Donald Trump is facing the biggest challenge yet to his trade policies after a US federal courtruled that his “liberation day” tariff plan is illegal.
In the latest twist in the US president’s erratic global trade war, the ruling could unpick border taxes announced early last month. However, the White House has filed a notice of appeal.
The USCourt of International Trade (CIT) ruledthat Trump’s use of a sweeping presidential power – the International Emergency Economic Powers Act (IEEPA) – to justify his 2 April tariffs, as well as separate levies imposed on imports from Mexico, Canada and China, was wrong.
Legal complaints about the tariffs had been lodged with the court by the nonpartisanLiberty Justice Centercampaign group on behalf of small US businesses, as well as a dozen US states; including Oregon, Arizona and New York.
IEEPA is a 1977 act allowing the president to regulate commerce during a national emergency, without the need to go through Congress, and builds on the Trading With the Enemy Act introduced during the first world war.
However, the three-judge court panel ruled that the economic concerns cited by the White House to justify the tariff plans do not meet the required test of being “unusual and extraordinary threats”.
The judges had been nominated to the court by three presidents: Ronald Reagan, Barack Obama and Trump himself.
Trump used IEEPA as the basis for his announcement on 2 April of 10% worldwide tariff and country-specific border taxes at higher levels – since paused for 90 days to allow for trade talks – as well as for fentanyl-related tariffs imposed on Canada, Mexico and China.
The White House must take measures within 10 days to remove the tariffs to comply with the ruling, which it is appealing against.
Other targeted tariffs announced by Trump, onsteel, aluminiumandcars, were imposed under a separate law – section 232 of the 1962 Trade Expansion Act – and therefore remain in place.
Washington’s appeal will presumably go all the way to the supreme court if necessary. Given that the highest legal authority in the US recently ruled in favour of the president in a case involving thedismissal of a senior labour official– analysts are questioning whether the CIT decision could also be overturned.
In the short-term, the judgment will add an extra layer of uncertainty to an already volatile trade situation. Investors have broadly cheered the ruling as a signal that Washington’s tariff policies could be curbed, limiting the hit to global trade and the US economy. Still, additional uncertainty will further dent investor and business confidence.
Washington has dialled up and down tariff threats as a tool in trade talks. A powerful court ruling against the president could undermine his push to strike maximum concessions, at a crunch moment in talks with China, Japan, the EU and India.
On Tuesday, Trump had signalled progress with the EU, having a week earlier threatened a50% tariff on imports from the 27-nation blocfrom 1 June, beforepostponing the plan two days later, to 9 July. Brussels could now, however, scent weakness in the White House approach.
A UK spokesperson said that despite the court ruling, the government would press on with negotiations to conclude the trade deal itsealed on 8 May– the first after Trump’s “reciprocal” tariffs were announced – as no legal text exists to bring into force the concessions Keir Starmer won.
At a headline level the ruling is a devastating blow to Trump’s economic agenda, by depriving the self-described “tariff man” of his most powerful, and most favoured, policy tool.
However, there are various legal routes for the president to pursue his cornerstone economic policy. These include section 122 of the Trade Act of 1974, section 232 of the Trade Expansion Act of 1962, and sections 301 and 338 of the Trade Act of 1930. Each grants the president powers to intervene on trade policy, albeit in an often slower and, in some instances, more limited way.
“It sounds like good news, but Trump has various other mechanisms to invoke tariffs or have leverage in trade negotiations. It’s just the speed of their rollout will be weeks/months rather than immediately as he did with the IEEPA,” said Jordan Rochester, an analyst at the Japanese bank Nomura.
Another major focus for investors will be the consequences for Washington’s rising levels of federal borrowing and debt amid mounting concern in financial markets.
Trump had been banking on additional revenues from tariffs to help offset some of his sweeping tax cuts announced last week in hisOne Big Beautiful Bill Act. The bill, passed last week by the lower house in Congress, could add $5tn (£3.7tn) to US debt levels.