You (Probably) Won’t Get a Tariff Refund

February’s 6–3 Supreme Court ruling in the “emergency” tariff case—Learning Resources Inc. v. Trump—was a big victory for the rule of law and a smaller one for U.S. trade policy, but it wasn’t all good news. Yes, the court’s decision to invalidate the tariffs President Donald Trump imposed under the International Emergency Economic Powers Act (IEEPA)—effectively removing the biggest and most open-ended tariff weapon, while restoring a small check on increasingly unbounded executive power—was great, but the opinion left untouched the issue of how to return the billions in taxes that the government unlawfully collected.

This silence was expected, but it nevertheless left tariff refunds to be worked out by lower federal courts, administration officials, and private parties—a situation that raised practical, legal, and economic questions. Since then, some of those questions have been answered, and not all the answers are terrible. But the tariff refund process is still far from perfect, and it will generate many winners and undeserved losers due to the choices the administration is now making—and the ones it unwisely made last year about how to launch the president’s great tariff war.

A $166 billion mess.

Let’s first review how we got here. As regular readers know, the IEEPA tariffs were—ahem—legally dubious. The statute doesn’t mention tariffs, had never been used to impose them, and—while it does empower the president to take severe actions during a declared “emergency”—would need to be stretched beyond reason to allow for the unilateral creation of a permanent revenue-generating regime. Every federal court that considered the IEEPA tariffs agreed, culminating in a landmark Supreme Court decision that invalidated roughly $166 billion in duties collected since the first IEEPA tariffs were imposed last February.

That the court didn’t address the issue of refunding those billions wasn’t a big surprise. It rarely wades into technical stuff like that. But the lack of a mandated process set off a furious scramble to figure one out. It started with the case getting remanded back to the Court of International Trade (CIT) for disposition of the refund issue and with that court quickly deciding to give one judge responsibility for both refunds and the thousands of importer lawsuits that had been filed to obtain them. The judge also moved quickly, picking a single suit to order Customs and Border Protection (CBP) to refund all IEEPA tariffs immediately. So far, so good.

Then things got messy. The agency told the CIT judge that its existing import processing system simply couldn’t process mass refunds in the mandated timeframe. The judge relented and ordered CBP to quickly develop a new platform for processing mass refunds, and the agency officially launched the Consolidated Administration and Processing of Entries (CAPE) system last week.

The current situation: far from ideal, trending worse.

With CAPE, the refund process is underway, and that alone is worth celebrating, given that administration officials initially said they would fight any attempt to give back any of the illegal tariff money. Yet CAPE isn’t without problems—beyond some of the technical glitches importers and customs brokers have already reported.

As we’ve discussed, the law requires the government to return illegally exacted taxes; the Trump administration promised the courts that it would quickly refund any tariffs ultimately invalidated; and the ideal tariff refund system would be fast and automatic, with the government proactively returning collected duties to all importers that paid them. Sure, there would be some edge cases that required additional paperwork and bickering, but most refunds could be handled this way. In fact, CBP has issued big, automatic tariff refunds on multiple occasions and does smaller ones every day.

CAPE is far from this ideal and will inevitably allow the government to keep billions in illegally collected tariffs. The portal requires each of the roughly 330,000 importers that paid IEEPA tariffs to sign up for an electronic account, file detailed, entry-by-entry claim documentation, and wait for CBP to scrutinize their paperwork before getting a refund—a costly and bureaucratic process that CBP says will take at least another 60 to 90 days to complete for each importer. This requirement alone, CBP estimates, will exclude hundreds of thousands of (mainly small) importers who paid IEEPA tariffs last year.

At this stage, moreover, CAPE doesn’t apply to almost 40 percent of the entries (imports) on which illegal IEEPA tariffs were paid because, CBP claims, those are more technically burdensome. The agency says it will eventually get to most of these entries in subsequent phases, but there’s no timeline for when.

As I explained in a recent Cato blog post, making importers jump through bureaucratic hoops to get their refunds will inevitably reduce the number of those willing to take the plunge. Some, for example, will choose to forgo a refund because it would cost more to apply for it than they’re owed. (One CEO of a midsize company told me he’s already spent $30,000 on just CAPE paperwork.) Nonprofits and trade associations have stepped in to help defray costs, but this assumes importers even know about them. Many of the smallest ones unfortunately don’t.

Other importers will avoid CAPE because they’re worried it would be a red flag for heightened CBP scrutiny of their paperwork. Some firms have also expressed reservations about seeking refunds out of concern for political blowback or customer lawsuits—justified concerns, given that some lawsuits have already been filed, and that Trump has openly said he’ll “remember” the companies that don’t request refunds.

