A specialized federal court in New York delivered a new blow to President Donald Trump’s effort to impose widespread tariffs, ruling against the levies the president imposed after the Supreme Court decision in February that eliminated most of his emergency import taxes.
Thursday’s 2-1 ruling by a three-judge panel of the U.S. Court of International Trade held that the president’s order imposing a 10 percent global tariff under Section 122 of a 1974 trade law was unlawful. Trump cited the nation’s trade deficit as justification for his latest tariffs. But under the law the president cited, tariffs can be imposed only if the United States is suffering “large and serious” balance-of-payments deficits, which the court said was not the same thing.
The ruling weakens the president on his core economic initiative one week before he is scheduled to meet Chinese leader Xi Jinping in Beijing for talks that will focus on the two nations’ trade relationship. China has been a principal target of Trump’s trade policies, dating to his first term.
“Although this was a split decision, it is a decisive rejection of the president’s use of Section 122 tariffs,” said Timothy Brightbill, a trade attorney at Wiley Rein in Washington.
The court granted a summary judgment in favor of the plaintiffs, Burlap & Barrel, a New York-based online spice retailer, and Basic Fun, a toy company in Florida, as well as Washington state. Several claims by other states were dismissed because they had not paid any Section 122 tariffs.
The ruling marked the second major legal setback for the president’s effort to impose the broadest U.S. import restrictions since the 1930s. As in the previous case that went before the Supreme Court, Trump’s preference for taking unilateral action and asserting broad legal powers backfired.
“This raises basic questions about the administration’s strategy of taking old laws out of context and using them to try to nullify Congress’s constitutional authority over tariffs,” said Ed Gresser, vice president of the Progressive Policy Institute in D.C., who was a U.S. trade official during the first Trump administration.
While the ruling is a setback for Trump, its practical impact may prove limited.
The Section 122 tariffs were scheduled to expire in late July. The Trump administration has said it plans to replace them with import taxes using different legal authorities.
Moreover, while the court ruling frees the three plaintiffs from paying additional tariffs, it provides no explicit relief for companies that were not parties to the lawsuit.
Jeffrey Schwab, a lawyer from the Liberty Justice Center, the nonprofit organization that filed the lawsuit, said it is not clear whether the government will continue collecting Section 122 tariffs from other companies. If it does, other businesses are certain to file suit seeking similar relief, he said.
The White House did not immediately respond to a request for comment.
How the plaintiffs can secure refunds of the payments they have made also remained unclear. The government has just begun returning money paid under the earlier emergency tariffs that the Supreme Court invalidated.
Jay Foreman, the CEO of Basic Fun, said that he had paid more than $100,000 in the tariffs struck down Thursday. By imposing those levies across the board, the president had made trade policy “with a bazooka instead of a fine tooth comb,” he said.
The government is likely to appeal Thursday’s ruling, as it did last year’s lower-court decisions against the president’s use of the International Emergency Economic Powers Act (IEEPA) to impose comprehensive tariffs.
“For the Administration, today’s ruling will be disappointing but not devastating. The Section 122 tariffs have a 150-day time limitation, and thus, they were always meant as a stopgap,” said attorney Patrick Childress of Holland & Knight, who worked for the Office of the U.S. Trade Representative in the Trump and Biden administrations.
The president has the authority to impose tariffs using other provisions of U.S. trade law known as Sections 301 and 232. But to do so, the administration must first complete required investigations.
This week, the Office of the U.S. Trade Representative held public hearings on 16 nations’ chronic excess production capacity, which the administration says unfairly tilts global markets against U.S. companies. Along with a separate probe into the widespread use of forced labor by U.S. trading partners, the investigation is expected to lead to the imposition of new tariffs later this summer.
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