Will Trump tariffs survive lawsuits? What to know about the legal battle

WASHINGTON – The vast majority of President Donald Trump’s tariffs remain in limbo after a federal appeals court ruled that they were issued illegally under an emergency law, while agreeing to keep them in place while the case proceeds.

The US Court of Appeals for the Federal Circuit on Aug 29 upheld an earlier decision by the US Court of International Trade. Both courts concluded that Mr Trump wrongfully invoked an emergency law, the International Emergency Economic Powers Act (IEEPA), to justify the duties – a rare rebuke as the courts tend to defer to the president on trade matters.

The appeals court allowed the tariffs to remain in place at least through Oct 14 to give the Trump administration time to make a final appeal directly to the Supreme Court, which it has said it will do. The appeals court also said the trade court should revisit its decision to block the relevant tariffs for everyone, rather than just the parties who filed suit.

Which tariffs does the ruling apply to? 

The trade court’s ruling applies to a minimum baseline tariff of 10 per cent on imports, with some exceptions, and to so-called reciprocal tariffs ranging from 10 per cent to 41 per cent on goods from countries that failed to reach trade deals with the US. It also affects extra levies on some imports from Mexico, China and Canada that Mr Trump said were justified by the fentanyl crisis in the US. 

The ruling does not affect the duties imposed on certain product categories using different legal foundations. For example, some levies on steel, aluminium and automobiles were put in place by harnessing Section 232 of the 1962 Trade Expansion Act. Those tariffs depend on a Commerce Department investigation that concluded that imports of such products pose a national security risk. The Trump administration has laid the groundwork to target pharmaceutical products and semiconductors, among other things, with Section 232 tariffs. 

The trade court’s ruling also doesn’t affect tariffs imposed under Section 301 of the 1974 Trade Act, which authorises levies based on unfair trade practices. Mr Trump implemented tariffs on billions of dollars of imports from China during his first term under Section 301, on goods including solar cells, semiconductors and medical supplies.

What powers does the president have to impose tariffs?

Article 1 of the US Constitution gives Congress the power to levy taxes and duties, and to “regulate commerce with Foreign Nations”. But lawmakers have for decades delegated parts of their power over trade via various bits of legislation, most of which allow presidents to deploy tariffs only for limited reasons.

While Mr Trump tested the boundaries of those powers in his first term, this time around, he invoked what he claimed were virtually unlimited powers under IEEPA to impose tariffs via executive orders. The 1977 law had never been used for this purpose before and doesn’t mention tariffs.

IEEPA grants the president authority over a variety of financial transactions during certain emergencies, although the typical tool is sanctions. Mr Trump cited US trade deficits with other countries and drug trafficking at the US border as national emergencies that allowed him to invoke the law to impose tariffs.

What did the trade court decide?

A panel of three judges unanimously concluded that because of the Constitution’s “express allocation of the tariff power to Congress”, IEEPA does not “delegate an unbounded tariff authority to the President”.

The ruling determined that Mr Trump’s initial executive order announcing global tariffs, as well as his subsequent order imposing additional levies on imports from countries that retaliated, exceeded the president’s authority under the emergency law. 

A third executive order, hitting goods from Mexico and Canada with tariffs, was deemed to be illegal because those levies do not ultimately attempt to address the emergency used to justify them.

The panel made clear that it was not passing judgment on the “wisdom or likely effectiveness of the president’s use of tariffs as leverage”. Instead, the judges said that Mr Trump’s imposition of tariffs was “impermissible not because it is unwise or ineffective, but because (federal law) does not allow it”.

The trade court was not the only one to rule against Mr Trump’s levies. A federal judge in Washington released a separate ruling on May 29 that declared unlawful a number of Mr Trump’s tariffs related to trade with China and other countries. US District Judge Rudolph Contreras limited his decision to the family-owned toy manufacturing businesses that sued. He delayed his order from taking effect until an appeal is heard. 

Who brought the cases that the trade court ruled on? 

The appeals court said the lower court should revisit its decision to block the IEEPA-based tariffs altogether and consider instead barring them just for the parties that filed suit in the two cases that resulted in the original May 28 ruling.

In doing so, the higher court pointed to a June ruling by the Supreme Court on Mr Trump’s efforts to restrict automatic birthright citizenship. That ruling barred federal judges from issuing so-called universal injunctions that go beyond the parties in a case and apply nationwide.

One of the two cases was filed on April 14 by the Liberty Justice Centre – a libertarian-leaning legal advocacy group – on behalf of five small businesses. The companies include a wine distributor in New York, a Vermont-based retailer of women’s cycling apparel, and a small electronics manufacturer in Virginia. 

In their lawsuit, they said that IEEPA does not grant the president authority to issue tariffs. In addition, they contended, the national emergencies cited by Mr Trump are invalid because trade deficits are “neither an emergency nor an unusual or extraordinary threat” and that even if they were, the emergency law does not allow a president to impose across-the-board tariffs. 

The other case, filed on April 23, was brought by the attorneys general of 12 Democratic-led US states. They made the same allegations and argued that Mr Trump’s tariffs amount to a massive tax on American consumers and infringe on the authority of Congress.

If IEEPA-based levies go down, what are the implications for Trump’s tariff agenda?

Not only would the administration no longer be able to collect IEEPA-based tariffs, it would face demands to refund those that have already been paid. The unravelling of a large portion of Mr Trump’s tariffs could exacerbate concerns about the state of America’s public finances. Bond market investors, in particular, have been questioning the trajectory of the country’s mounting debt load. The administration had cited increased tariff revenue as a way to offset the tax cuts adopted in the tax and spending Bill that Mr Trump signed into law on July 4. 

At the same time, the loss of IEEPA-based tariffs might not be a permanent setback for Mr Trump’s push to reshape global trade. Mr Trump has other tools available to impose tariffs, such as his Section 232 national security powers, though they are more limited than what he attempted to use IEEPA for. 

To take similarly sweeping action, he could temporarily roll out import taxes of as high as 15 per cent for a maximum of 150 days using a provision of the Trade Act. But this can only be done unilaterally in the event of a “large and serious” US balance-of-payments crisis, to help correct an international balance-of-payments disequilibrium, or to prevent an “imminent and significant” depreciation of the dollar.

The administration could also initiate investigations into countries’ unfair trade and economic policies under Section 301, but those would take longer to implement.

What is the US Court of International Trade?

The US trade court is part of the nation’s federal court system and was created by Congress to handle specialised disputes about trade and customs, including tariffs. Its decisions are appealed on the same track as rulings from district courts. 

Nine judges constitute the US Court of International Trade. As with other federal courts, these judges are appointed by sitting presidents, with the advice and consent of the Senate. The panel of three that oversaw the two tariffs cases were appointed by three separate presidents: Mr Trump, Mr Barack Obama and Mr Ronald Reagan. Bloomberg