Trump's Tariff Gambit Unraveled by Court and Chaos

The U.S. government's legal defense of President Donald Trump’s global tariffs faced a significant challenge when a federal appeals court ruled that the imposition of these tariffs was illegal under the International Emergency Economic Powers Act (IEEPA). The 7-4 decision by the U.S. Court of Appeals for the Federal Circuit on Friday upheld a prior ruling from the Court of International Trade, which had similarly concluded that Trump’s tariffs were improperly issued. However, the appeals court left the tariffs in place temporarily, pending further legal proceedings [1].

The ruling centers on Trump’s assertion of a national emergency to justify imposing a 10% baseline tariff on imports from multiple countries. The court found that IEEPA, which authorizes the president to address national emergencies, was never intended to serve as a legal basis for tariffs. The law makes no mention of tariffs or any of their synonyms, the court noted, calling into question the legality of Trump’s actions [1]. Wendy Cutler, a former U.S. trade negotiator, highlighted the confusion this ruling has caused among U.S. trading partners, many of whom are still in the process of negotiating bilateral trade frameworks or have already entered into agreements [1].

The legal battle has broader implications for global trade. The case, initiated by a coalition of Democratic-led states and small businesses, could lead to the removal of tariffs worth hundreds of billions of dollars and necessitate refunds for businesses that have already paid these levies. Elana Ruffman, representing a small toy business, expressed relief at the court’s decision, emphasizing that the manner in which the tariffs were implemented violated legal standards [1]. Mollie Sitkowski, a trade lawyer, noted that while the ruling applies to tariffs on China, Mexico, and Canada, it does not directly impact similar tariffs on Brazil and India [1].

The ruling also affects Trump’s so-called "reciprocal tariffs" imposed on August 7, 2024, on dozens of countries that failed to meet the administration’s trade negotiation deadlines. These tariffs, which included a 50% levy on Indian imports, have already created uncertainty in ongoing trade discussions. Cutler observed that some nations, like China and the EU, may now reassess their positions in negotiations, potentially slowing progress until there is greater legal clarity [1]. This uncertainty is further compounded by the lack of a clear next step for the Trump administration, which could either appeal the decision to the Supreme Court or allow the trade court to narrow the injunction against the tariffs [1].

The decision marks a setback for the Trump administration’s broader trade strategy, which has included measures such as imposing tariffs on EU products over concerns about digital regulations. Just days after a joint trade agreement with the EU, Trump warned of additional tariffs on countries with digital rules he viewed as discriminatory. The EU has maintained that its regulatory autonomy is a sovereign right and has reiterated the importance of predictable trade relations. However, experts like Dmitry Grozoubinski argue that Trump’s unpredictable approach undermines the very stability that such agreements aim to provide [2].

The ruling has also placed pressure on the EU to decide whether to take retaliatory measures. While some EU officials have called for the use of the Anti-Coercion Instrument—a tool designed to counteract trade blackmail—the Commission has refrained from commenting directly on its potential application. Meanwhile, the EU is expected to proceed with a proposal to reduce U.S. tariffs on cars and

Source:

[1] US Trading Partners 'Dazed and Confused' After Tariff Court Loss (https://news.bloombergtax.com/international-trade/us-trading-partners-dazed-and-confused-after-tariff-court-loss)

[2] EU faces first test of fragile trade truce with Trump - Politico.eu (https://www.politico.eu/article/eu-faces-first-reality-check-fragile-trade-truce-donald-trump/)