Trump’s latest 10% tariffs found unlawful by US trade court

President Donald Trump’s 10% global tariffs were declared unlawful by a federal trade court in a fresh blow to the administration’s economic agenda, just months after the US Supreme Court vacated earlier levies he’d imposed.

A divided three-judge panel at the US Court of International Trade in Manhattan on Thursday granted a request by a group of small businesses and two dozen mostly Democrat-led states to invalidate the tariffs. Trump imposed the 10% duties in February under Section 122 of the Trade Act of 1974, which had never previously been invoked.

The court for now only immediately blocked the administration from enforcing the tariffs against the two companies that sued and Washington State, however, making clear that it was not issuing a so-called “universal injunction.” The panel found that the other states lacked standing because they aren’t direct importers, instead arguing that they were harmed by having to pay higher prices for goods when businesses passed on tariff costs.

Asked about the ruling on Thursday evening, Trump told reporters that “we had two radical left judges who voted against it. So nothing surprises me with the courts. Nothing surprises me. So we always do it a different way. We get one ruling, and we do it a different way.”

It wasn’t immediately clear what the ruling would mean for now for other importers that have been paying the contested levies. Jeffrey Schwab, a senior counsel for Liberty Justice Center, who represented the small businesses that filed one of the cases before the trade court, said the next steps would depend on how the administration responds and whether the US Justice Department will appeal.

A Justice Department spokesperson did not immediately respond to a request for comment.

Jay Foreman, chief executive officer of Basic Fun, one of the companies that sued, praised the decision on a call with reporters, saying that it took “a lot of guts and chutzpah” for small businesses to put themselves on the line. Foreman said his company has been paying the contested tariffs almost daily since they took effect, and estimated they had paid more than $100 000 so far.

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US customs authorities collected roughly $8 billion in Section 122 tariffs in March alone, according to government data analyzed by We Pay the Tariffs, a coalition of small businesses.

“Today’s ruling is more positive news for the small businesses that have been crushed by these illegal taxes,” Dan Anthony, who leads the coalition, said in a statement following the ruling. “The court should have gone further and blocked the collection of these tariffs during any appeal.”

Latest setback

The trade court rejected the administration’s stance that “balance-of-payments deficits” — a key criterion for imposing the Section 122 tariffs — was “a malleable phrase.” They concluded that Trump’s proclamation imposing the levies failed to identify that such deficits existed within the meaning of the 1974 law, instead using “trade and current account deficits to stand in the place.” Judges Mark A. Barnett and Claire R. Kelly formed the majority, and Timothy C. Stanceu dissented.

The decision is the latest setback for the president’s effort to levy tariffs without input from Congress. Earlier duties — overturned by the Supreme Court on February 20 — were issued under a different law, the International Emergency Economic Powers Act, or IEEPA. In that case, the justices ruled Trump had exceeded his authority, kicking off a legal scramble by importers for almost $170 billion in refunds.

The US Justice Department could challenge the trade court’s latest ruling by taking the case to the US Court of Appeals for the Federal Circuit, which ruled against the Trump administration during the last tariff fight.

The Trump administration is already working on its next tariff plan, but those levies are months away from being implemented. The US is investigating dozens of economies for forced labor practices and excess manufacturing capacity under Section 301 of the Trade Act, a process that is expected to eventually result in new duties.

In the meantime, the White House was counting on the Section 122 tariffs to bridge the gap until July, around when some of the trade probes would conclude.

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The timing puts Trump at a potential disadvantage heading into a summit next week with Chinese President Xi Jinping. Trump’s leverage could be further diminished with his ability to unilaterally impose tariffs further curtailed.

Section 122 allows presidents to impose duties of up to 15% for 150 days in situations where the US faces what the law defines as “fundamental international payments problems.” Even before Trump issued the tariffs, economists and policy experts debated whether the president would be able to build a solid legal framework using the statute.

In a proclamation declaring the use of Section 122, Trump said that tariffs were justified because the US runs a “large and serious” trade deficit. He also pointed to the negative net flows of income from investments Americans have overseas and other things that showed the US balance of payments relationship with the rest of the world was deteriorating.

Under the law, presidents have the ability to impose tariffs on goods imported into the US on a short-term basis to address concerns about how money is flowing in and out of the country. Those concerns include “large and serious United States balance-of-payments deficits” and an “imminent and significant depreciation of the dollar.”

Unlike other legal options Trump might pursue to impose tariffs, Section 122 can be invoked without waiting for a federal agency to conduct an investigation to determine whether the levies are justifiable.

Court challenge

The small businesses and states that challenged Trump’s use of the law in court argued that Section 122 became outdated when the US ditched the gold standard decades ago. They say Trump improperly conflated “balance-of-payments deficits” with US trade deficits in order to justify using the law.

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They also alleged that Trump’s order announcing the Section 122 tariffs was “riddled with omissions and mischaracterizations” around the meaning of a balance-of-payments deficit. The trade deficit cited by Trump is just one part of calculating the country’s balance of payments position, the states said.

The states argued that Trump’s new tariffs violate other requirements in Section 122, including that such duties not be discriminatory in their application. The states argued that Trump’s new tariffs improperly exempt some goods from Canada, Mexico, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.

According to the complaint, the Trump administration conceded during the prior litigation over his IEEPA tariffs that trade deficits “are conceptually distinct from balance of payments deficits.”

IEEPA refunds

The clash over Section 122 emerged just as the legal fight over refunds from Trump’s IEEPA tariffs began to heat up. A different judge in the Court of International Trade, US Judge Richard Eaton, is overseeing the massive refund effort and ordered Customs and Border Protection to give him regular updates on a largely automated process the government will use to issue most refunds.

The US customs agency launched a refund portal in late April and an initial round of payments began hitting importers’ bank accounts this week. Questions remain about the scope of the refund claims process and whether consumers will have any recourse against businesses they contend raised prices to cover the costs of the higher levies.

The cases are Oregon v. Trump, 26-cv-1472, and Burlap and Barrel Inc. v. Trump, 26-cv-1606, US Court of International Trade. (Manhattan).

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