All Rise for Trade Court

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The judicial branch has entered President Donald Trump’s trade war, creating even more uncertainty in an already chaotic environment.

This Wednesday, a three-judge panel at the Court of International Trade (CIT) unanimously struck down all tariffs imposed by Trump under the auspices of the 1977 International Emergency Economic Powers Act (IEEPA), which included Trump’s Canada, China, and Mexico tariffs, as well as all Liberation Day tariffs. The CIT’s decision, which found that Trump exceeded the authorities granted by IEEPA, is the most consequential potential setback for the president’s trade agenda to date.

As expected, Trump’s team has already lodged an appeal and secured a temporary stay of the ruling, which will allow Trump’s IEEPA tariffs to remain in place through at least June 9. (Tariffs that Trump imposed by relying on other legal authorities on products such as aluminum and steel were unaffected by the ruling.) To hedge while the appeal process plays out, the administration could very well pursue a variety of other authorities beyond IEEPA, including Section 301 (unfair trade practices) and Section 232 investigations (national security) to impose country- and product-specific import duties. It may also impose temporary 15 percent tariffs under Section 122 on the basis of the United States’ balance of payments.

However, these workarounds will take time to implement and could be subject to further legal wrangling. I expect most of the administration’s ongoing trade negotiations to enter a holding pattern as our trading partners wait for the courts to digest the administration’s appeal. Trade ministers around the world will also hope, likely in vain, that the CIT’s ruling may curb the president’s love of tariffs.

For better or worse, it’s been all too easy to forget that there is more to trade policy than presidential decrees. This week’s ruling is a reminder that the judiciary and Congress still have a role to play, even if Trump eventually leverages other authorities to implement a tariff regime akin to the Liberation Day plan.

To further unpack the CIT’s ruling and its implications for the Trump administration’s trade policy strategy, I asked several of CFR’s leading experts to share their analysis. 

Edward Alden, senior fellow, analyzed the significance of the CIT’s ruling and its historical parallels. 

This will go down as one of the most important court decisions in U.S. history. Far from being just a narrow ruling against the tariffs, it is a powerful, definitive statement about the separation of powers and limits on the president’s authority. With President Trump announcing new tariffs almost daily on social media, it is easy to forget what the Constitution says: the power to levy tariffs rests solely with the Congress. The CIT reminds us clearly: “[A]n unlimited delegation of tariff authority would constitute an improper delegation of legislative powers to another branch of government.”

More specifically on President Trump’s “reciprocal tariffs,” the court notes explicitly that Congress in the 1974 Trade Act completely barred the president from using emergency powers in response to trade deficits. It is hard to see a higher court overturning this judgment.

The ruling may also have implications beyond trade and economics. It is one of the clearest judicial statements ever on the limits of the president’s “emergency” powers. It finds explicitly, for example, that the use of emergency tariffs to gain “leverage” over Mexico and Canada on drugs and illegal migration was not clearly authorized by Congress and is therefore impermissible. In doing so, the court has checked the increasingly expansive claims by presidents—not just the current one—that declaring an “emergency” confers unlimited powers to the president. 

The CIT rightly quotes the famous Yoshida II case on President Nixon’s 1971 imposition of tariffs under a previous law granting emergency economic authority. The words are more powerful than ever in our current moment: “The mere incantation of ‘national emergency’ cannot, of course, sound the death-knell of the Constitution.”

Rebecca Patterson, senior fellow, analyzed how markets here in the United States reacted to the CIT ruling.

The early financial market reaction to the court ruling was noteworthy. U.S. government bond yields rose, with the thirty-year Treasury yield climbing above 5 percent. This administration has been planning to use tariff revenue to help fund the budget package currently going through the reconciliation process. Less tariff revenue suggests a greater need for greater bond issuance to cover the deficit. U.S. bond yields that settle at higher levels, ultimately, will act as a drag on economic activity and growth. As the tariff story continues to evolve, it’s important to stay focused on the interplay between trade and fiscal policy and their implications.

On a related note, the U.S. dollar continues to struggle. This reprieve on tariffs seems unlikely by itself to change global investors’ desire to diversify their financial exposures at least marginally away from the United States. A weaker dollar adds to inflation somewhat and could moderate any monetary policy easing ahead.

Benn Steil, senior fellow and director of international economics, argued the CIT ruling was a longtime coming.

The CIT ruling should be seen in the wider context of the relentless growth in assertions of executive authority, most notably under IEEPA, over many decades—and in particular since Donald Trump’s first term. Resistance from the supposedly co-equal  judicial and legislative branches—a Madisonian blowback, if you will—is long overdue.

In addition to the administration’s inevitable appeal of the decision, we can expect tariffs to be re-imposed under alternative executive authority—most notably so-called “Section 232” (national security) and “Section 301” (unfair foreign practices). Negotiations with other countries will be even more chaotic than they’ve been, as the legality of Trump’s ever-changing tariffs—and the deals made to reduce them—could take months to sort out.

Brad W. Setser, senior fellow, assessed the future use cases for Section 232 or Section 301.