The system also enables CBP to scrutinize importers’ applications, potentially to reduce refund amounts owed or nitpick applications. On Wednesday, for example, we learned that during CAPE’s first week CBP immediately rejected more than a third (28,000) of the initial 75,000+ claims submitted, each of which can cover thousands of entries. Then CBP rejected another 16 percent of the claims that passed the initial screen (2.1 million of 13.3 million entries). Only 1.7 million entries that passed the second screen were on their way to getting a refund. Importers can refile the rejected claims, but that takes more time and money. And, presumably, these were the claims that importers thought would be easy.

Even for entries that eventually clear CBP’s screens, the actual refund amount is in doubt. The agency has already said that full refunds will not be given in many cases because CBP will consider other Trump tariffs that would have applied if IEEPA tariffs never existed, and that it will subject every refund application to a strict multistage review process. Heavy CBP scrutiny could also lead to penalties for past paperwork errors or even customs audits. Given the well-documented chaos of the 2025 tariff system, administrative errors related to these entries are likely (and have already been found). So, U.S. importers who submit applications expecting full refunds might eventually discover they’re getting much less—and maybe also getting a call from a government auditor.

To be clear, the CAPE system isn’t the worst-case refund scenario. But, as the chart below shows and as we’re already seeing, the system’s design will ensure that the administration ends up paying out much less than it owes. Whether that’s intentional is another question.

Finally, and perhaps most importantly, the government still has time to appeal the CIT’s refund order prior to paying anyone back. The deadline for doing that is June 6, so there’s still plenty of uncertainty about what comes next—and whether the Trump team will fight refunds more aggressively.

But what about consumers?

One thing we do know, however, is that consumers won’t be seeing a penny—at least not directly from the government. Yes, this stinks, but it also makes good sense.

No, really.

For starters, the law and court precedent are clear that tariffs are collected from and refunded to the “importer of record”—the party that brings goods into the country and files the official paperwork with CBP. This framework applies to other corporate and individual taxes, too, and there’s no serious legal argument that it should be abandoned today.

Refunds are delivered this way mainly for practical reasons, most of which are evident with the IEEPA tariffs. Over the last year, there have been millions of entries on which IEEPA duties were paid, and most of these goods traveled several steps in U.S. supply chains before reaching American consumers. It would be impossible for the government to track every transaction for every good after it clears customs, nor would any sane person want the feds to try. Furthermore, not every company passed full tariff costs on to consumers. As we discussed last year, in fact, the consumer price index was a little lower than economists predicted because many U.S. retailers and middlemen absorbed some or all of the tariff hit. Mandating that firms pay customers for money they never received would be both costly and unjust.

For companies that did fully pass on tariff costs, meanwhile, calculating exact refund amounts could be nightmarishly complex. Most didn’t give customers a tariff cost line item on their receipts, and many spread costs across numerous products—some made in America. Some companies, especially smaller brick-and-mortar guys or people working through third-party sellers, might not even know who their customers were. Determining refund amounts would require information they don’t have.

Fortunately, the market is working some of this out—all without government coercion. Some U.S. companies did itemize tariff surcharges and are already saying they’ll refund what the government returns. Most notably in this regard, “FedEx, UPS and DHL Express say they are working to secure tariff refunds on eligible shipments and issue the refunds back to the customers who originally paid them.” Even some companies that didn’t itemize or charge customers directly are getting into the voluntary refund game—often humorously (language warning!). Admittedly, most of these are smaller companies (likely hoping their benevolence will earn some free publicity), but even some larger retailers like Costco have committed to passing on refunds and IEEPA tariff savings where possible. As the National Retail Federation put it, “It may not be a specific item on a receipt that says, ‘This is a tariff refund,’ but you’re going to see the money returned to customers in many cases.” And that might pressure their competitors to do the same.

For many business-to-business transactions, moreover, tariff refunds have already been addressed: Contracts signed during 2025 included explicit tariff language, and importers will be legally obligated to pass refunds on when they get them from CBP. In other B2B cases, importers won’t keep “windfall” refunds because they want to maintain good relationships with their customers. Litigation here is likely inevitable, but companies will work to avoid it in most cases.

This system isn’t perfect: many firms won’t openly offer refunds, and it’s all but certain that American consumers won’t be made whole. But that outcome is not only the law, it’s probably the best we can hope for, given the lack of sound alternatives. Blame the tariffs for that unfortunate reality, not the people who paid them. And if you’re still mad at the government officials who created this costly mess, there’s always the ballot box.

Refund winners and losers—same as it ever was.

Although there’s still lots we don’t know about tariff refunds, the situation already has some clear winners and losers—assuming refund payments start trickling in.

Among the winners are larger companies that have in-house customs compliance departments, experience in dealing with CBP and related import bureaucracy, lawyers who can file lawsuits if things go sideways, and the patience (and capital) to endure the wait for refunds. These firms were better able to withstand the initial tariff onslaught, and they’re similarly better able to navigate a bureaucratic refund process. Larger firms also were more likely to have the market power needed to pass on tariff costs; if they can withstand public pressure to do the same with any refunds, they’ll end up with a big windfall.

