Somebody’s paying the tariffs. Looks like it’s you. Source: OptimistiCallie
You probably missed V.O.S. Selections, Inc. v. Trump, a little-noticed case that is working its way through the courts.
Most investors are not paying attention to this. Maybe they should.
The underlying thesis? Congress, not the President, is the only entity empowered to implement tariffs. As per the U.S. Constitution, Article I, Section 8, Clause 1:
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States…”
Recall the April 2nd White House announcement threatening global reciprocal tariffs of 100%. That shocked the equity, fixed income, and currency markets. It also surprised numerous legal scholars, who were confident in their beliefs that the right to tax and spend — and that includes tariffs — lay solely with the Legislative and not the Executive branch of government. Congress, not the White House, is the entity the Constitution empowers.
Following those announcements, a lawsuit was filed on April 14th, challenging the Administration’s authority to declare an economic emergency and impose across-the-board tariffs under the International Emergency Economic Powers Act (IEEPA).1
The litigation argued it was an unconstitutional violation of the separation of powers because only Congress has the authority to levy tariffs. The plaintiffs were successful in front of a three-judge panel of the U.S. Court of International Trade. They concluded under the IEEPA, neither the President nor the Executive Branch could impose tariffs as a way to respond to longstanding trade deficits.
The ruling was stayed pending appeal. That appellate hearing was held today, in front of the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. The jurists appeared to be skeptical of the government’s arguments that declaring a state of emergency was simply an option to bypass the constitution.
The constitutional power to tax was given exclusively to Congress, and these tariffs increasingly resemble a tax on consumers. Reuters reported “Tariffs are starting to build into a significant revenue source for the federal government, with customs duties in June quadrupling to about $27 billion, a record, and through June have topped $100 billion for the current fiscal year.”
The nonpartisan Tax Foundation has reached similar conclusions. The tariffs imposed by President Trump’s current administration constitute “the largest tax increase on American households since 1993.” According to their analysis, the tariffs scheduled and imposed for a full year would increase federal tax revenues by $167.7 billion, or 0.55% of GDP. This makes them the largest single-year tax hike since 1993
Neal Katyal, former Principal Deputy Solicitor General in the U.S. Department of Justice, is leading the team of attorneys arguing on behalf of several small businesses.
Katyal discussed the case recently on TV recently; I found his arguments so compelling, I jotted some down:
“No president in 200 years has ever been able to unilaterally impose tariffs. This separation of powers goes all the way back to the Revolutionary War…”
“Congress gave President Lincoln all sorts of powers – including the power to blockade and ban all products from the South – but the one thing they didn’t do was grant him was the tariff power.”
“The constitution was very clear in saying there’s one branch that has the power to tariff and it isn’t the president and it isn’t the courts – it’s the Congress of the United States.”
“if you’re raising revenue, you’ve got to originate that bill in the House of Representatives… The president tried to do that in his first term and that legislation failed…”
“What’s happened here — and the way we’ve always historically done things — when presidents want to have trade authority or negotiate a deal or threaten tariffs, they go to Congress in advance and get that approval. They can’t go off on their own and say “Hey, I know what’s best and blow off Congress.”
All of the new tariffs are scheduled to go into effect tomorrow, August 1st.
I don’t get to play attorney very often these days, but every now and then I get a reminder that I didn’t completely waste three years in law school. This case is a prime example.
This could be a significant litigation. This is a case investors should not ignore…
See also:
US appeals court scrutinizes Trump’s use of tariffs as trade deadline looms (Reuters, July 31, 2025)
Trump Tariffs: Tracking the Economic Impact of the Trump Trade War (Tax Foundation, July 29, 2025)
U.S. Court of Appeals holds oral arguments in VOS Selections Inc v. Trump (7/31/25)
Previously:
Its the Law, Bitches! (July 19, 2010)
10 Things You Don’t Know (or were misinformed) About the GS Case (April 23, 2010)
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1. From Supply Chain Dive:
“On April 23, 12 states filed a parallel lawsuit, mainly making the same arguments. So, the USCIT consolidated the two cases, and a three-judge panel ruled on May 28 that the president had no authority to impose across-the-board tariffs under the IEEPA. As a result of the findings, the USCIT issued a permanent injunction against future tariffs.”