The CIT has struck down, for now, President Trump’s ability to threaten sky high tariffs on a whim. The ability to raise tariffs on China to 145 percent (and then lower them to 30 percent) and the ability to threaten the European Union (EU) with 50 percent tariffs with almost no notice rested on the ability to use the IEEPA as an all purpose tool to raise or lower tariffs.

The CIT, correctly in my view, thought IEEPA was a bridge too far for a statute that was intended to apply to true emergencies, and historically has been used for sanctions. America’s trading partners recognize that the President is a true tariff man, and that he has multiple legal avenues for new tariffs. The Section 232 cases now in place or in process will potentially cover about 40 percent of U.S. trade, or around 4 percent of GDP in trade. For Europe, the threat of 25 percent tariffs on autos, aviation, and pharmaceuticals matters more than the 10 percent universal tariff—and the same is true for South Korea (autos and semiconductors), Japan (autos and products that use semiconductors) and Taiwan (semiconductors). In all probability, additional 232 cases could be developed—heavy industrial equipment ties directly to military mobilization, chemicals are needed to manufacture explosives.

The existing Section 301 case against China can easily support the reimposition of 30 percent tariffs—call it “phase one enforcement.” It would not be hard to generate a new 301 case against Vietnam, a non-market economy still run notionally by a communist government with a massive export assembly business. 

The 10 percent base tariff covered about 7 percent of GDP in trade, as oil and North American trade were excluded. Replicating that level of coverage with 232s and 301s is imminently doable. It will just take more time, a lot more process and won’t allow the president the same ability to raise or lower tariffs over a weekend without any real capacity for interests that would be adversely affected by tariff shifts to provide comment. In other words, the trade war will slow down—and any really extreme outcome becomes a bit less probable.

Jonathan E. Hillman, senior fellow, analyzed the potential national security risks of widespread use of Section 232.

Unless the lower court’s decision is overturned, President Trump may turn again to one of his favorite tariff tools: Section 232, which allows the President to adjust imports that threaten to impair national security. Trump has already initiated fourteen Section 232 cases, almost three times more than any other president. There are three cases for tariffs that are already in place (steel, aluminum, and autos), and four cases where no action was taken (uranium, titanium sponge, transformers, and vanadium). Seven additional investigations are underway: copper, lumber, semiconductors, pharmaceuticals, trucks, critical minerals, and commercial aircraft/jet engines.

The risk of unintentional harm to U.S. national security rises without exemptions to these tariffs. The U.S. defense industry relies on tariff-free access to steel, aluminum, copper, and other inputs. As tariffs raise costs for these inputs, margins for a range of companies that support the defense industrial base will be squeezed, including small- and medium-sized businesses deeper in the supply chain. And because most tariffs are ultimately passed to the customer, the U.S. government will be effectively charging itself more to arm and equip the U.S. military. Section 232 is a powerful tool that must be used with care. Otherwise, the U.S. government may find itself paying more for less security.

Matthew P. Goodman, distinguished fellow and director of the Greenberg Center for Geoeconomic Studies, pointed to what to expect from the United States’ major trading partners. 

The May 28 court ruling on IEEPA may have surprised major U.S. trading partners but is unlikely to change their incentive to seek early trade deals with the Trump administration. For countries like Japan, Korea, and members of the EU, Section 232 tariffs on key products of export interest—notably automobiles, steel, and semiconductors—pose a more immediate threat than the reciprocal tariffs announced under IEEPA. 

On cue, Japan’s chief negotiator returned to Washington on Thursday for the second time in less than a week to meet with Treasury Secretary Scott Bessent. Tokyo is still hoping to strike a deal before the G7 Summit in Canada in mid-June that includes rollback of the 25 percent tariff on autos. Despite the new uncertainty around reciprocal tariffs, expect negotiators from other major countries to follow soon.

Inu Manak, fellow for trade policy, wrote earlier this week about the appeals process and what to expect as Trump seeks to get his agenda back on track.

CAFC has traditionally been more deferential to the president on issues involving national security. For example, in litigation over the first Trump administration’s aluminum and steel duties, the CAFC ruled in 2021 that the president has broad discretion to modify tariffs. The difference here is that this earlier ruling was in response to Section 232, not IEEPA.

That means that this appeals court decision and other similar questions about the president’s tariff authority may not affect the current case because of how Section 232 powers differ. For example, IEEPA doesn’t even use the word “tariff” to describe actions that the president can take. Furthermore, as I detailed earlier this year, the predecessor statute to IEEPA—the 1917 Trading with the Enemy Act—faced litigation under the Richard Nixon administration. The CIT cited this case, which determined that a president’s action needed to have an “eminently reasonable relationship” with the declared emergency, in its ruling on Wednesday.

The standard for using IEEPA to levy tariffs may therefore be different than in the case of Section 232 duties. The particular issues raised by IEEPA are explored in more detail in an amicus submission by my CFR colleague Jennifer Hillman.

The bottom line is that the Trump administration’s approach to trade policy has faced its first major obstacle, revealing the potential limits of executive authority over trade. Trump may finally have pushed too far.

We welcome your feedback on this column. Let me know what foreign policy issues you’d like me to address next by replying to [email protected].