A divided three-judge panel at the U.S. Court of International Trade in Manhattan ruled on Thursday that President Donald Trump's 10 per cent global tariffs are unlawful, marking another significant setback for the administration's economic agenda. The decision came several months after the U.S. Supreme Court vacated earlier levies imposed by Trump under a different law.
Court Decision and Immediate Impact
The court granted a request by a group of small businesses and two dozen mostly Democrat-led states to vacate the tariffs, which were imposed in February under Section 122 of the Trade Act of 1974. This law had never been invoked before Trump's action. However, the injunction only blocks the administration from enforcing the tariffs against the two companies that sued and Washington state, stopping short of a universal injunction. The panel found that other states lacked standing because they are not direct importers, instead claiming harm from higher prices passed on by businesses.
Legal Basis Rejected
The majority of the panel rejected the administration's argument that "balance-of-payments deficits" is a malleable phrase. They concluded that Trump's proclamation failed to identify such deficits as defined by the 1974 law, instead using trade and current account deficits as substitutes. Section 122 allows presidents to impose duties during "fundamental international payments problems," but economists had debated whether Trump could build a solid legal framework under this statute.
Background and Previous Setbacks
This ruling is the latest in a series of legal challenges to Trump's tariff policies. Earlier duties imposed under the International Emergency Economic Powers Act (IEEPA) were overturned by the Supreme Court on Feb. 20, leading to a scramble for refunds of nearly $170 billion. The Justice Department may appeal this latest decision to the U.S. Court of Appeals for the Federal Circuit, which previously ruled against the administration.
Uncertainty for Importers
It remains unclear what the ruling means for other importers who have been paying the contested levies. The court's limited injunction leaves many businesses in legal limbo, awaiting further developments. The administration's use of Section 122 had been controversial from the start, with critics arguing that the trade deficit cited by Trump did not meet the law's criteria.
In his proclamation, Trump justified the tariffs by citing a "large and serious" trade deficit and negative net flows of investment income, claiming the U.S. balance of payments was deteriorating. The court's decision underscores the ongoing legal battles over presidential tariff authority and its limits under existing trade laws.
