Costco's Tariff Challenge: Brave or Foolish?

Is Costco brave or foolish going head-to-head with Trump over tariffs?

The stakes are high for the warehouse giant, listed as the sixth biggest watch and jewelry retailer in the US (as ranked by National Jeweler).

It filed suit in the US Court of International Trade late last month, seeking to halt future reciprocal tariff collections and have a full refund on all tariffs already paid, since their introduction in August.

In line with all other US companies, Costco has to pay 50 per cent on diamonds from India, and 39 per cent (later cut to 15 per cent) on Swiss watches.

A win would allow Costco to recover hundreds of millions of dollars paid so far on watches and jewelry (it sold $2.44bn worth last year) plus billions more on a vast range of goods from groceries and TVs to hearing aids and coffins.

A public defeat would mean a hefty lawyers' bill and humiliation. It would deter others from mounting similar legal challenges, and could well incur the wrath of Trump, a man who does not take kindly to those he sees as undermining American economic policy.

Costco really has put its head above the parapets here. Other companies are pursuing similar legal action - among them Revlon (cosmetics), EssilorLuxottica (eyewear) Bumble Bee Foods (food), Kawasaki Motors (motorcycles), and Yokohama Tire Corporation (auto parts).

But Costco is the only major US retailer among them that is publicly suing the Trump administration. Others have complained in private or adjusted their pricing, but only Costco has opted for the legal route.

Costco has the financial clout that goes with a $250bn-plus annual revenue, and it is willing to fight where it sees injustice.

It has repeatedly raised wages above industry norms, taken firm stands on sustainability issues, such as the sourcing of seafood and palm oil, and has defied its competitors in publicly resisting markups and aggressive retail pricing strategies.

Costco's core argument is that Trump's imposition of tariffs exceeds his presidential authority under the International Emergency Economic Powers Act (IEEPA).

In May 2025, a three-judge panel of the US Court of International Trade (CIT) ruled that many of Trump's sweeping tariffs were unlawful because the IEEPA does not explicitly grant the president the power to impose tariffs on imports. But nor does it explicitly deny him those powers.

It could go either way. The US Court of Appeals for the Federal Circuit upheld that decision in July, but recognized that the case raised constitutional and statutory issues of such enormity that can only be dealt with by the Supreme Court.

So, given that the wind appears to be blowing in the right direction, why are Costco and its fellow plaintiffs going to court? Why don't they bide their time and wait for the Supreme Court to rule, or lobby Congress, or put up their prices, or find suppliers from countries with lower tariffs?

In a nutshell, it's all about timing. Costco could miss the moment because of  US Customs and Border Protection (CBP) "liquidation" rules, even if the Supreme Court ultimately rules in its favor.

Liquidation means full and final settlement of duties, taxes, and fees. And full and final means even if the law subsequently changes, there's no going back. Except it's a bit more complicated than that.

By filing before 15 December - the liquidation date for many of Costco's imports including watches and jewelry - it pauses that liquidation, and will still benefit if it wins the case.

Ultimately Costco's move is calculated boldness rather than reckless bravado. It is fighting two battles at the same time, one out of self-interest, the other altruistic.

Both hinge on the same Supreme Court ruling. If the judges decide to outlaw Trump's tariffs, Costco will win back the money it's already paid, unlike every other company that has not mounted a legal challenge.

But a victory would also mean, going forward, that Trump is forced to repeal the tariffs, which would be a win for everyone else as well.

If the court moves quickly - which is not likely - this could be resolved by the end of the year. More realistically, given the complexity and far-reaching consequences of the case, we're looking at May to June 2026.

Have a fabulous weekend.