Scott Lincicome, Alfredo Carrillo Obregon, and Chad Smitson
On May 12, Customs and Border Protection (CBP) filed its second progress report on the refund of illegal tariffs paid by American importers under the International Emergency Economic Powers Act (IEEPA). As we’ve discussed, the federal government owes importers $166 billion plus interest in refunds for the illegal “emergency” tariffs that the Supreme Court invalidated in February. This post updates our April 21 analysis in which we flagged the good, the bad, and the unknown from the launch of CBP’s online refund system (CAPE).
In accordance with a March 4 order from the Court of International Trade (CIT) mandating refunds to most importers, CBP launched “Phase 1” of its new mass refund system, CAPE, on April 20. As we’ve explained in more detail previously, IEEPA refunds are currently limited to entries that remained unliquidated or had been liquidated within 80 days. This system is not automatic, and importers must proactively fill out the complex (and rigorously scrutinized) applications to claw back the money illegally taken from them. As we concluded in our previous post, this will almost inevitably result in the government keeping billions of dollars it should never have had in the first place.
Still, it’s good to see some progress since we last discussed the issue—and even some refunds have started hitting US companies’ bank accounts. Here’s where things now stand:
In CBP’s first progress report (filed on April 28), it claimed that, of the 75,306 applications submitted by April 26, only 47,315, accounting for 11.2 million IEEPA entries, were successfully validated by CAPE. Refunds were then approved for 1.74 million of these entries (15.5 percent of those submitted, or 3.3 percent of all 53 million IEEPA entries). CBP also estimated that refunds would be distributed beginning on May 11 (later amended to May 12). Following this report, the CIT flagged several issues with CBP’s rollout, including login failures, confusion over importer-of-record designations, interest rate calculations, needlessly burdensome training events, and other sources of friction.
CBP has yet to address the court’s concerns, but its most recent report (May 12) shows some progress: Another 50,931 applications have been submitted, bringing the total up to 126,237 applications. Of those, 86,874 applications (68.8 percent) have been validated by CAPE, a marked improvement in the ratio compared to the first report. Most impressively, CBP has authorized refunds for another 6.6 million entries. Table 1 summarizes the progress from the April 28 report to the May 12 report across these metrics.
Another example of friction built into the system is the 1,880 approved refunds that haven’t been sent to the Treasury because the importers of record failed to register an electronic account on CBP’s payment portal. These firms successfully navigated the entire CAPE process but are stuck at the last step. Hopefully, this relatively simple issue is resolved soon.
CBP anticipates a first-wave payout of $35.46 billion, of which roughly $1.5 billion to $2 billion is interest. According to our previous calculations, $4.5 billion in interest has accrued on the initial IEEPA revenue (totaling $170.5 million in obligations), meaning 20.5 percent of the current total refund obligation has been liquidated. A notable omission, however: CBP did not specify how much of this has actually been paid out—some of these refunds are still being consolidated by CBP, some refund obligations have been sent to the Treasury, and only some of the money has been sent to the importers. It appears that around $3 billion in refunds/interest has actually been disbursed so far. This would seem to foreclose the government’s appeal of the CIT’s initial refund order, but we have to wait until the June 7 deadline to be sure.
Overall, however, it’s good to see the federal government paying out some of the money it illegally confiscated from American companies over the past year. But there’s still a long way to go before the Trump administration provides the complete restitution it owes to the companies and people who paid unlawful tariffs.
Most obviously, even an optimistic assessment of the refunds CBP has authorized so far—a little more than $61 billion, per the American Action Forum’s Jacob Jensen—leaves more than $100 billion in unlawful tariff revenue and interest still sitting with the government. As noted, CBP has officially authorized around half of Jensen’s estimates (Figure 1). So, we still have a long way to go.
It’s a similar story with the entries for which the illegal tariffs were paid: progress, yes, but far from the ultimate goal (Figure 2).
It’s also worrying that the first CBP report allowed us to calculate a rejection rate (2.1 million entries rejected out of 11.2 million validated yielded a rejection rate of about 19 percent), but the agency did not provide the number of entry rejections in this update, leaving us in the dark on any changes to the rejection rate. And CBP’s latest filing hasn’t responded to any of the concerns raised by the CIT following the first progress report, opting instead to report only the above headline numbers.
As a result, several of the major questions we flagged in our previous post remain unresolved. This includes:
When will CAPE begin processing entries left out of Phase 1 (which comprise about 37 percent of all IEEPA entries)?
How will the complexities of tariff-stacking (i.e., adding up multiple tariff regimes) affect the final payouts? Are importers receiving the full refunds they deserve, or is CBP nitpicking them to whittle down final refund amounts?
How many importers are simply opting not to participate because the administrative burden exceeds the payout—or out of fear of political retribution, consumer backlash, or illegitimate CBP scrutiny?
How many of these refunds are going to smaller firms? The CAPE process not being automatic places a disproportionate burden on small businesses, with several anecdotes and reports confirming this problem. Small business owners might therefore elect to cut their losses and forgo the refund process.
The numbers announced by CBP are not trivial, especially considering the complex refund apparatus and history of the government’s IT rollouts. But processing is not paying, and close attention should be paid to potential cuts to the bottom line we identified. The onus will be on the government for anything less than the full $166 billion (plus interest) returning to importers.