NextFin News - The US Court of International Trade hears arguments Wednesday on whether President Donald Trump's forced-labor tariffs - duties of 10% to 12.5% on goods from 60 trading partners covering 99.4% of US imports - are a lawful exercise of trade authority or a relabeled version of the tariff power the Supreme Court struck down in February.
The hearing is the second act of a fight that looked settled when the Court ruled 6-3 against the president's emergency tariffs. It was not settled. It merely moved to a different statute, and the same small-business plaintiff that won in February - Learning Resources, the family-owned toy company in Vernon Hills, Illinois - is back in court, arguing that a forced-labor rationale cannot do what a national-emergency rationale failed to do: give one branch the power to tax the world's trade.
The Case on the Docket: A Panel, Three Lawsuits, One Question
On Wednesday, September 30, 2026, a three-judge panel at the Court of International Trade in New York - appointed by Presidents Trump, Barack Obama and Joe Biden - will hear a consolidated challenge to the forced-labor duties. Four small businesses and 25 Democratic-led states, led by the attorneys general of Oregon, Arizona and California, argue that the tariffs far exceed the president's authority. The panel is not expected to rule from the bench; a written decision will follow sometime after the hearing.
The tariffs at issue were imposed under Section 301 of the Trade Act of 1974 and took effect at 12:01 a.m. Eastern Time on July 24, 2026. They followed a March 12, 2026 launch of Section 301 investigations into forced labor in global supply chains and June 2, 2026 determinations that 60 economies had failed to adequately prohibit or enforce prohibitions on goods produced with forced labor. Additional duties of either 10% or 12.5% apply to most imports from the covered partners, subject to limited product exclusions. The European Union and Taiwan face a blended rate that brings the combined ordinary and Section 301 duty to 10%; Japan, South Korea and Switzerland face a blended 12.5%.
The challengers' central claim is that Section 301 requires country-specific findings about unfair trade practices to be legally justified, and that the administration conducted no real investigation into forced labor. In their court filings, the states argue the investigation "targeted 60 economies at once, instead of investigating by individual country," and that the new tariffs "are pretextual and are not targeted to address the purported harms of forced labor but instead are designed to re-create the tariffs already declared illegal by various courts." The Justice Department, for its part, contends it did conduct real investigations into each of the 60 partners' failure to prevent imports of forced-labor goods and concluded tariffs were warranted for each.
The plaintiff with the most at stake is Learning Resources itself. The company, which outsources about half of its manufacturing to China, saw its annual duties on toys jump from $2 million to $14 million last year. It raised prices across product lines in 2025, then held prices flat through 2026 to pass rebated tariff money back to customers while it waited for the refund process to play out. For a company of 500 employees, the difference between a 10% duty and no duty is not a line item; it is the margin between absorbing a cost and cutting a product line.
From IEEPA to Section 301: The Same Power, a Different Label
The forced-labor tariffs did not appear out of nowhere. They are the third iteration of a tariff program that has already lost its first two legal vehicles. On February 20, 2026, the Supreme Court decided Learning Resources, Inc. v. Trump and V.O.S. Selections v. United States, holding 6-3 that the International Emergency Economic Powers Act does not authorize the president to impose tariffs. The decision struck down the fentanyl-related tariffs on Canada, Mexico and China and the broader reciprocal tariffs imposed over trade-deficit concerns.
President Trump responded immediately by imposing a temporary 10% global tariff under a different authority, Section 122 of the Trade Act of 1974. The states' complaint records that the trade court ruled in May that the president acted unlawfully under that statute as well. When that regime ended, he invoked Section 301 to impose the forced-labor duties now being challenged. The sequence matters. It is not merely a policy preference for tariffs; it is a pattern of statutory migration. Each time a court closes one door, the administration opens another, keeping the tariff rate in place while the legal justification changes underneath it.
Tariffs are taxes, and the American people cannot and should not shoulder the extra costs that come from the President's failed and illegal economic policy - no matter how much the President wants them to.
Section 301 is, on its face, a different instrument from IEEPA. It authorizes the US Trade Representative to respond to foreign acts, policies or practices that are unreasonable or discriminatory and burden US commerce. That is a trade-law hook, not an emergency-power hook. But the challengers' argument cuts beneath the label: a statute that requires country-specific findings of unfair conduct cannot legitimately support a near-uniform 10% or 12.5% levy on 99.4% of everything the United States imports from 60 economies at once. The uniformity of the rates - only two, covering almost the entire import base - looks less like a series of targeted unfair-practice remedies and more like the global tariff the Court already rejected.
The stakes extend well beyond the legal theory. The Tax Foundation estimates that more than $160 billion in duties were collected under the invalidated IEEPA tariffs through February 20, 2026, and that the program would have raised roughly $1.4 trillion from 2026 through 2035. On March 4, 2026, the Court of International Trade ordered US Customs and Border Protection to refund IEEPA duties on unliquidated entries, and in late May Senior Judge Richard Eaton pressed the agency on its refund process before ordering a $166 billion refund. The Justice Department appealed that refund order to the Federal Circuit in early June 2026. Importers, in other words, still cannot count on the money. The legal uncertainty is itself a cost.
Why the February Ruling Did Not End the Tariff Fight
It is tempting to read the February decision as the end of the story: the Court said no, and the tariff presidency blinked. The subsequent seven months argue otherwise. The 6-3 ruling was narrow in its text - IEEPA does not authorize tariffs - but the administration treated it as a speed bump, not a stop sign. A temporary 10% tariff within days, then a forced-labor program covering the same trading partners by late July, signals that tariff policy is a structural feature of this administration's statecraft, not a legal aberration that a single opinion can correct.
