Court Challenges Trump's Tariff Power, Threatens Trade Strategy's Foundation

Federal appeals court rulings on President Donald Trump’s expansive tariff policies have introduced significant uncertainty for corporate leaders, prompting experts to advise chief financial officers (CFOs) to prepare for ongoing legal and economic turbulence. The U.S. Court of Appeals for the Federal Circuit ruled in a 7-4 decision that Trump’s use of the International Emergency Economic Powers Act (IEEPA) to justify tariffs on nearly all countries was legally invalid, marking a major setback for the administration’s trade strategy. The decision temporarily pauses its implementation until October 14, allowing the administration to seek review from the U.S. Supreme Court [1].

The ruling directly targets so-called “reciprocal” tariffs—levies imposed on countries with which the U.S. maintains trade deficits—as well as earlier tariffs on Canada, Mexico, and China, which were justified under IEEPA as measures to combat drug trafficking. The court emphasized that tariffs are a “core Congressional power” under the Constitution and that IEEPA does not explicitly grant the president the authority to impose such levies [2]. This conclusion aligns with a previous May ruling by the U.S. Court of International Trade, which struck down the same tariffs but was stayed during the appeals process [1].

The implications for U.S. trade policy and economic stability are significant. Tariffs collected under IEEPA have contributed to a surge in federal tariff revenue, which reached $159 billion by July 2025—more than double the figure from the previous year. A reversal of these policies could create a financial shortfall for the U.S. Treasury, as the Justice Department has warned that refunding collected import duties could lead to “financial ruin” for the government [1]. Meanwhile, importers and U.S. consumers—who absorb a portion of the tariff costs—may also face economic headwinds if the policy shifts abruptly.

The court’s decision has also raised broader legal and strategic concerns. Ashley Akers, a former Justice Department trial lawyer, noted that if Trump’s tariffs are invalidated, the administration could lose a key pillar of its trade negotiating strategy, potentially emboldening foreign governments to resist future demands or renegotiate existing agreements [1]. The ruling also challenges the administration’s ability to maintain leverage in ongoing trade negotiations, particularly with countries that previously agreed to reduce trade barriers in exchange for tariff relief [2].

Legal experts have pointed to the potential for further escalation. The Trump administration has signaled its intent to challenge the decision in the Supreme Court, which has shown increasing skepticism of executive overreach in recent years. Should the Supreme Court take up the case, it will likely weigh whether the IEEPA provides sufficient legal authority for such expansive tariffs and whether the president’s actions align with congressional intent [2]. The case is expected to test the boundaries of executive power and the “major questions doctrine,” which the court has previously used to limit sweeping executive actions not explicitly authorized by Congress.

For now, the tariffs remain in effect, and the administration has defended their necessity for protecting U.S. national security and economic interests. However, the court’s ruling has introduced a cloud of legal uncertainty that is likely to persist for months, if not years. In light of these developments, financial analysts have urged CFOs to prepare for market volatility and to consider hedging strategies that account for potential changes in trade policy [1]. As the legal battle continues, the financial sector will be closely watching for any indication of how these developments might impact global supply chains, import costs, and consumer prices.

Source:

[1] A federal appeals court ruled against Trump's tariffs. Here's ... (https://www.cbsnews.com/news/trump-tariffs-federal-appeals-court-rules-illegal-what-happens-next/)

[2] US court rules many of Trump's global tariffs are illegal (https://www.bbc.com/news/articles/ckgj7jxkq58o)

[3] Most Trump tariffs ruled illegal by appeals court (https://www.cnbc.com/2025/08/29/trump-trade-tariffs-appeals-court-ieepa.html)