The other big winner will be Wall Street. As has been widely reported, hedge funds and other investment firms saw an opportunity in the tariff chaos to buy refund rights from companies that didn’t want to risk a Supreme Court loss or a messy refund process. As the Journal notes, “With tariff-refund claims, investors are capitalizing on the uncertainty businesses and others face about whether they’ll ever be able to cash in—and how long it might take.” So, they were able to buy importers’ claims for pennies on the dollar, meaning a big payday—returns of two- to five-fold—when CBP pays up. And, as Reuters reported, these deals can be structured to avoid legal and PR trouble.

There are, unfortunately, also some big losers—beyond the consumers we already discussed. The biggest one will be smaller businesses that lack the resources to seamlessly navigate CAPE and deal with any fallout from past paperwork mistakes. Beyond money spent on brokers and lawyers, a recent NPR report shows, it takes small-business owners weeks to track down all the documentation needed to request a refund. Forced to spend many hours and dollars trying to get import data together for the possibility of eventually receiving a modestly larger tariff refund (or a customs audit), many small importers simply won’t bother—or they’ll sell their refund claims to Wall Street at a steep discount. Other importers simply won’t know about CAPE or some of the free refund services public interest firms are now providing. Others still will get fleeced by unscrupulous customs brokers charging exorbitant fees for relatively easy (for them) work—something that brokers on LinkedIn confirm is already happening. And, finally, there are the businesses that closed up shop before CAPE ever launched, sometimes because of massive and unexpected tariff bills.

Recall: Tariffs have already disadvantaged smaller U.S. companies versus larger rivals that can more easily navigate trade bureaucracy, rejigger supply chains, raise capital, lobby for carve-outs, absorb upfront tariff costs, or pass them on to customers. Refunds, unfortunately, will do similar things to the same businesses for the same reasons.

The other big loser is U.S. taxpayers. As detailed in a recent Cato blog post, all tariff refunds—IEEPA and otherwise—must include interest at a regulated rate of 4.5 percent for larger transactions and 6 percent for smaller ones, compounding daily. A total IEEPA tariff hit of $166 billion, we estimate, will add an interest cost of more than $20 million per day to the total amount the government must eventually dispense. Every dollar that the government does dispense is a dollar that American taxpayers—who are also tariff-hit consumers—will ultimately have to cover. And the longer the government delays refunds, the more money taxpayers owe. We calculate that the total interest tab likely exceeds $4 billion to $5 billion at this point, and it’s already about $1.5 billion larger than it was when the Supreme Court issued its ruling on February 20. And if the government were, as Trump suggested shortly after the ruling, to drag out refund litigation through the end of his term, taxpayers would owe U.S. importers roughly $25 billion more in interest alone. That’s almost the annual budget of NASA—and for no good reason.

Summing it all up.

So far, at least, the U.S. government’s approach to tariff refunds isn’t as bad as it could have been, especially given initial Trump administration indications that it would fight every step of the way. But the refund system is also not great, no less perfect, because it takes too long and places the burden on all the American importers who did nothing wrong, dutifully paid up, and are now owed their own money. And things could get worse in the coming days if the government appeals the CIT’s refund orders or if CBP searches for ways to narrow payouts or punish applicants for unintended paperwork mistakes made in CAPE or during the chaos of 2025.

Maybe it’s too much to ask for Washington to proactively offer quick and automatic refunds to all who paid Trump’s illegal tariffs, but it’s still frustrating that many businesses will be hurt, not to mention millions of consumers and taxpayers, too.

The most frustrating part, however, is that every single annoyance and injustice described in this column—the compliance burdens, the Wall Street arbitrage, the litigation and political grandstanding, the needless interest expenses—is a direct consequence of an administration that chose expediency over the law, confiscated $166 billion via a series of dubious unilateral taxes, and told federal courts to keep those taxes in place for most of last year because, if they lost at the Supreme Court, refunds would quick and easy for all who paid them. The IEEPA tariffs were not a close legal call; the administration gambled with other people’s money and lost big; and now, even in the best case, the government will get to keep billions in ill-gotten funds it never should have had. In this way, the refund saga is about more than paperwork burdens and legal chaos; it’s about who pays up when the government guesses wrong. And, as usual, it’s the Americans who can least afford it.

Markets FTW

“Endless Shrimp” is back, baby. When Red Lobster declared bankruptcy in 2024, its all-you-can-eat promotion took some of the blame. So why do the company’s new owners think it can work this time around? As the Washington Post reported this week, the company has introduced back-of-the-house changes to improve efficiency; it’s bumping up the price from $25 to $30 in some locations; and the promotion will be for a “limited time.” (Hey, it worked for the McRib, right?) WaPo provides some helpful tips for those interested in “shrimpmaxxing”: Skip the Cheddar Bay Biscuits, take it easy on the sides, and know that you need to eat 23 shrimp to get your money’s worth. Challenge: accepted.

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