The structural reason the fight persists is that the Court's February opinion left other tariff authorities untouched. Section 301, Section 232 of the Trade Expansion Act, and Section 122 all remain available. So long as any one of them can be stretched to support a broad levy, the tariff power migrates rather than disappears. The question before the Court of International Trade on Wednesday is therefore not simply whether these particular duties survive. It is whether there is any line that a court can draw on the underlying authority, rather than on the label the White House attaches to it.
There is also a separation-of-powers current running beneath the trade-law arguments. The Constitution gives Congress, not the president, the power to lay duties. Modern trade statutes delegate portions of that power to the executive, but the scope of the delegation is exactly what is being tested. If Section 301 can be read to authorize a near-universal tariff on the strength of a single investigation into a general practice - forced labor in global supply chains - then the delegation has effectively become a blank check. That is the major-questions shadow over the case, even if the panel decides it on narrower administrative-law grounds.
The Second-Order Effect: Uncertainty Becomes the Tax
The first-order effect of the forced-labor tariffs is the duty itself: 10% or 12.5% on most imports from 60 economies. The second-order effect is what that does to business planning. An importer cannot price a contract, choose a supplier, or commit to a retail season when the legal basis for a double-digit levy can change three times in seven months. The rational response is not to absorb the cost; it is to assume the cost is permanent until a court says otherwise, and to build supply chains that price in litigation risk.
That dynamic has two cross-market consequences. First, it accelerates supply-chain diversification away from China and other high-risk origins - but it also nudges some exporters to treat the United States as a less reliable market, encouraging side deals and bilateral arrangements that fragment the trading system. Second, and more important for investors, it has trained the market to treat tariff headlines as transient legal noise rather than permanent terms-of-trade shifts. Equity indices and the dollar have shown declining sensitivity to tariff announcements over the course of 2026, a sign that traders are discounting the probability that any single tariff survives intact.
That complacency is the trap. If Section 301 survives this challenge, the 10% to 12.5% duties stop being headline risk and start being embedded cost - passed through to consumer prices, reflected in importer margins, and baked into inflation expectations. The market's current indifference assumes the courts will eventually draw the line. Wednesday's hearing tests that assumption directly.
The Counter-Thesis: Section 301 Is a Different, Lawful Tool
The strongest case for the administration is not that tariffs are good policy, but that Section 301 is a genuinely different authority from IEEPA, and that this program used it properly. Section 301 exists precisely to respond to unreasonable foreign practices that burden US commerce. Forced labor in supply chains is a legitimate, widely condemned practice; the European Union has moved in a parallel direction with its own forced-labor import regime. If the US Trade Representative conducted real investigations and made country-specific findings for each of the 60 partners, the tariffs are targeted remedies for documented unfair conduct - the exact thing Section 301 authorizes - rather than a relabeled emergency power.
This counter-thesis attacks the core of the challengers' case. If the administrative record contains genuine, differentiated findings for each economy, then the uniform-looking rates are a coincidence of policy design, not evidence of pretext. The administration's court papers make exactly this argument: real investigations, real conclusions, tariffs warranted for each partner.
The answer to that argument lies in the record the panel will scrutinize. Two features cut against the administration. One is breadth: a program covering 99.4% of US imports is hard to square with a statute aimed at specific unreasonable practices by specific countries. The other is uniformity: two rates, 10% and 12.5%, applied across dozens of economies with very different labor conditions, suggests the findings followed the rates rather than the rates following the findings. The falsifying signal is concrete: if the Court of International Trade finds that the USTR record contains genuine, differentiated country-specific findings and upholds the tariffs on the merits, the relabeled-power thesis fails. If the panel orders a remand demanding real findings, or blocks collection on the ground that the investigation was a template, the challengers' reading wins.
What Comes Next: Beneficiaries, the Exposed, and the Watch List
The immediate beneficiaries of a challengers' victory are the plaintiffs and the importers awaiting refunds - retailers, toy companies, consumer-electronics sellers, apparel importers and automakers with Asian supply chains. Domestic producers that compete with those imports benefit from the duties regardless of the legal theory, which is why the policy has such durable support inside the administration.
The forward path splits by time horizon. In the short term - the weeks after Wednesday's hearing - expect no immediate change. The panel will issue a written ruling, and either side will appeal an adverse outcome. During appeal, the duties generally remain in effect, so the $166 billion refund order stays contested at the Federal Circuit. In the medium term - through the 2026 holiday season - retailers importing toys, electronics and apparel from the covered economies will be pricing in duties that may or may not survive, a planning headache with real margin consequences. In the long term, the case is one front in a larger reassertion of congressional control over tariff authority; a bipartisan major-questions push in Congress is the plausible endgame if the courts keep allowing statutory migration.
Three scenarios frame the outcome. The base case is that the panel narrows or blocks the forced-labor tariffs on procedural or record grounds, the administration appeals, and the duties remain in place during review. The upside case for challengers is a merits ruling that Section 301 cannot support a near-universal tariff without genuine country-specific findings; refunds gain momentum, and the inflation impulse from import prices fades. The downside case is that the panel defers to the USTR's findings, the 10% to 12.5% duties become embedded cost, and import-price inflation picks up by a few tenths - a number the Federal Reserve would note even as it weighs other data.
The signal to watch is the panel's treatment of the USTR record. A remand for genuine findings points to a win for the challengers' theory; deference to the existing record points to embedded tariffs. Either way, the February ruling was the end of IEEPA tariffs, not the end of the tariff presidency.
The takeaway: the Supreme Court killed one tariff statute in February, but it did not kill the tariff presidency - and Wednesday's hearing will show whether the Constitution's tariff power lives in Congress or migrates forever to whichever law the White House reaches for next.
Explore more exclusive insights at nextfin.ai.
