed the flow. In June 2026, the government collected $23.6 billion in customs duties, but refunded $49.2 billion, resulting in a net outflow of $25.6 billion in that month alone. The refunds contributed to pushing the monthly federal deficit up to $120 billion.

An instrument presented as a source of revenue had temporarily become a multibillion-dollar expense.

Washington, however, has not abandoned its strategy. Following the legal defeat, the Administration has sought other mechanisms explicitly provided for in trade legislation. Among the most important is Section 301 of the Trade Act of 1974, which allows action against trade practices considered unfair, but requires prior investigations, hearings and administrative procedures.

By July 2026, the Administration had already used this route to impose new tariffs on dozens of economies, as well as a 25% levy on certain imports from Brazil.

Who reallypays a tariff?

This is where one of the great confusions in the political debate appears. When Washington imposes a 20% tariff on a product made in China, it is easy to think that the Chinese company pays that tax. Legally, however, that is not how it works. 

The company that pays the tariff at customs is the US company importing the goods. From that point on, an economic negotiation begins that varies depending on the product, the sector and each player’s ability to protect its margin.

The importer may absorb part of the cost, pressure the manufacturer to lower the price, seek an alternative supplier or pass the additional cost on to its customers. Very often, a combination of all these options occurs. 

Therefore, saying that a tariff is “paid by China” is a simplification. The tax is formally paid by the US importer, while its economic cost is ultimately distributed among companies, suppliers and consumers. 

This difference between who pays the tax to the authorities and who ultimately bears the burden is essential to understanding the paradox of the current refunds.

Tariffs also transform supply chains

The impact of a tariff policy does not end with higher prices. When importing from a particular country becomes more expensive, companies react. They look for new suppliers, move part of their production, replace components or bring purchases forward before the new taxes come into force.

This process can profoundly alter global supply chains. A company that imported components from China for decades may start buying them from Vietnam, Mexico or India, not necessarily because those countries are more efficient, but because the tariff changes the cost equation. 

This is precisely one of Trump’s political objectives: to reduce external dependence and encourage production in the United States. But the transformation comes at a price. Changing suppliers, restructuring contracts or modifying industrial processes requires time, investment and new logistics. 

Uncertainty must also be added to this. A company can adapt to a high tariff if it knows it will remain stable. Planning becomes much more difficult when rates change depending on presidential decrees, diplomatic negotiations or court rulings.

When the trade war reaches household budgets

The effects are not distributed equally among all families either. A high-income household can absorb the increase in the price of an appliance, a phone or a vehicle relatively easily. For a family with fewer resources, any increase in the cost of everyday goods weighs proportionally much more heavily on the budget. 

Another paradox appears here. A policy designed to protect US workers and strengthen domestic industry can also end up increasing the cost of the goods consumed by those same workers. 

Assessing the success of a tariff therefore requires looking beyond revenue or the reduction in imports. It is necessary to determine whether it has generated enough new industrial activity and employment to offset higher prices and the costs borne by companies and consumers. 

An economic and geopolitical weapon

Moreover, it would be a mistake to understand tariffs solely as a fiscal or industrial policy. For Trump, they are also a tool of geopolitical pressure. Washington can use access to the world’s largest consumer market as a negotiating instrument. Threatening new tariffs makes it possible to pressure other governments on trade, industrial and even political issues. 

The new levies adopted in July under Section 301 illustrate precisely this dimension. The Administration has justified them, among other reasons, by citing other countries’ responses to forced labour, trade practices considered unfair or policies that harm US companies. 

Tariffs thus become something more than taxes. They form part of the competition between powers to control markets, production, technology and supply chains. 

And now, who gets the money back?

The Supreme Court ruling introduces a new paradox. If much of the cost of the tariffs was ultimately passed on to companies and consumers, it would be easy to think that the refunds should also be distributed among all those who bore them. Legally, however, this is almost impossible.

The money is returned to importers because they are the ones who made the payment at customs. But this does not mean that these companies bore the entire cost. A company may have paid $10 million in tariffs and recovered part of that amount by increasing the price of its products. 

If the State now refunds the full $10 million, the question is inevitable: what happens to the consumers who paid more? 

Reconstructing the exact path of the tax is extraordinarily difficult. It would be necessary to determine what share was absorbed by the importer, what share was passed on to the distributor, what share ended up incorporated into the final price and what share was absorbed by the foreign manufacturer. The issue has already reached US courts, while some companies are considering whether to pass part of the refunds on to their customers. 

Each product, each company and each market reacts differently. For this reason, a court-ordered refund can restore the money to the party that legally paid the tax, but it can hardly reconstruct who actually bore the economic cost. 

The battle over tariffs continues

The legal defeat does not mean that Trump has abandoned his trade policy either. What has disappeared is a particular legal route for implementing it. 

In July, the Administration replaced much of the previous architecture with new tariffs under Section 301, including levies of between 10% and 12.5% on imports from numerous trading partners. Tariff policy therefore remains a central element of the White House’s economic strategy. 

Trump regards tariffs as a tool to reduce the trade deficit, protect US industry, bring production back and increase Washington’s bargaining power. His critics point out that they can also raise prices, harm companies that depend on imported components, trigger trade retaliation and reduce purchasing power. 

This is not merely a legal battle over presidential powers. It is a much deeper debate about what trade model the world’s largest economy wants to pursue and how much it is willing to pay to protect its domestic market.

The great $100 billion paradox

The story of these refunds leaves an economic lesson far more valuable than the figure itself. A tariff is not simply a tax on imports. It is a chain of costs that moves through the entire economy. The State collects it, the importer formally pays it, companies and consumers partially bear it and, when the courts order it to be refunded, the money goes back to the party that legally paid it, not necessarily to the party that bore its impact. Perhaps this is the best demonstration that, in economics, the most important question is almost never who pays, but who ultimately bears the real cost. 

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