[NEW YORK] A US trade court blocked most of President Donald Trump’s tariffs in a sweeping ruling on Wednesday (May 28) that found the president overstepped his authority by imposing across-the-board duties on imports from US trading partners.
The Court of International Trade said the US Constitution gives Congress exclusive authority to regulate commerce with other countries that is not overridden by the president’s emergency powers to safeguard the US economy.
“The court does not pass upon the wisdom or likely effectiveness of the President’s use of tariffs as leverage,” a three-judge panel said in the decision to issue a permanent injunction on the blanket tariff orders issued by Trump since January. “That use is impermissible not because it is unwise or ineffective, but because [federal law] does not allow it.”
Financial markets cheered the ruling. The US dollar rallied following the court’s order, surging against currencies such as the euro, yen and the Swiss franc in particular. Wall Street futures rose and equities across Asia also jumped.
The judges also ordered the Trump administration to issue new orders reflecting the permanent injunction within 10 days. The Trump administration minutes later filed a notice of appeal and questioned the authority of the court.
The court invalidated with immediate effect all of Trump’s orders on tariffs since January that were rooted in the International Emergency Economic Powers Act (IEEPA), a law meant to address “unusual and extraordinary” threats during a national emergency.
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The court was not asked to address some industry-specific tariffs Trump has issued on automobiles, steel and aluminium, using a different statute.
The decisions of the Manhattan-based Court of International Trade, which hears disputes involving international trade and customs laws, can be appealed to the US Court of Appeals for the Federal Circuit in Washington, DC, and ultimately the US Supreme Court.
Trade turmoil
Trump has made charging US importers tariffs on goods from foreign countries the central policy of his ongoing trade wars, which have severely disrupted global trade flows and roiled financial markets.
Companies of all sizes have been whipsawed by Trump’s swift imposition of tariffs and sudden reversals as they seek to manage supply chains, production, staffing and prices.
A White House spokesperson on Wednesday said US trade deficits with other countries constituted “a national emergency that has decimated American communities, left our workers behind, and weakened our defence industrial base – facts that the court did not dispute.”
“It is not for unelected judges to decide how to properly address a national emergency,” Kush Desai, the spokesperson, said in a statement.
The ruling, if it stands, blows a giant hole through Trump’s strategy to use steep tariffs to wring concessions from trading partners. It creates deep uncertainty around multiple simultaneous negotiations with the European Union, China and many other countries.
However, analysts at Goldman Sachs noted the order does not block sector-specific levies and there were other legal avenues for Trump to impose across-the-board and country-specific tariffs.
“This ruling represents a setback for the administration’s tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners,” analyst Alec Phillips wrote in a note.
Trump has promised Americans the tariffs would draw manufacturing jobs back to US shores and shrink a US$1.2 trillion US goods trade deficit, which were among his central campaign promises.
Without the instant leverage provided by tariffs, the Trump administration would have to find new forms of leverage or take a slower approach to negotiations with trading partners.
Initial reaction among Asian policymakers was muted, with Japan’s economy minister saying he would examine the details of the ruling, while the Bank of Korea said it saw the effective tariff rate on South Korean exports under the ruling falling to 9.7 per cent from 13.3 per cent.
Hong Kong’s financial secretary said the court decision would “at least bring President Trump to reason”.
Businesses hurting
The ruling came in a pair of lawsuits, one filed by the nonpartisan Liberty Justice Center on behalf of five small US businesses that import goods from countries targeted by the duties and the other by 12 US states.
The companies, which range from a New York wine and spirits importer to a Virginia-based maker of educational kits and musical instruments, have said the tariffs will hurt their ability to do business.
“There is no question here of narrowly tailored relief; if the challenged Tariff Orders are unlawful as to Plaintiffs they are unlawful as to all,” the judges wrote in their decision.
At least five other legal challenges to the tariffs are pending.
Oregon attorney general Dan Rayfield, a Democrat whose office is leading the states’ lawsuit, called Trump’s tariffs unlawful, reckless and economically devastating.
“This ruling reaffirms that our laws matter, and that trade decisions can’t be made on the president’s whim,” Rayfield said in a statement.
Trump has claimed broad authority to set tariffs under IEEPA. The law has historically been used to impose sanctions on enemies of the US or freeze their assets. Trump is the first US president to use it to impose tariffs.
The Justice Department has said the lawsuits should be dismissed because the plaintiffs have not been harmed by tariffs that they have not yet paid, and because only Congress, not private businesses, can challenge a national emergency declared by the president under IEEPA.
In imposing the tariffs in early April, Trump called the trade deficit a national emergency that justified his 10 per cent across-the-board tariff on all imports, with higher rates for countries with which the US has the largest trade deficits, particularly China.
The country-specific tariff rates were paused for 90 days a week later though the baseline 10 per cent duty was put in place for most nations. The Trump administration on May 12 said it was also temporarily reducing the steepest tariffs on China while working on a longer-term trade deal. Both countries agreed to cut tariffs on each other for at least 90 days. REUTERS
