US trade court rules Trump tariffs illegal, but issues narrow block

NEW YORK - A US trade court dealt another blow to US President Donald Trump’s tariff strategy, ruling on May 7 that his latest 10 per cent global tariffs are unjustified under a 1970s trade law, but blocked the levies only for two private importers and the state of Washington.

The US Court of International Trade’s 2-1 decision leaves the temporary tariffs in place for all other importers while any appeal by the Trump administration plays out. They are expected to expire in July.

The court ruled that the imposition of tariffs under Section 122 of the Trade Act of 1974 was misguided. One of the judges said it was premature to grant victory to the plaintiffs.

While the ruling applies to a set of levies due to expire in about two months, it marks another major setback for Mr Trump’s global tariff ambitions and comes a week before he is due to discuss trade tensions with Chinese President Xi Jinping in Beijing.

It sets the stage for another protracted legal battle over billions of dollars worth of tariff refunds three months after the US Supreme Court struck down his sweeping global tariffs imposed under a national emergencies law.

Mr Trump blamed the trade court decision on “two radical left judges”. He told reporters in Washington: “So, nothing surprises me with the courts... We get one ruling and we do it a different way.”

His administration still intends to resurrect tariffs on major trading partners by invoking a third law that has withstood legal challenges – Section 301 of the Trade Act of 1974, which covers unfair trade practices. It has three Section 301 tariff investigations under way due for completion in July.

Narrow injunction

The New York-based Court of International Trade declined to issue an injunction that blocks the tariffs for all importers, rejecting a request from a group of 24 states, mostly led by the Democrats, saying those states did not have standing to ask for that relief.

“Private plaintiffs make no specific arguments for a universal injunction. Costs to one plaintiff is not an appropriate basis for the imposition of a universal injunction. Accordingly, the court declines to enter a universal injunction,” the ruling said.

The White House and the US Trade Representative’s office did not immediately respond to a request for comment.

“The opinion undoubtedly will be appealed by the United States and thus sets the stage for further consideration by the US Court of Appeals for the Federal Circuit and the Supreme Court,” said Mr Dave Townsend, a partner in Dorsey & Whitney’s International Trade Group, adding that other importers likely will now ask the court for a broader remedy that applies to more companies.

The court ruled that most of the states that sued, with the exception of Washington, were not importers who had paid or could have paid the Section 122 tariffs.

Washington submitted evidence that it paid tariffs through the University of Washington, a public research institution.

The two small businesses, toy company Basic Fun! and spice importer Burlap & Barrel, had argued the new tariffs were an attempt to sidestep a landmark US Supreme Court decision that struck down the Republican president’s 2025 tariffs imposed under the International Emergency Economic Powers Act.

Immediately after the Supreme Court ruling, he turned to the Section 122 statute, which allowed for duties of up to 15 per cent for up to 150 days to correct serious “balance of payments deficits” or head off an imminent depreciation of the dollar.

Wrong deficits, court rules

The court ruling on May 7 found the law was not an appropriate step for the kinds of trade deficits that he cited in his February order.

“This decision is an important win for American companies that rely on global manufacturing to deliver safe and affordable products. Unlawful tariffs make it harder for businesses like ours to compete and grow,” said Basic Fun! chief executive Jay Foreman.

“This ruling brings needed clarity and stability for companies navigating global supply chains,” he said in a statement.

Mr Jeffrey Schwab, who represented the importers, said applying the ruling only to the plaintiffs “brings up a lot of questions about how this will play out”.

The Trump administration had argued that a serious balance-of-payments deficit existed in the form of a US$1.2 trillion (S$1.52 trillion) annual US goods trade deficit and a current account deficit of 4 per cent of gross domestic product.

One former trade official said the administration will likely challenge the ruling and later in 2026 will be able to impose permanent tariffs under a different authority.

“The administration will appeal (against) this decision but it will continue collecting most of the 10 per cent tariffs under Section 122 until July 24, at which point we will likely have permanent Section 301 tariffs in place,” said Mr Ryan Majerus, a former senior US Commerce official now with the King & Spalding law firm.

He said Section 122 refunds will not be possible until the appeals courts have weighed in.

Mr Schwab said other companies could likely file lawsuits to seek refunds, although that depends in part on whether the government appeals or decides to let the tariffs expire on July 24 as scheduled. REUTERS