Paying tariffs while suing to get them back

Importers are paying Section 122 tariffs at the border every week while paying lawyers to win the same money back. Corporate legal departments and controllers find the arrangement strange and tiring in equal measure.

Paying under protest

The Court of International Trade voided the Section 122 tariffs on 7 May. The administration appealed at once and won an emergency stay while the appeal is heard. For importers, that means the duties still apply and must be paid in cash at the port within ten days of a ship's clearance. In effect, corporate treasuries are lending money interest-free to a trade regime that a federal court has already found unlawful.

The stay reflects a judgement about which error is easier to fix. If the tariffs were suspended and the administration later won on appeal, collecting duties retroactively on goods already sold would be close to impossible. If they are collected and later found unlawful, the money can in principle be refunded. Courts faced with that asymmetry tend to leave the government's policy in place while the case proceeds, and importers bear the cost of the delay.

The long road through the courts

Appeals from the trade court go to the Court of Appeals for the Federal Circuit in Washington, and a case of this importance may well end up before the Supreme Court. Importers have seen how slow that path can be. The challenge to the emergency tariffs imposed under the International Emergency Economic Powers Act took the best part of a year to travel from the trade court's first ruling in May 2025 to argument before the Supreme Court, and refunds took longer still.

The Section 122 tariff has one feature the earlier ones lacked: a fixed expiry. Its 150-day statutory life ends later this month, so the flow of new payments will stop even if the appeal drags on. The stock of money already paid will not shrink, however, and it is that stock which is tied up in litigation.

Keeping the claim alive

Winning in court does not by itself put money back in an importer's account. Customs finalises each entry through a process called liquidation, usually about a year after the goods arrive, and once an entry is liquidated the importer generally has 180 days to file a protest to preserve its right to a refund. A company that fails to track those deadlines across thousands of entries risks losing money it would otherwise have recovered, which is why customs brokers and trade lawyers are doing brisk business.

Any eventual refund may carry statutory interest, but at a rate set by the Treasury rather than one that reflects a firm's own cost of capital. For a company borrowing at a spread over benchmark rates, the gap between what it pays its lenders and what the government eventually pays it is a real cost, and it grows with every month of delay.

Cash tied up for years

Paying under protest while appeals grind on for years drains working capital from companies that rely on imports. Millions of dollars that could go into investment or paying down debt sit instead in customs escrow accounts. For a retailer or distributor operating on thin margins, a 10 per cent duty on landed cost can absorb a large share of annual profit, and the cash has to be found before the goods are sold.

The accounting makes it worse. Under American accounting rules, companies generally cannot book a gain from a contingent refund until it is realised, so the duties show up as a cost in current results while any recovery is recognised only when the money arrives. Earnings are depressed now and flattered later, which complicates comparisons for investors and can put pressure on loan covenants tied to profit measures.

Who bears it most

The heaviest burden falls on smaller importers with limited access to credit. Large companies can fund the duties from existing cash or cheap borrowing, and may already have trade counsel on retainer. A small importer may have to draw on expensive credit lines or cut orders. Some firms may choose to sell their refund claims at a discount to investors willing to wait, turning an uncertain future receivable into cash now at a price.

Pricing decisions become a gamble too. An importer that passes the duty on to its customers protects its margins now, but if the tariff is later refunded it may face claims from those customers that the windfall belongs to them. An importer that absorbs the duty keeps its customers happy and any refund for itself, but only if it can survive the squeeze in the meantime. Either choice leaves someone arguing over money that may not arrive for years.

The government, meanwhile, gets the use of the money. Tariff receipts reduce the deficit today, and if the appeal fails, the refunds will add to borrowing at some later date. The cost is shifted in time rather than eliminated.

The government's case

The administration's argument deserves a fair hearing. It maintains that the tariffs are lawful and that the trade court misread the statute; if it is right, suspending collection would have cost the Treasury revenue it was entitled to and rewarded importers who timed their shipments around the litigation. Appeals courts do reverse lower courts, and a stay protects the status quo while that question is settled.

What to watch

The appeals court's schedule is the key variable: an expedited hearing would shorten the wait, while an en banc review or a petition to the Supreme Court would lengthen it. Customs guidance on how refunds would be processed, and whether it will extend liquidation on affected entries, will matter as much as the legal ruling itself.

Unless the appeals court moves faster than usual, importers will keep paying duties that a court has already struck down, and many will not see the money back for years. Small importers will carry the heaviest share of that cost, and the refunds, when they come, will flatter corporate earnings in a year when the tariffs themselves are long gone.