In a setback to Donald Trump, the federal appeals court ruled on Friday that the US President had no legal right to impose sweeping tariffs on almost every country, but allowed them to remain in place for now, giving him time to take the fight to the Supreme Court.
The ruling from the US Court of Appeals for the Federal Circuit found Donald Trump overstepped his authority under an emergency powers law, a major legal blow that largely upheld a May decision by a specialised federal trade court in New York.
The ruling is seen as a big jolt to Trump, whose erratic trade policies have rocked financial markets, paralysed businesses with uncertainty and raised fears of higher prices and slower economic growth.
Which tariffs did the US court knock down?
The court’s decision centres on the tariffs Trump slapped in April on almost all US trading partners and levies the president imposed before that on China, Mexico and Canada.
Trump, declaring April 2 as Liberation Day, introduced “reciprocal” tariffs, as high as 50 per cent on nations with which the US runs a trade deficit, and a standard 10 per cent on most other countries.
Trump later suspended the reciprocal tariffs for 90 days to give countries time to negotiate trade agreements with the United States, and reduce their barriers to American exports.
While some nations such as the UK, Japan and the EU accepted one-sided agreements to avoid tougher measures, others were punished for resisting. Earlier this month, Laos was hit with a 40 per cent duty and Algeria with 30 per cent, even as Trump kept baseline tariffs intact.
Trump justified tariffs
Claiming extraordinary power to act without congressional approval, Trump justified the taxes under the 1977 International Emergency Economic Powers Act by declaring the United States’ longstanding trade deficits “a national emergency”.
In February, he had invoked the law to impose tariffs on Canada, Mexico and China, saying that the illegal flow of immigrants and drugs across the US border amounted to a national emergency and that the three countries needed to do more to stop it.
Why did US court rule against Donald Trump?
The US administration had argued that courts had approved then-President Richard Nixon’s emergency use of tariffs in the economic chaos that followed his decision to end a policy that linked the US dollar to the price of gold. The Nixon administration successfully cited its authority under the 1917 Trading With Enemy Act, which preceded and supplied some of the legal language later used in IEEPA.
In May, the US Court of International Trade in New York rejected the argument, ruling that Trump’s Liberation Day tariffs “exceed any authority granted to the President” under the emergency powers law. In reaching its decision, the trade court combined two challenges — one by five businesses and one by 12 US states — into a single case.
On Friday, the federal appeals court wrote in its 7-4 ruling that “it seems unlikely that Congress intended to … grant the President unlimited authority to impose tariffs.”
A dissent from the judges who disagreed with Friday’s ruling clears a possible legal path for Trump, concluding that the 1977 law allowing for emergency actions “is not an unconstitutional delegation of legislative authority under the Supreme Court’s decisions,” which have allowed the legislature to grant some tariffing authorities to the president.
So what’s next for Donald Trump?
The government has argued that if Trump’s tariffs are struck down, it might have to refund some of the import taxes that it’s collected, delivering a financial blow to the US Treasury.
Revenue from tariffs totalled USD 159 billion by July, more than double what it was at the same point the year before. Indeed, the Justice Department warned in a legal filing this month that revoking the tariffs could mean “financial ruin” for the United States.
It could also put Trump on shaky ground in trying to impose tariffs going forward.
“While existing trade deals may not automatically unravel, the administration could lose a pillar of its negotiating strategy, which may embolden foreign governments to resist future demands, delay implementation of prior commitments, or even seek to renegotiate terms,” Ashley Akers, senior counsel at the Holland & Knight law firm and a former Justice Department trial lawyer, said before the appeals court decision.
Trump vowed to take the fight to the Supreme Court. “If allowed to stand, this Decision would literally destroy the United States of America,” he posted on his social media platform.
What options does Trump have now?
Trump does have alternative laws for imposing import taxes, but they would limit the speed and severity with which he could act.
For instance, in its decision in May, the trade court noted that Trump retains more limited power to impose tariffs to address trade deficits under another statute, the Trade Act of 1974. But that law restricts tariffs to 15 per cent and to just 150 days on countries with which the United States runs big trade deficits.
The administration could also invoke levies under a different legal authority, Section 232 of the Trade Expansion Act of 1962, as it did with tariffs on foreign steel, aluminum and autos. But that requires a commerce department investigation and cannot simply be imposed at the president’s own discretion.
William Reinsch, a former senior commerce department official now with the Center on Strategic and International Studies, said the Trump administration had been bracing for this ruling. “It’s common knowledge the administration has been anticipating this outcome and is preparing a Plan B, presumably to keep the tariffs in place via other statutes.”
(With inputs from AP, AFP, Reuters)
