President Trump has asserted his authority to bypass Congress and implement sweeping tariffs on foreign products, arguing that these import duties are essential for strengthening the U.S. economy. However, a recent ruling by a federal appeals court has created significant hurdles for his administration. The U.S. Court of Appeals for the Federal Circuit ruled on Friday that Mr. Trump overstepped his authority when he declared national emergencies to justify tariffs affecting nearly every country globally. This ruling largely supports a May decision by a federal trade court in New York.
In a 7-4 decision, the appeals court overturned a portion of the earlier ruling that would have eliminated the tariffs immediately, thereby allowing the Trump administration time to appeal to the U.S. Supreme Court. This ruling marks a major setback for Mr. Trump, who claims his trade policies will revitalize the U.S. economy by bringing back manufacturing jobs and generating billions in new revenue for the federal government.
According to Nigel Green, CEO of the financial advisory firm deVere Group, this ruling poses a serious legal challenge to one of the president's most prominent economic strategies. Following the decision, Trump expressed his dissatisfaction via a post on Truth Social, labeling the appeals court as "Highly Partisan" and reiterating that the tariffs remain in place. Notably, six of the seven judges who ruled against the tariffs were appointed by Democratic presidents, while the seventh was appointed by former President George H.W. Bush.
The ruling arose from a protracted legal challenge initiated by Democratic states and small businesses, arguing that the president exceeded his authority in imposing these import duties. The appeals court's decision specifically targets the tariffs implemented by Trump in April, which included reciprocal tariffs of up to 50% on countries with which the U.S. has a trade deficit, along with a 10% baseline tariff on almost all other countries.
Trump referred to April 2 as "Liberation Day" when he first imposed these tariffs. Subsequently, he suspended the reciprocal tariffs for 90 days to allow countries time to negotiate trade agreements with the U.S. to lower barriers to American exports. Some countries complied, including the U.K., Japan, and the EU, forming agreements with Trump to avoid even steeper tariffs. However, countries that did not comply faced increased tariffs, such as Laos, which was hit with a 40% tariff, and Algeria, which faced a 30% levy.
Mr. Trump justified these tariffs under the International Emergency Economic Powers Act (IEEPA) of 1977, declaring longstanding U.S. trade deficits a national emergency. Earlier in February, he invoked the law to impose tariffs on Canada, Mexico, and China, claiming that illegal immigration and drug trafficking constituted a national emergency that required these countries to take further action.
While the U.S. Constitution grants Congress the power to set taxes, including tariffs, lawmakers have gradually allowed presidents to assume more control over tariff decisions. Mr. Trump has capitalized on this trend, but the recent ruling does not apply to all of his tariffs. For example, the levies on foreign steel, aluminum, and autos were imposed under a different legal framework after investigations by the Commerce Department deemed those imports a threat to U.S. national security.
The appeals court's ruling does not encompass all of Trump’s tariffs. Notably, the tariffs imposed on China during his first term, which are still in effect under President Biden, were based on findings of unfair practices that favored Chinese technology firms over U.S. competitors. The government had argued that courts had previously approved emergency tariffs during economic turmoil, citing examples from the Nixon administration, which invoked the Trading With Enemy Act.
However, the U.S. Court of International Trade in May rejected Trump's argument, stating that the "Liberation Day" tariffs exceeded the authority granted to the president under emergency powers. The recent appeals court ruling indicated that it seems unlikely Congress intended to grant the president unlimited authority to impose tariffs.
Trump has vowed to escalate the fight to the Supreme Court. In a post on his social media platform, he stated that if the ruling is upheld, it would "literally destroy the United States of America." A dissenting opinion from the judges who disagreed with the ruling suggests a potential legal pathway for Trump, arguing that the 1977 law enabling emergency actions is not an unconstitutional delegation of legislative authority.
The government has warned that if Trump's tariffs are annulled, it may have to refund a portion of the import taxes collected, which could significantly impact the U.S. Treasury. By July, revenue from tariffs had reached $159 billion, more than double the amount collected during the same period the previous year. U.S. importers, including manufacturers and retailers that depend on foreign goods, typically absorb some of the tariff costs but often pass the majority of these additional expenses on to consumers through higher prices.
While Trump has alternative legal avenues for imposing import taxes, these options may restrict how quickly and severely he can act. For instance, the Trade Act of 1974 grants the president limited power to impose tariffs to address trade deficits but caps tariffs at 15% and limits their duration to 150 days for countries with which the U.S. has significant trade deficits.
The administration could also apply tariffs under Section 232 of the Trade Expansion Act of 1962, as it did with tariffs on foreign steel, aluminum, and automobiles. However, this approach necessitates a Commerce Department investigation and cannot be executed solely at the president's discretion. Even if the current tariffs are overruled, experts believe the Trump administration will explore new methods to tax imports or raise revenue from companies selling goods in the U.S., according to Green of deVere Group.
